Category: Business

Does advertising really work? How is that measured?

“Does advertising work? How is it defined?” asks Richard Seymour in Brechin, Ont.   “How can we tell if it works? Is there a way to measure if advertising is effective?” Susan Krashinsky, The Globe’s advertising and marketing reporter, says: “Yes, advertising works. No, advertising does not work. Both of these statements can be true.” She explains:

When you’ve been cringing at pricey airfares for your sister’s destination wedding and you see an ad for a seat sale that kicks your credit card into gear, advertising works. When a story connects with you on an emotional level, or aligns with values that you hold dear, advertising works. When a brand builds an image of trust and value, advertising works.

When you are just trying to read an article and an annoying ad pops up on the screen, or includes too much animation that interrupts the experience, advertising doesn’t work. When advertisers lie, and consumers find out about it, advertising doesn’t work – last year, 65 per cent of Canadians surveyed by the Gandalf Group on behalf of Advertising Standards Canada said they had stopped purchasing a product or service because the ads were unacceptable to them. When advertisers try to target their ads to people who are more likely to be receptive, but cross the line when it comes to privacy, consumers are creeped out and advertising doesn’t work.

It is possible to build a successful brand without advertising. When Milton Hershey launched a candy company in 1894, he was skeptical of the whizzbangery of advertising and focused the bulk of his investments on making good chocolate. He did, ahem, pretty well.

But while Hershey found success with little advertising, the company’s more recent stewards have reconsidered the approach: between 2006 and 2013, Hershey more than quintupled its marketing spending, and saw sales rise. Chief Growth and Marketing Officer Mike Wege told Advertising Age that “it became increasingly clear to us that great advertising well executed can have a greater growth impact in the category than perhaps the company has historically understood.”

So we know ads can work. Your other question – how can we measure advertising’s success – is the more important one.

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Do online programs that I use to do my taxes sell my information?

Reader Heather Osborne in Ottawa asks: “If I use tax software, is my data protected?  Or am I giving away my personal financial information?” Report on Business reporter Ian McGugan says, “No – at least not without your consent. You should check the details in the privacy agreement that accompanies whichever software package you use, but generally you must approve any use of your personal information.” He explains:

Intuit, maker of the popular TurboTax software, declares it “will not rent, sell, or otherwise distribute your personal information without your permission.” The main exceptions are if courts demand the information be handed over or if the information is “reasonably required” to fulfill your service or product requirements, but even then the third parties are bound to privacy requirements.

H&R Block, the maker of another popular tax software package, takes a similar line. “We do not disclose your personal information to third parties except as described in this Privacy Policy, with your consent, or as permitted or required by law.” A spokesperson says the company does not sell any personal information and the company’s privacy statement assures users that “H&R Block only retains personal information for as long as necessary or required for the purposes for which it was collected or as required by law.”

But here’s where things get tricky: Read your privacy statement and you’ll find that every tax software company will acknowledge making use of your personal information in various ways that does not involve actually selling it. You may or may not find these to be objectionable.

H&R Block, for instance, says it will use your personal information to alert you to products and tailor marketing material to your needs. You can choose not to receive these materials by calling them at a number provided or sending them an e-mail.

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Why are domestic flights so expensive in Canada?

Reader @WorthTheJetLag asks on Twitter: “Why are domestic flights so expensive?” The Globe’s Airline Industry reporter Greg Keenan has your answer:

Airline fares in Canada have generally been falling in recent years, but look high when compared with what Americans pay. Fares vary by route, but examples from two Canadian and two U.S. airline websites show the effect of competition and demand, two of the key reasons why Canadian fares are higher.

On one of the highest-demand routes in Canada, Toronto-Ottawa, Air Canada runs 16 flights a day. A return flight at Air Canada’s cheapest rate, booked for May 4, costs $220.

On New York to Washington flights, which are a roughly equivalent U.S. route, the return fare on American Airlines, also on May 4, is $183 (U.S.). American runs 19 non-stop flights a day to Washington out of the two main New York airports.

