MARKETING MATERIAL
7249 Admap – Advertising Investment
ADMAP May 1997
FRAMEWORKS FOR ADVERTISING INVESTMENT
David Mercer
The various elements of the promotional mix can too often be seen as more or less interchangeable. We have, therefore, developed a diagrammatic framework (The Promotional Lozenge) which more clearly relates the individual elements. More important, perhaps, we have also developed those relating to advertising as an investment. It is these which most positively contribute to positive marketing practice; not least because they counter the widespread view that advertising is a cost, which can be cut-off as soon as there is a squeeze on profits!
THE PROMOTIONAL MIX FRAMEWORK
In terms of the delivery systems used to deliver the promotional mix, there is a range of alternative (and often complementary) vehicles available. As a very direct approach, there is face-to-face sales. There is the more indirect one, when it is too expensive to confront the customer personally, of advertising, or the even more indirect one of public relations. Finally, there is the very immediate one of sales (point of sale) promotion - which, if the reports are to be believed, now accounts for the largest part of the spend on promotion as a whole. To put these in a more memorable context than just the rather amorphous 'product mix' (even though that does convey exactly what is involved) we like to look at the 'promotion lozenge'. It is shaped like a diamond, but we prefer to call it a lozenge because it does not have any clear cutting edges. It is generally much less well defined than other frameworks, softer at its extremes; and there is definitely a quality of trial and error involved - suck the lozenge and see!
This lozenge is not as arbitrary as it may seem. It actually is organized along two dimensions. Hopefully, the vertical one is obvious. It is the move from direct (sales) to indirect (advertising) contact with the customer.
Perhaps less obvious, but in many respects more important, is the horizontal dimension. This shows the flow over time, from the start with the establishment of a general interest via public relations (PR) through investment in image building with advertising and much of the selling process, to the very immediate impact of sales promotional devices at the point of sale. It also demonstrates the gradation from the long term investment in PR and advertising/sales to the very short term effect of promotion.
The demands posed by your product/service package determine the actual shape of the lozenge; another reason for choosing a soft, malleable lozenge. If you need the face-to-face (sales) contact to explain a complex package, and the price of this is sufficiently high to cover the high costs this implies, then the lozenge becomes almost an inverted triangle:
The advertising element is almost missing, though even in the almost pure sales environment there will remain some element of indirect contact - often in the form of direct mail, to generate prospects for the face to face contact. The 'point of sale' here is a time (not a place), and the promotional element is usually only seen in the form of discounting the price. Despite my earlier comments though, sales professionals would argue that this does need to have a very sharp cutting edge.
Almost the exact reverse occurs for fast moving consumer goods where the low unit price means that face-to-face selling is simply not an economic proposition:
Here 'sales' drops' out of the picture, but not totally - for someone has to persuade distribution chains to carry the product/service package to the 'point of sale' (which here is a place not a time). On the other hand, most of the effort must by necessity be invested in the indirect communications. Once again, though, the promotion (here used at the point of sale) is very short term - again usually in the form of some price reduction (either directly or indirectly).
You can play many different games with the lozenge, but I will finish with one which distorts it to show - quite realistically - advertising (for, say, a consumer durable or a car) preceding face-to-face sales activity in the retail outlet.
ADVERTISING INVESTMENT
Traditionally, advertising and promotion has been treated as current cost; with an immediate, but short-term, effect. Although this view probably is justified in terms of most forms of sales promotion it seriously distorts some important aspects of advertising and PR. A more useful view in this context is that advertising investment should in effect be treated as a fixed asset.
Adopting such a long-term perspective has a number of important implications. The first of these revolve around the patterns of performance which might expected. Thus, the basic pattern is not that of the economist’s short run supply and demand curves but that of the longer term competitive saw. This describes ‘business as usual’, with (regular) bursts of advertising (stimuli) rapidly leading to corresponding improvements in brand position. This position then slowly deteriorates as, for instance, competitors make their own investments in bursts of advertising.
It should not be confused with ‘saw-tooth marketing’, where expenditures are cut back sharply in one year to be restored the next. Indeed, at the basic level it is a level saw; its overall trend relatively flat but with the teeth representing the impact of the individual campaigns (or even that of individual insertion, or even of words within the single advertisement - it shares with fractals the ability to continue to display new detail at ever greater degrees of 'magnification').
Following the implied principle of the fixed asset, this saw-tooth maintenance pattern can be overlaid on a gradually declining trend in performance; notionally equivalent to depreciation in financial accounting. Thus, over time there may be a slow drift away from the ideal position - as the customers' needs and wants change and/or competitive positioning improves. Your own response to this may take two forms. The first, and perhaps the most effective, is that of dynamic repositioning - change in relative positions should be regularly tracked and the brand's position readjusted to take account of this in much the same way that an autopilot's feedback mechanisms ensure that an airliner follows the correct flight-path. The emphasis here is on the dynamic approach to (short-term) change.
