(By Bob McCurdy) There was a terrific article in June 2016’s issue of the Journal of Advertising Research titled, “Assessing Ad-Spend Patterns to Predict Brand Health.” It would be worthwhile to not only be familiar with the author’s findings but to review them with clients.
The article focused on three industries, two of which the radio industry does a considerable amount of business with: airlines (seven companies), banking (10 companies), and department stores (seven companies). Each company’s performance was analyzed over a 13-year period (2000-2012).
The article’s conclusions support much of what we intuitively know, but the authors have provided empirical evidence that should accord our marketing recommendations even more credibility.
A couple of the author’s definitions first:
“Healthy companies”: Sustained sales growth and low sales growth volatility.
“Unhealthy companies”: Lowest sales growth and highest sales growth volatility.
“Smart advertising”: Relative advertising spending advantage regardless of circumstances.
“Poor advertising”: Low relative ad spending.
A few excerpts from the article follow. The “takeaways” are our observations:
Instead of making budgeting decisions arbitrarily based on gut feeling, affordability, or previous decisions, managers need to set their strategies based on comprehensive past advertising spending analysis and in relation to competitors.
Takeaway: Ad budgets need to be developed in a strategic, thoughtful fashion; plus businesses don’t compete in a vacuum and competitive ad activity needs to be a major focal point when finalizing ad spend. We can use Media Monitors data, where available, to assist our clients with this.
The impact of some marketing actions — such as advertising — can go beyond the current term and last for weeks, and in some cases last for years.
Takeaway: This is referred to as a “carryover” or “lagged” effect. Advertising’s impact doesn’t end when the flight ends and can influence sales for quite some time. It’s important that we make clients aware of this phenomenon when evaluating ad campaign results.
It was evident that spending on advertising could counteract the negative impact of competitive advertising.
Takeaway: This finding provides additional support for pursuing a share-of-voice advantage.
“Smart” advertisers consistently kept their relative advertising spending above that of competitors’ regardless of circumstances. The “smart” spenders followed a persistent and increasing relative (compared to competitors) advertising spending pattern, not only when their revenue was surging but also when sales were declining.
Takeaway: Cutting back on advertising when things get tough doesn’t pay, as those that consistently spend, do better in the end. Advertisers must be willing to adjust ad-spend based upon competitive activity. Again, we can use Media Monitors data, where available, to quantify the competitive landscape.
“Unhealthy” companies tended to spend less on advertising, although occasionally they would increase their advertising budget dramatically but would soon revert back to their low ad-spending ways. Many of these unhealthy companies were “early quitters” who irregularly spent aggressively, but soon gave up, in most cases before seeing the results of the strategy to fruition.
Takeaway: Low relative ad expenditures followed by occasional ad bursts isn’t an optimal ad spend strategy.
Contrary to “smart” companies, “poor”-performing companies’ advertising budgets were contingent upon sales; when sales declined, the ad budget declined. Such a strategy is problematic since it implies that advertising is a function of sales rather than sales being a function of advertising. This is dangerous, as advertising can build profitability, rather than profitability boosting advertising.
Takeaway: Ad spend as a percentage of sales is a formula that many of our clients use when determining ad budget, but according to the authors those who budget this way are looking through the wrong end of a telescope. The reason: Advertising is not a result of sales. Sales are a result of advertising.
The difference between advertising-spending patterns of healthy and unhealthy companies is consistent across industries. The results demonstrated with no exception that “unhealthy” companies followed budget allocation patterns they labeled as “poor” or “early quitting.” Not a single “unhealthy” company followed the “smart” advertising spending pattern.
Competitive ad spending matters. Budget with this in mind.
Advertising’s impact doesn’t end when the campaign flight ends.
A high share-of-voice can neutralize competitive advertising’s impact.
High-performing companies maintain ad spend and share-of-voice during good and bad times.
Recognize it takes time for advertising to kick in. Avoid “early quitting.”
Heavy ad bursts of activity followed by “ad retreat” doesn’t maximize profits.
Budgeting ad-spend as a percentage of sales leaves dollars on the table.
High-performing companies are continually focused on increasing their competitive share-of-voice.
“Unhealthy” companies tend to spend less on advertising and in a more haphazard manner.
There’re no short cuts to marketing success. Companies that ignore these findings will likely continue to under-perform. Discussing these findings with our clients can pay dividends for all and lead to a more successful client base.
We’d be glad to forward the entire article to anyone interested.
Bob McCurdy is Corporate Vice President of Sales for The Beasley Media Group and can be reached at email@example.com