That’s not a huge difference from the Toronto-Ottawa Air Canada fare, given that there is much higher demand for the New York-Washington flight and American faces more competition on that route than Air Canada does on the Toronto-Ottawa run.

There’s a sharper contrast on longer-haul flights. A WestJet flight from Vancouver to Montreal booked for May 4 with a return date of May 8 would cost $614.90 (Canadian).

A Delta return flight between Los Angeles and Boston on the same days carries a fare of $326 (U.S.).

That underlines another factor that keeps Canadian fares higher – geography. Airlines in Canada are serving a small population spread out in a relatively thin line in a giant country. The U.S. market is roughly 10 times the size of Canada’s with high demand on many routes. Consumers benefit from fierce competition between four major domestic airlines and several low-cost carriers.

Taxes and fees are also higher in Canada.

There are at least two groups trying to start up low-cost airlines in Canada. If they are successful that should help bring down Canadian fares.

Follow Keenan on Twitter, and watch Why airline passengers won’t benefit from lower fuel prices.

Rob Carrick answers (more) money questions

Earlier this week, The Globe’s personal finance columnist Rob Carrick took over @GlobeBusiness to answer your questions live. (See the recap here.)  Money questions for Rob have continued to flow in from Globe readers. Below, Rob answers more of your questions:

Q. “Any recommendations for some solid USD denominated Equity, Balanced or Sector ETFs that I can purchase with USD from my Investorline RRSP?”
– Derrill MacDonald, Newmarket, Ont.

Rob: What I recommend is taking a broad, diversified approach to any stock market, including those in the U.S. Sector guessing is a form of market-timing and very difficult to pull off well. Not too long ago, people thought energy was a great sector.

“I inherited a 6-figure sum from my father, and – mindful of the effort he put in to earning it – I am very risk-adverse to losing it. What are my best options for earning a good return with low risk?”
– Suzanne Robins, Ottawa

RC: Depends on your time frame. If less than five years, suggest a GIC ladder – equal investments in GICs maturing in one through five years. If longer, preferably 10+ years, you could try adding a little stock market exposure for more growth. Keep in mind that safe investing is low-return investing these days. Nothing wrong with that, as long as you buy in.

“I am 70 years old with a secure pension. My investments are 100% in dividend paying equities. 50%canadian and 50% u.s. Do you feel we are taking on too much risk. We have a small mortgage.”
– Howard Charles, Guelph, Ont. 

RC: The pension is like a bond, so having your own investments in stocks can work. Big factor is your ability to tolerate a market crash. Are you OK seeing your stocks plunge in value, even if they continue to churn out dividend income for you?

“Currently, I pay 5 per cent of my salary into the group RRSP that by boss matches.  I also contribute money voluntarily each month. Can I transfer funds out of this RRSP to my own personal RRSP? – Eva Junk, Toronto 

RC:  It’s best to ask the Human Resources people who run your group RRSP. You may not have access to the money unless you leave the company.

“I’m retiring next year. my wife is retired now. we both have about 750K RRSP and 65K TFSA. No Debt.  What is the best way to minimised tax on our withdrawal of about 55K a year for both of us?”
– Huat Weg, Mississauga, Ont. 

RC: Suggest you consult a fee-for-service financial planner to design a personalized plan. That’s a planner who charges a flat or hourly rate and doesn’t sell products.

“I am 22-years-old and have $23,000 saved and no debt. Should I buy stocks, make a down payment on an investment property or go back to school?
– Conor Amyot, Oshawa. Ont. 

RC: Outstanding, Conor. Back to school sounds interesting, if you can acquire additional education that will, first, help your earning power and, second, that you won’t end up in debt. Stocks are great if you plan to hold for 10+ years and want to build long term wealth.

Read the full recap of Carrick’s Twitter takeover here and read more tips from experts on how to save and make money from The Globe’s personal finance section here

Where is the best place in Canada to invest in real estate?  

