Advertising Effectiveness
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Advertising Effectiveness

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Advertising Effectiveness - Alan Cox, Core Media Group

Advertising Effectiveness - Alan Cox, Core Media Group

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  • The likely impact of this decline on the profitability of the brand over the three year period was then modelled assuming a fairly typical cost structure for a packaged goods brand. Other assumptions made were that category growth ceased for two years and resumed 5% growth in the third year; that marketing communications expenditure for the brand was restored in the third year; and that fixed costs for the brand rose with RPI across the downturn. The resulting profitability pattern echoed the conclusions of other researchers: that a short-term improvement was rapidly overtaken by a severe decline that became acute in the third year when the marketing budget was restored (source IPA Datamine doc)

Advertising Effectiveness Advertising Effectiveness Presentation Transcript

  • Alan Cox
  • The Danger of Cutting Marketing
  •  Don’t waste a good recession 1. Investing in a recession works 2.3. Share of voice has a direct impact on market share4. Cutting back now causes long-term damage5. Only two things in a business make money – innovation & marketing; everything else is cost
  • “I was asked what Ithought about therecession. I thoughtabout it and decidednot to take part” Sam Walton Wal-Mart Founder
  • Don’t waste a good recession
  • The market has fallen by 42%
  • Time of great opportunity
  • Brand count Cost of media is down is down
  • The worst is overSource: National Bureau of Economic Research (USA)
  • There is plenty of demand out there Personal Expenditure on Consumer Goods and Services (€ billion) €92.5 €91.6 €86.9 €85.2 €84.6 €81.4 €82.2 €80.7 €76.1 €71.2 €73.4 €68.5€65.22000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 F Source: Central Statistics Office/ Central Bank Forecast
  • There is plenty of demand out there Personal Expenditure on Consumer Goods and Services (€ billion) €92.5 €91.6 €86.9 €85.2 €84.6 €81.4 €82.2 €80.7 €76.1 €71.2 €73.4 €68.5€65.22000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 F Source: Central Statistics Office/ Central Bank Forecast
  • ….and recessions are always followed by expansions and prosperity Source: National Bureau of Economic Research (USA)
  • Investing in a recession works
  • “The rationale that a company can afford to cutback on advertising becauseeverybody else is cutting back is fallacious; executives should cash in on the opportunity that rival companies are creating for them”
  • The evidence is overwhelming
  • The actions taken during a recession decide the futuregrowth or decline of a company
  • Only 25% of companies invest in a recession 70% of these companies will maintain their growth 25% for 5 years after the recession. The majority reach a new & sustained high Source: Duane Sprague, Bain & Co., Coopers & Lybrand, McGraw-Hill, The American Business Press, Strategic Planning Institute/Cahners Publishing, Fortune Magazine
  • 75% cut back Less than 30% of these will 75% ever regain the market share and profitability lost during the recessionSource: Duane Sprague, Bain & Co., Coopers & Lybrand, McGraw-Hill, The American Business Press, Strategic Planning Institute/Cahners Publishing, Fortune Magazine
  • The evidence from the U.S. is clear Sales by aggressive advertisers were 256% higher three years after the 81/82 recession400 375350 Eliminated or Decreased Advertising in both 81 & 82300 283 Maintained or Increased Advertising in both 81 & 82250 195200 159150 137 119 100 100 96 106100 88 89 50 0 1980 1981 1882 1983 1984 1985 Based on the performance of 600 industrial companies in USA for 6 years from 1980 to 1985 Sales Indices 1980-1985 (1980 = baseline of 100). ‘81 and ‘82 were recession years © 2009 Larry H. Miller Communications Corporation / McGraw Hill
  • …and from the UKCompanies who increase marketing tend to see a 2% gain in market share 2.5% Market share change following 2.0% 2.0% the first two years of recovery 1.5% 1.0% 0.8% 0.5% 0.0% Cut marketing Maintain marketing Increase marketing -0.5% -1.0% -0.8% Source: IPA Business Effects Paper (UK) Data collected on 1000 businesses during periods of market downturn and subsequent market recovery
  • Share of voice has a direct impact on market share
  • For every 10 points that SOV exceeds SOM you should gain 1 point of market share Market share growth vs “excess” share of voice The opposite is also true – a brand can expect to lose 1 point of market share for every 10 points it allows its SOV to fall below its SOM Source: IPA Datamine (UK) – based on annual figures – not by campaign
  • Cutting back now causes long-term damage
  • “The short-term result of cutting expenditure looks attractive for a shortwhile……but hides the considerable damage being done to longer-term profitability“ Drawn from analysis of 880 case studies from the IPA Databank
  • Let’s look at a model of a total budget cut The loss in share slashes profits over time Year 2007 2008 2009 2010 Marketing Spend €7.9m 0 0 €7.9m Market Share 7.1% 7.0% 6.3% 5.7% Sales €317m €314m €282m €269m Total Costs €278m €270m €251m €253m Operating Profit €39m €44m €31m €16m Source: IPA Datamine (UK)
  • Even with a more moderate 20% cut, the profit is hit hard Year 2007 2008 2009 2010Marketing Spend €7.9m €6.3m €6.3m €7.9m Sales €317m €314m €306m €313m Total Costs €278m €276m €273m €281mOperating Profit €39m €38m €33m €32m Source: IPA Datamine (UK)
  • “Businesses that maintain aggressive marketing programmes during arecession, outperform companies that rely more on cost cutting measures”
  • Government has a role to play
  • “Advertising fueled 15% of growth for theG20 economies over the past decade, yet itonly accounted for 2% of economic spend”
  • WFA study proved the positive impact of advertising on global economy Advertising speeds up the spread of innovation Advertising is a multiplier of WFA Findings economic growth Advertising is essential for competition Source: World Federation of Advertisers (France)
  • Strong correlation between ad spend & household consumption Source: WFA, World Bank, Ad Barometer, WARC Averages for the period 1991 - 2000
  • Our view “The Government should introduce a scheme where advertisers receive a taxcredit on incremental spend for one year” There is a precedent for this.A similar scheme was introduced in 2008 whereby companies received a tax credit of 25% on incremental R&D investment
  • “There are only two things in a business thatmake money - innovationand marketing. Everything else is cost.” Peter Drucker