A frequently asked question, especially when the overall business budget is being developed, is: how much money do we allocate to advertising? In more times than desired, a whimsical or mechanical answer is given to this question ("put the same as last year"). To make advertising a strategic investment, before deciding on the amount, you need to answer six key questions.
Summary:
- Marketing communication (advertising, sales promotion, merchandising, direct marketing, etc.) is not a whim: it must always be a strategic weapon of the company. • To decide how much and how to invest in advertising, those responsible for the decision They must, first, answer as precisely as possible six key questions: how can we reach the members of our markets; what factors our consumers or users take into consideration when deciding to purchase; the product, is it known or not; what our competitors do; what strategy we follow, push or pull; And what is the investment and profitability strategy that we should follow? Allocating the marketing communication budget without first answering these questions, can result in a true leap into the void.
To give an answer to the question that appears as the title of this article, it is necessary, first of all, to define, with the greatest possible precision, the following aspects:
How can your company reach the entirety of your current and potential market in the most economical way possible?
How is the decision and purchase process for the company's products and services carried out in practice?
What is the level of knowledge of the product in the market?
What are your direct competitors doing?
What is the company's marketing strategy: push or pull?
What is the investment and profitability strategy of the organization?
The answers given to these questions can even lead to the conclusion that it is not necessary for the company to invest a single penny in advertising and promotion. And if you do, you are simply throwing your money away.
Let's look at the six previous questions separately.
1. What are the most efficient ways to communicate with the market?
The objective of advertising and sales promotion is to communicate the competitive advantages of the company's products or services, in order to influence the buying behavior of consumers or users. But, logic tells us that this objective must be achieved as efficiently as possible; that is to say: achieve the desired results with the least investment of resources.
In this sense, to the extent that the company targets broader and more dispersed markets, the greater need it will have to invest in advertising and sales promotion to communicate its messages to consumers and users who, perhaps, are distributed throughout the territory national.
On the contrary, there are other situations: companies, large or small, that target a necessarily limited number of current and potential customers who are easier to reach directly (for example, suppliers of specialized raw materials); small or micro companies whose markets are concentrated in the surroundings of their facilities; companies that are regulated by official regulations; and the like. In any case, there are always valid alternatives to large advertising budgets.
If you can reach your consumers and users directly, it is preferable to use that path (for example, the network of sellers) to transmit the commercial messages of your products or services. But, there is an effective alternative. One case: a very important bank in your country wanted to run an advertising campaign to stimulate the use of its international transactions. The first idea was to carry out a press campaign based on the criterion that all businessmen, managers and executives read the press. However, the market for these instruments was clearly delimited: exporters and importers. With the lists of the associations of these business categories almost 100 per cent of the possible users of the same were available. Consequently, a direct marketing campaign was more efficient.This was done with a much lower investment and the same or even a better result was achieved. Another bank, the BNP of France, the largest in that country, several years ago decided to suspend all its mass advertising (TV, press, radio) to focus exclusively on direct marketing… with excellent results!
In short, it all depends on whether the company has other possible ways (in addition to advertising and mass sales promotion) to reach its current and potential consumers or users in an efficient way, in terms of the cost-results ratio.
2. What is the decision and purchase process?
In this sense, it is necessary to take into consideration two aspects. The first of these is the weight that emotional and rational motivations have in the decision to buy one product or another within the same category. There are products and services whose purchase decision is highly emotional; extreme examples are: soft drinks, alcoholic beverages, cigarettes, ice cream, chocolates and other sweets and desserts, snacks, luxury cosmetics and perfumery, fashion-related products (clothing, watches, jewelry, accessories, etc.), exclusive tourist destinations, automobiles, and the like. At the opposite extreme, are the products and services whose purchase is decided in a more rational than emotional way (although no product escapes the influence of emotional motivations, as is the case, according to a study,of the purchase of trucks by transport companies!).
In this regard, the principle is that the greater the weight of emotional motivations, the greater the need to invest in brand advertising.
The second aspect refers to who decides the purchase. There are the so-called “shopping personalities”: the one who prescribes, the one who decides, the one who performs and the one who consumes or uses. For example, although the food is consumed by the whole family, it is the housewife who does the shopping who decides. There are many cases in which the four personalities come together in a single natural person; Thus, I prescribe the need to buy a pair of pants, decide when (according to my availability), make the purchase personally and, finally, wear them. In the case of children's medicines that are sold by prescription, the doctor prescribes, the father decides when to buy it, the mother goes to the pharmacy and the child is the one who consumes it.
The rule is that you must first establish which is the most important "personality" in the decision process to purchase the company's products or services, to determine, later, what is the best way to reach it, effectively and efficient with advertising and promotional messages (always in the cost-results ratio). The same reasoning as above applies: it all depends on which is the most efficient way to reach the prescribers, in this case.