Dave Dhingra in Milton, Ont. asks, “Where is the best place in Canada to invest in real estate?”  Real Estate editor D’Arcy McGovern says that’s a tough question to answer, mainly because it really depends, ” as do all investing decisions – on how comfortable you are with risk.” McGovern explains:

Personally, I don’t look at homes as investments – but as shelter influenced by lifestyle choice. A more sophisticated investor has other considerations. It’s a complicated calculus of risk and reward, so I called  Don Campbell, the senior analyst for the Real Estate Investment Network and quite possibly the best-known real estate investor in the country. He has a lot to say on the matter.  “The answer is a complex mix of economics, geographic location of the investor, management style of the investor,, as well as the stated goal of the investor,” he says.

“Is the priority cash-flow income replacement or capital gains? And what is the investor’s timeline for investing?” Campbell says that, if you are managing your investments on your own, it is important to make sure it is within a maximum two hour drive from home. “If you want a combination of cash flow and capital gains, the Tech triangle of Ontario will be a strong performer.  If you are okay with higher volatility, but with higher than average cash flow and a very good chance at very strong capital gains over the next 10 years, Edmonton will be the place.”

Follow McGovern on Twitter, read our Real Estate section and check out our new dedicated Alberta coverage.



Personal finance expert Rob Carrick answered your questions live

With the RRSP deadline fast approaching, are you in a healthy financial position? What’s the different between a Tax Free Savings Account and an RRSP? How much should you invest? Should you pay someone to do your taxes, or go it alone? What does a good retirement plan look like?

The Globe’s personal finance columnist Rob Carrick took to the Report on Business Twitter account to answer your questions live

Reading this on a smartphone? Click here

Have a question about personal finance, tax time or retirement? Tweet with #AskTheGlobe

Will I have enough money when I retire?

Rob Dawson, a reader in Waterloo, Ont., asks, “Will I have enough money when I retire? I’m in my 50s.”  Ian McGugan, The Globe’s Report on Business investment editor says the right ratio of what you earn now compared to what you’ll need in retirement is dependent on how much you make now, how much you spend now, and what your ambitions are for life after work.  “The good news,” McGugan says, “is that retirement is likely to be more affordable than you think.” He explains:

Most people find they need a retirement income that is 50 to 75 per cent (called the replacement ratio) of what they made while working.  Financial planners will tell you vanishing expenses like mortgages, daycare costs, tuition bills, and RRSP contributions eat up at least a quarter of your income during your working years. Therefore, planners typically recommend a replacement ratio of 75 per cent of your previous income will allow you to live in retirement much as you did while working.

But a 75 per cent replacement ratio is a guess, and one that tends to err on the high side. People who examine the facts on the ground often conclude that middle-income couples can live happily on 50 per cent to 60 per cent of what they were making during their earning years.

For instance, Russell Investments Canada analyzed Statistics Canada’s 2007 Survey of Household Spending and found that, for most retirees, a replacement ratio of 47 per cent of their working income was sufficient to cover the bare essentials, while 60 per cent of pre-retirement income was enough to cover both essentials and “lifestyle” expenses such as travel and dining out.

Focusing on the specifics of your own situation is important. Here are three questions to ask:

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Is Alberta’s housing market going to crash?

“Is Alberta’s housing market going to crash?” asks Manny Williams in Toronto. Calgary-based energy reporter Jeff Lewis says, “Nobody is full-out panicking just yet.” He says that’s because prices have so far not reacted much to the collapse in oil prices – “the average price of a single family home this month was $518,449, down 0.42 per cent compared to the same period a year ago, according to preliminary figures collected by the Calgary real estate board.” Lewis explains:

All signs point to a softening market, especially if oil-patch layoffs deepen. Cutbacks in the energy sector are already taming expectations, and experts say Alberta’s economy is poised to slow considerably compared to the manic growth of recent years.

