What it means
The theory was put forward by Robert Lavidge and Gary Steiner in 1961. They argued that advertising rarely makes a sale in one jump.
Instead it moves people up a ladder, from not knowing a brand exists, through gradually stronger feelings, to the point where they act. The six steps fall into three groups.
Awareness and knowledge are thinking stages, where a person learns that a product exists and what it does. Liking and preference are feeling stages, and conviction and purchase are action stages, where intent turns into a sale.
The practical value lies in matching the message to the stage. A new brand needs advertising that builds awareness, a known brand with a poor image needs messages that change attitudes, and a brand with strong preference needs a simple prompt to buy, such as an offer or an easy checkout.
Spending on the wrong stage wastes money, and a clear view of the stages helps decide how much of a budget each one deserves. Finance teams care because the theory turns marketing spend into a funnel that can be measured.
At each step, a percentage of people move on and the rest drop out, so the overall conversion is the product of the stage rates. Seeing which step is weakest shows where an extra dollar is most likely to raise sales.
The theory is a simplification. Buyers do not always follow the steps in order, impulse purchases can skip several, and some people buy first and form opinions afterwards.
Digital channels also let people move between stages in minutes, so many modern models use loops and journeys in place of a straight ladder. Measurement is the other practical challenge.
Awareness can be tracked with surveys, preference with brand tracking studies, and purchase with sales data, but each stage uses a different source. Finance teams should agree definitions in advance so that the funnel numbers can be compared from one quarter to the next.
In practice
Real-world examples.
Example
A new energy drink brand runs short videos to build awareness in a city where nobody knows it. Sales are low at first, but its tracking survey shows that recognition rises from 5% to 30% in two months, which is the first step in the funnel.
Example
A bank finds that many people know its mortgage product but few prefer it. It shifts its budget from broad advertising to comparison content and testimonials that address why customers should choose it over rivals.
Example
An online furniture retailer sees that many visitors add items to a basket but leave without paying. It treats this as a drop-off between conviction and purchase and tests free delivery and a simpler checkout. After four weeks, the share of baskets that become orders rises from 30% to 36%.
Formula
Calculation
Customers won = audience reached x (rate at each stage multiplied together)
Cost per customer = marketing spend / customers won
Suppose a campaign costing $50,000 reaches 1,000,000 people. Half become aware, 20% of those aware gain knowledge and interest, 25% of those prefer the brand, and 10% of those buy.
Aware: 1,000,000 x 0.50 = 500,000.
Interested: 500,000 x 0.20 = 100,000.
Preferring the brand: 100,000 x 0.25 = 25,000.
Buyers: 25,000 x 0.10 = 2,500.
Cost per customer = 50,000 / 2,500 = $20.
If each customer spends $80, revenue is 2,500 x 80 = $200,000. Raising the final step from 10% to 12% would add 500 customers, since 25,000 x 0.12 = 3,000.Case study
Seen in the real world.
Marigold Skincare is a fictional company with a monthly marketing budget of $120,000. Its finance director built a funnel showing that 60% of target customers knew the brand but only 8% preferred it, which suggested that awareness advertising was no longer the constraint.
In this illustrative case, the company moved $40,000 a month from broad advertising to sampling and customer reviews. Preference rose to 14% within a quarter, and sales grew 18% while total marketing spend stayed the same. The experience convinced the board to review each stage separately instead of judging all advertising by sales alone, and the finance director added a quarterly funnel report to the management accounts.
Watch out
Common mistakes.
- Assuming all customers pass through every step in order, when many skip steps or move backwards.
- Judging an awareness campaign by immediate sales, when its job is to move people to the next stage.
- Spending on the stage that is already strong, rather than the one with the biggest drop-off.
Questions
People also ask.
Who proposed the hierarchy of effects?
Robert Lavidge and Gary Steiner introduced it in 1961 in a paper on measuring advertising effectiveness.
What are the six stages?
They are awareness, knowledge, liking, preference, conviction and purchase.
How is it different from the sales funnel?
The sales funnel is a business view of leads moving towards a sale, while the hierarchy of effects describes the mental and emotional steps of the buyer.
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