Long before Evan Davis was the host of Dragon’s Den, he was an academic economist.

Among his slightly dry work on corporate governance, he wrote one paper that should interest all of us.

The paper, written alongside Oxford University’s John Kay, argues that the more extravagantly a brand spends on advertising, the greater its perceived quality.

His argument is that shoppers recognise that extravagant advertising only pays back in the long term.

Extravagance improves perception

So, the interpretation goes, only a brand that has genuine faith in its products would spend in this manner.

  • High-quality brands know that, if they can entice buyers to try them, customers will come back again and again, making the ads profitable.
  • Brand owners with a shoddy product know that shoppers might buy from them once, but they won’t return. For this group, extravagant spends are uneconomical.

In his words, extravagant advertising, therefore, acts as a screening mechanism that:

"convincingly signals the quality of a product by displaying the producer's sincere faith in his own output, reflected by the money spent promoting it."

From logic to experimental evidence

It’s an interesting argument; but one of the things I love about behavioural science is that no-one is taken on their word alone. Instead, everything must be proved experimentally.

And that’s just what Amna Kirmani of Duke University set out to do.

In 1989, she gave 214 participants a magazine article describing a new training shoe.

  • The piece discussed the shoe’s appearance, price, where it would be sold and how much the brand was spending on advertising.
  • The psychologist tweaked the article so that some readers were told the brand was going to spend $2m on ads, others that the sum would be $10m, $20m or $40m.
  • As a benchmark, the article also stated that similar brands (Nike, Reebox and New Balance) typically spent $10m on product launches.
  • Finally, the psychologists asked the participants to rate the quality of the shoe on a nine-point scale.

The quality ratings increased from a low of 5.39 among the $2m group until they peaked at 6.16 among the $20m group. That’s a significant swing of 14%.

It’s worth noting that the quality among the $40m group dropped back slightly from the peak. Kirmani argued that splurging in a way that was out of kilter with the competition could also be interpreted as a sign of desperation.

It’s important to re-iterate that the readers didn’t see these ads.

The improvement in ratings wasn’t driven by additional frequency or greater creative opportunities - merely by the knowledge that the spend happened.

Larger ads grow confidence

Of course, you might object that most brands don’t broadcast their budgets. Are people really attuned enough to gauge what brands are spending on ads?

In 1990, Kirmani tried to address this question. She recruited 181 people and showed them a magazine which included an ad for Alba, another brand of fictitious trainers. The twist this time was that some people were shown a quarter-page ad; others were shown ads of one, three or eight pages.

She then asked the readers how much they thought Alba had spent on ads compared to other trainer brands. The readers answered on a nine-point scale, from 1 (way below average) to 9 (way above average).

As Kirmani suspected, people recognised that larger ads were more costly (mean score for quarter page = 4.09, one page = 4.68; 3 pages = 6.29, eight pages = 7.28).

Splurge occasionally

So, how can we apply these findings?

Kirmani’s experiments suggest that the body language of a brand is important.

There is a role, even in the era of procurement, for bold brand statements.

Whether it’s double page spreads or cover wraps, the occasional extravagance displays a confidence that mere ad claims cannot emulate.