Advertising Effectiveness
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Transcript of Advertising Effectiveness
Alan Cox
The Danger of Cutting Marketing
1. Don’t waste a good recession
2. Investing in a recession works
3. Share of voice has a direct impact on market share
4. Cutting back now causes long-term damage
5. Only two things in a business make money – innovation & marketing; everything else is cost
“I was asked what I thought about the recession. I thought about it and decided not to take part”
Sam WaltonWal-Mart Founder
1
Don’t waste a good recession
The market has fallen by 42%
Time of great opportunity
Brand count is down
Cost of media is down
The worst is over
Source: National Bureau of Economic Research (USA)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 F
€65.2 €68.5
€71.2 €73.4 €76.1
€81.4 €86.9
€92.5 €91.6
€85.2 €84.6 €82.2 €80.7
Personal Expenditure on Consumer Goods and Services (€ billion)
Source: Central Statistics Office/ Central Bank Forecast
There is plenty of demand out there
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 F
€65.2 €68.5
€71.2 €73.4 €76.1
€81.4 €86.9
€92.5 €91.6
€85.2 €84.6 €82.2 €80.7
Personal Expenditure on Consumer Goods and Services (€ billion)
Source: Central Statistics Office/ Central Bank Forecast
There is plenty of demand out there
….and recessions are always followed by expansions and prosperity
Source: National Bureau of Economic Research (USA)
2
Investing in a recession works
“The rationale that a company can afford to cutback on advertising because
everybody 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 future
growth or decline of a company
25%70% of these companies
will maintain their growth 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
Only 25% of companies invest in a recession
75% cut back
Source: Duane Sprague, Bain & Co., Coopers & Lybrand, McGraw-Hill, The American Business Press, Strategic Planning Institute/Cahners Publishing, Fortune Magazine
75%Less than 30% of these will
ever regain the market share and profitability lost during
the recession
1980 1981 1882 1983 1984 19850
50
100
150
200
250
300
350
400
100 96 88 89106
119100
137159
195
283
375
Eliminated or Decreased Advertising in both '81 & '82
Maintained or Increased Advertising in both '81 & '82
Based on the performance of 600 industrial companies in USA for 6 years from 1980 to 1985Sales Indices 1980-1985 (1980 = baseline of 100). ‘81 and ‘82 were recession years
© 2009 Larry H. Miller Communications Corporation / McGraw Hill
The evidence from the U.S. is clearSales by aggressive advertisers were 256% higher
three years after the 81/82 recession
Source: IPA Business Effects Paper (UK) Data collected on 1000 businesses during periods of market downturn and subsequent market recovery
…and from the UK
Cut marketing Maintain marketing Increase marketing
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
-0.8%
0.8%
2.0%Market share change following the first two years of recovery
Companies who increase marketing tend to see a 2% gain in market share
3
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
Source: IPA Datamine (UK) – based on annual figures – not by campaign
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
Market share growth vs “excess” share of voice
4
Cutting back now causes long-term damage
“The short-term result of cutting expenditure looks attractive for a short
while……but hides the considerable damage being done to longer-term profitability“
Drawn from analysis of 880 case studies from the IPA Databank
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)
Let’s look at a model of a total budget cutThe loss in share slashes profits over time
Even with a more moderate 20% cut, the profit is hit hard
Year 2007 2008 2009 2010
Marketing Spend €7.9m €6.3m €6.3m €7.9m
Sales €317m €314m €306m €313m
Total Costs €278m €276m €273m €281m
Operating Profit €39m €38m €33m €32m
Source: IPA Datamine (UK)
“Businesses that maintain aggressive marketing programmes during a recession,
outperform companies that rely more on cost cutting measures”
Government has a role to play
“Advertising fueled 15% of growth for the G20 economies over the past decade, yet it only accounted for 2% of economic spend”
WFA Findings
Advertising speeds up the
spread of innovation
Advertising is a multiplier of
economic growth
Advertising is essential for competition
Source: World Federation of Advertisers (France)
WFA study proved the positive impact of advertising on global economy
Strong correlation between ad spend & household consumption
Source: WFA, World Bank, Ad Barometer, WARC Averages for the period 1991 - 2000
“The Government should introduce a scheme where advertisers receive a tax
credit 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
Our view
5
“There are only two things in a business that make money - innovation and
marketing. Everything else is cost.”
Peter Drucker