For example, prescription drugs cannot advertise; consequently, laboratories invest millions of dollars to get their messages to doctors directly (visits to doctors). In many consumer products, advertising serves as the prescriber. In other cases, it is the grocer on the corner who makes the recommendation or prescription. Each company must determine which is its particular case.
3. What is the level of knowledge of the product?
A well-known product on the market, with many years of sale and wide acceptance, can afford to carry out maintenance advertising; in other words, invest wisely in order to keep the brand “alive” and avoid the advancement of competitors. On the contrary, a little-known, new or never-advertised product will need significant budgets to reach a leading position in the market. In this case, much of the decision will depend on how you answer the next question.
4. What are competitors doing?
If your company operates in a competitive market, you have to take into serious consideration what your competitors are doing, both in terms of the type of communication that you must establish with your consumers and users and the channels to use, as well as with regard to to the amount of your investments. There is what is known as share of voice ("voice participation", literally translated); that is, of all the investment made in your business sector in advertising, promotion, direct marketing, etc., what percentage corresponds to your company? The principle says that your “voice share” must be at least equal to your market share, for the existing balance to be maintained. Some observations in this regard that apply in highly competitive markets:
If you intend to attack the leader directly and eventually displace him, you will need to invest more than the leader is investing in order to upset the existing balance (unless your company has a far superior competitive advantage).
If you see that a competitor who has a lower market share than yours is investing more than you, it is because they intend to displace you from your position (your company will need defense measures, possibly increasing its investment).
If you hold a voice share below your competitors for many years, you must prepare for a progressive loss of market share.
Of course, there is always the possibility of completely transforming the market structure and using completely different resources from those of your competitors. It is a possible alternative, but a very dangerous one, which requires not only sufficient resources, but also a well-defined and implemented marketing strategy.
5. Push strategy or pull strategy?
These two types of strategy are applied in mass consumer markets. In the push strategy, the company concentrates all its marketing resources on the distribution channels (prices, promotions, discounts, merchandising, etc.) in order for intermediaries to “push” the product until it reaches it and convince consumers. On the contrary, in the pull strategy, the company concentrates its marketing resources on consumers and users (mainly, advertising, sales promotion, merchandising), in order for consumers and users to go to the retail establishments and pressure the latter to have the product or brand.
Both strategies are valid. It all depends on the structure of the market. For example, in highly competitive markets, dominated by two or three well-established and defended brands following a pull strategy, smaller competitors are left with no choice but to resort to a push strategy. They would do nothing trying to compete “head to head” with the strongest brands. The big downside to the push strategy is that it relies heavily on price cuts (direct or covert) and that it tends to generate very little brand loyalty. The position of the product in the market is always weak.
Usually, in highly competitive markets, companies use a mixed strategy (push + pull), but always emphasizing one of the two options.
The more emphasis your company places on pull strategy, the greater the need to invest in mass advertising and promotion. On the contrary, with an effective push strategy it is possible to reduce the advertising budget to zero.
6. What is the investment and profitability strategy?
When deciding to manage a product, service, or the entire company, your decision centers can follow one of the following options:
Investment strategy. Invest even more than the product generates in order to "buy" market share and achieve high levels of profitability in the future.
Stability strategy. The company invests in the product what is necessary to maintain its market share, thus generating a stable profitability stream over the years.
Exploitation strategy. The company sacrifices the future of the product and decides to obtain the maximum profit from it in the short term.
Again, all three strategies are valid: it all depends on the market, its structure and the aspirations of the company. For example, some multinational companies, when they launch a new product on the market, in the first year they invest in advertising and promotion an amount equal to the sales they estimate the product will generate. In another case, a company with serious cash flow problems may opt for a strategy of exploitation in all or some of its products in order to restore its financial balance.
The principle is that as the aspirations are closer to the investment strategy, the greater the investments in advertising and promotion (you cannot expect to "buy" market share and have it free). On the contrary, the closer you get to an exploitation strategy, the lower your advertising-promotional investments will be, even down to zero.
conclusion
As we can see, the decision regarding how much your company should invest in mass advertising and promotion cannot be taken whimsically or based solely on accounting or financial criteria (as is so often the case).
Marketing communication (advertising, sales promotion, merchandising, direct marketing, etc.) is a tool that companies use to sustain and consolidate their market shares. It is not a luxury nor is it something that can be done or not done according to the financial winds of the company. The investment must always be conceived from a strategic point of view. And it should not be decided on the matter without first having, at least, given certain answers to the six questions that we have seen. The investment in marketing communication must always have precise strategic objectives; otherwise, it becomes a leap into the void.
