Marketers commonly assume that investment in branding and advertising will increase sales, profits and brand loyalty, but a recent Nielsen study suggests that marketing dollars spent do not necessarily mean revenue realized.
The study, conducted in Asia Pacific, the Middle East and Africa, shows that products supported by above the line – that is, mass media – advertising cost an average of 16 percent more and command an average of 31 percent higher share of category spending. Still, some above-the-line investments can actually hurt profitability and brand value, and internet-based marketing and that which generates buzz among consumers can often be more valuable than traditional marketing models.
In the quest for market share, companies often offer discounts as a short-term strategy. Price discounting is tempting as it typically yields a positive revenue return that is higher compared to other marketing activities. However, it is not a panacea. A study of 26 failing FMCG items revealed that 19 out of 20 items that used price discounting as a strategy to hold their market positions once their loyal buyer base had been eroded, exited the market within 16-20 weeks. Only 1 item managed to save its position with a relaunch. The remaining 6 items exited the market within 4 -8 weeks.
Advertisers looking to spend on advertising and promotions should consider how they can consistently generate a positive, balanced return on investment (ROI). Using tangible metrics will help focus the investments and ensure maximum efficiency. Metrics to consider include:
- Brand Loyalty: Brands that advertise see stronger loyalty in the form of more category spending (+31%) by buyers and encourage buyers to reduce their brand repertoire (-23%).
- Price Elasticity: Advertised brands get 32 percent more responsiveness to short term discount initiatives, that is, the lower price points will encourage more buyers to buy. These brands also encounter almost a third less resistance, or see a reduced impact on the sales from loyal buyers, when they raise prices
- Price Premium: 21 percent of advertised brands in our study did not command a price premium over their nearest non-advertised competitor. This could possibly be a result of excessive promotions, ineffective advertising messages, inadequate product features, etc.
- Advocacy: As digital media becomes prevalent, online “buzz” or advocacy becomes more important. Advertisers need to evaluate if their advertising is creating “buzz”, which can be a precursor to sales performance, particularly for new product introductions.
- Marketing ROI: To evaluate ROI more accurately, advertisers need to understand the precise return for every dollar invested in marketing activities. The study found that internet media generated a return of $1.29, almost twice that of TV.
As brands evolve, companies will need to adjust their portfolio investment strategy across the entire promotional and marketing mix to ensure revenue and profitability returns (ROI) are maximized. Nielsen generated the below framework as a starting point to help companies assess and plan these investments to match their share and profitability expectations.
For more details, download Nielsen’s report, Marketing Effectiveness: Getting the Right Return From Brand Investments.