Sales of single family homes plunged 38 per cent in January, while new listings shot up by about 39 per cent. That follows a weak December, during which sales fell roughly 8 per cent from the previous year and listings rose. It’s scarcely any better for condos. Sales are down 35 per cent so far this year, and listings are up a staggering 60.5 per cent compared to a year earlier.

Some Calgary realtors don’t expect a repeat of 2010, when housing demand plunged in the wake of the financial crisis. This week’s rate cuts at major banks could also buoy sales. But a sustained period of lower oil prices is sure to make would-be buyers a bit more cautious.

Earlier this month, Lewis reported:

Cracks are emerging in Calgary’s once red-hot market for commercial and residential real estate, adding to fears that rapidly sinking oil prices will trigger a broad slowdown beyond the energy sector.

After years of riding high, home sales in the southern Alberta city dropped 7.5 per cent in December from a year earlier, while new listings surged 42 per cent – the first sign of a potentially weaker market in 2015, according the Calgary real estate board. At the same time, lease rates at downtown office towers are falling and some of city’s marquee buildings are grappling with an unfamiliar problem: empty space.

Read his report here, and follow Jeff Lewis on Twitter

Why hasn’t the price of diesel dropped like gasoline?

Reader John Olson in Ottawa wrote to The Globe, wanting to know why the price of diesel – which powers his Volkswagen Jetta wagon – has not fallen to the same degree as gasoline prices, “which have sunk like a stone.” Olson notes:  “I would imagine that the higher price for the fuel must have a negative impact on the cost of goods, such as groceries.” Shawn McCarthy, The Globe’s energy reporter explains:

Firstly,  you’re right to note the difference – average gasoline prices across Canada have fallen 50 cents per litre since June peaks, while diesel prices have dropped just 26 cents, according to Kent Marketing Group’s weekly survey. While most drivers use gasoline, there has been a growing number of diesel-powered cars and trucks, which get better fuel efficiency than gasoline engines. And of course, most large trucks use diesel.

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Why does your Financial Facelift feature profile well-off Canadians?

Bradley Pascoe, in Ottawa asks: Why do so many people profiled in your Financial Facelift feature have incomes/net worth far in excess of the average Canadian? Low-income Canadians are more in need of advice than the well-off.” The Globe’s Investment Editor, Sonali Verma, says she completely agrees:

We would be delighted to have more applicants who represent the average Canadian and who could use free, confidential advice from a financial planner.

Almost anyone can apply for a Financial Facelift. The process works by interested applicants emailing the author, Dianne Maley. They need to be comfortable disclosing your financial details and having their photograph taken in a clever way (here are some great examples) so that your identity is obscured. We find a lot of potential candidates get cold feet at this point.

The applicant needs to have an income or an asset that can be converted to income, so that the planner has something to work with. They also need to be a resident of Canada.

Pretty much everyone who follows through gets a Facelift. But, as Maley points out: “Most applicants have pensions, management jobs or money. It’s not that we set applicants of more modest means aside. We jump on them!”

She adds: “For the most part, we reject people who are extremely wealthy and people who are writing in to show how well they are doing. Many readers don’t understand that it’s not a showcase for successful money management.”

We can only work with what we get. Speaking for myself, I love learning about different strategies that financial planners use for our applicants from different age groups and financial situations, each with a different set of challenges – and I would love to see that range be even wider. So, if you or someone you know would like free financial planning advice, please ask them to email us, in confidence.

Follow Sonali Verma on Twitter. You can also read some recent Financial Facelifts that represent some financial challenges the average Canadian deals with – debt, mortgages, retirement planning, and unwise spending:

· Couple needs to get back on track to a comfortable retirement

· Can Elise, 54, down-shift to part-time work by age 60?

· Risk-averse, 64, and ready for her own condo

· Single mother needs a firmer rein on her expenses

· Millennials with debt face rent-or-buy dilemma

· Couple’s retirement plan meets cold reality

· This couple must stop money from slipping through fingers

· Should this medical resident, 27, repay debt or build investments?

· Couple wants to retire, but their investments are down $350,000 since 2005