If such dynamic repositioning is not possible, perhaps because the necessary product changes come in discrete steps, then periodic readjustments may be needed. This is where the concept of advertising depreciation allows the build-up of reserves to cover the significant costs of major repositioning exercises.
Although there is an increasing recognition of ‘brand equity’, the long-term asset investment aspect of brand performance has too often been ignored by marketing theory. Advertising, for instance, is typically seen as a cost, reducing current profits; rather than an investment in future profits.
The above pattern of responses assume, however, a complementary repositioning process - which builds upon existing strengths. This process cannot, though, be held to be true of two situations. The first of these is well recognized. It is the new product launch, where the logistic curve may be most effectively used to represent the relatively slow build-up of brand position which results from even quite high levels of investment; for the key aspect is the level of investment needed. It is seen in two main dimensions. One is the amount of (financial) investment needed. To buy you way into a market is a very expensive process indeed. The main practical feature, though, is the level of risk. Most managements believe, quite incorrectly, that risk is reduced if the levels of investment are minimised; the reverse is true. Yet, according to Ralph Biggadike’s article (in the May-June 1979 issue of the Harvard Business Review), once you accept the basic level of risk the more money you invest in a major change, the lower you reduce the risk; though it takes a very brave management to adopt this approach! Indeed, if you want to make a major impact on a market (one that will, for instance, put you into the most profitable Rule of 1:2:3 slots) you must recognize that the level of investment needed will be correspondingly high; in practice probably beyond the reach of all but the largest Japanese corporations where major markets are concerned (and hence the earlier emphasis on segmentation).
The second dimension is time. Any new penetration of a market takes far longer than is expected. Rather than the one to two years that optimists expect and the three to four years that pessimists allow for. Again according to Ralph Biggadike, the reality of (major) new launches - as opposed to lesser extensions and repositioning, but even for successful introductions - is a mean of eight years to break-even .
The one pattern which is rarely discussed, but is often encountered in practice, is that of combative repositioning - which aims for such a radically new position that it does not use existing strengths, but has to overcome them before it can even start to take effect.
Perhaps the most usual reason for this is that a change in advertising, say, incorporates a radically different message; but this often occurs without management even realizing the repositioning this implies.
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As can be seen, the starting point of the combative repositioning is actually below the baseline; since the new investment has first to overcome the existing positioning before it can develop its own strengths; though such campaigns are rarely maintained for the time (measured in years) necessary to develop these final positions. It should be obvious that this is likely to be a remarkably poor investment (even if it can retain some carry-over of the infra-structural investment - distribution, for example). It would often be more profitable to start a completely new brand; at least that would not have to overcome the historical position before building its own. Why then does combative repositioning happen so frequently?
The first answer is in the way of an excuse. Sometimes the 'depreciation' simply cannot cope with all the changes needed, and a major repositioning exercise (incorporating essential elements of combative repositioning, since the new position is radically different) is needed - and the requirement for the brand within the organization’s portfolio is so strong that it justifies the extra investment.
But this is usually just an excuse. Combative repositioning typically happens for two reasons. The first is perhaps forgivable. It is simply that, while they do recognize the change in position implied, the perpetrators do not appreciate the level of investment which already exists in the brand's position. This is a common misunderstanding, for it is the exceptional manager who recognizes the importance of that investment. The second is less forgivable, and can most often be laid at the door of creatively ambitious advertising agencies or arrogantly insensitive brand managers. This is they do not even understand what the current position is that, let alone its strategic importance. In their anxiety to create an exciting new campaign they happily ignore what has gone before. I would like to report that combative repositioning is the exception rather than the rule, but it is not. Only the really powerful brands seem to be safe in their managers' hands - but maybe that is precisely why they remain powerful brands. Combine widespread ignorance about the levels of investment needed, and the timescales involved, with the ignorance of the dangers of combative repositioning and it is easy to see why so few brand leaders are ever serious challenged.
Conclusions
Our new rules, covering the range of marketing practice, are explained in more detail in the paper-back ‘New Marketing Practice’[1] recently published by Penguin.
The two described here offer an overall framework (The Promotional Lozenge) for the promotional mix - which helps put the various elements into a more positive context - and those relating to advertising as an investment. It is the latter which most positively contributes to positive marketing practice; not least because it counters the widespread view that advertising is a cost, which can be cut-off as soon as there is a squeeze on profits!
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