Why Brands Spend $160,000 a Second

Blog Team - This post is by Tim Calkins and Derek Rucker. They have written for Huff Post jointly before. Please adjust the byline. Thanks.

Many brands are announcing plans for the Super Bowl. Already the line-up is taking shape: Audi, Mercedes, Snickers, Febreeze, Go Daddy and Intel will all be advertising this year.

For many brands, this is will be the most expensive advertising of the year. Think about it. Ad space on this year's Super Bowl is apparently selling for about $5 million for a thirty-second spot. This equates to more than $160,000 per second. Some brands will run sixty or even ninety second ads. The total media spend builds quickly.

The media cost is only one facet of the expense. On top of the time, advertisers have to invest in creating a new, high-impact piece of creative. This could easily cost a brand an additional $1 or $2 million. Most advertisers will also fund a PR effort and a social media campaign. In today's interconnected world it is hard to invest so much in a single television spot without a social media effort to extend the reach and build engagement.

In total, brands could spend $10 million or even $20 million on the Super Bowl, by the time the various spending elements are all accounted for. This is a notable amount of money, even for the largest advertisers. For a small brand like Mr. Clean, the decision to advertiser on the Super Bowl is a "bet the year" type of move. As a reference point, Mr. Clean spent just over $20 million on advertising last year, according to iSpot. The Super Bowl is an extraordinary investment.

Why do advertisers continue to spend so much? Several reasons make the Super Bowl an extremely attractive venue for the right brand.

Most important, the Super Bowl is a unique opportunity to reach a vast U.S. audience. Viewership over the past several years has exceeded 100 million people. That is about one of every three people in the country. The importance of such a massive reach vehicle cannot be overstated. Today, few options exists for reaching a large audience. The Academy Awards, traditionally the second most watched broadcast, attracted just over 30 million people in 2016. Most network television shows attract less than 10 million people.

Arguably more important than the reach, people tend to focus on the advertisements when watching the Super Bowl. Many people tuning in don't care about the football; studies show that a significant portion of the audience is mainly interested in watching the advertisements. According to one HuffPost/YouGov poll, more young people say the ads are the best part of the broadcast than the football itself. In a world where people are distracted by devices, this sort of focus is an extremely valued commodity.

The Super Bowl is also perfectly timed. The game is held at the start of the fiscal year for most companies. This means that brands have an available budget, and a full year to recoup the investment. Once the year gets underway, the budget situation changes. Most brand managers are quick to cut budgets if revenue falls short of plan, since delivering profit is usually the most important factor. Getting off to a quick start is important and the Super Bowl is timed to help this happen.

The Super Bowl is also an important signaling platform. Any brand advertising on the Super Bowl is investing; everyone knows that Super Bowl ads are expensive. This means that partners, employees and competitors are aware of the dynamics. A company might tell retailers that its brands are important and it is investing for the long-term. A Super Bowl buy proves the point and can motivate a sales force and open up distribution channels.

Of course, the Super Bowl isn't perfect for every brand. It doesn't make sense for a brand that focuses on a small niche or is uncomfortable taking risks; people scrutinize Super Bowl ads relentlessly. The event also has to make strategic sense; brands should advertise on the game when they have news, want to reposition or need a quick revenue boost.

We know brands value the Super Bowl and believe the investment is justified because they step up each year. Many brands that decide not to run a Super Bowl ad return to the event the following year. This year, for example, Lexus, Mercedes and Go Daddy will be back on the game. All these brands advertised in 2015 but skipped 2016.

This year Super Bowl ads appear to be selling a bit more slowly than usual, perhaps due to the record high price and economic uncertainly. Still, the ad space is almost certain to sell out and pricing will set a new record. The Super Bowl remains the most powerful advertising platform available in the United States and justifies an enormous spend for the right brand.

Professor Tim Calkins is a clinical professor of marketing at Kellogg School of Management at Northwestern University. He teaches several marketing classes, including marketing strategy and bio-medical marketing. Professor Derek D. Rucker is the Sandy and Morton Goldman Professor of Entrepreneurial Studies in Marketing at Kellogg School of Management, where he teaches advertising strategy. They co-lead the Kellogg School Super Bowl Ad Review, which is now in its 13th year.