Part 5: How To Better Utilise The Advertising Budget You Have
In the previous report of this series, we briefly discussed the major concepts around the role of products & services in marketing effectiveness
In this report (Part five of six), we turn our attention to the top branch of our logic tree: Promotion. As we discussed earlier, the impact on Volume can be traced back to three key components: Promotion, Product, and Placement. Within this realm, we will delve into the realm of Promotion and uncover the strategies that can help businesses maximize their advertising budgets to achieve exceptional results. Even with limited resources, it is possible to make every penny count. So, let's explore how to unlock the potential of your advertising budget and get more from less.
The final leg of the marketing mix is of course Promotion/Advertising. Now, usually, when people say that they have a small marketing budget, they’re referring to their advertising budget. So how can sales revenue be increased, without investing more in advertising? The answer may lie in the effectiveness of the advertising.
There have been a couple of different studies in this field looking at what factors play a role in the effectiveness of an ad. Mark Ritson, for example, studied around 6000 Effie submissions back in 2019, whereas Nielsen looked at nearly 500 FMCG campaigns that ran in 2016 and the first quarter of 2017.[i] [ii] So what did they find?
Although the findings were different, they seem to agree that the effectiveness of advertising is driven by these common factors (to various extents):
The commercial success of an ad is largely determined by the Brand it’s for. Bigger brands ultimately have it easier when it comes to advertising. The Ehrenberg Bass Institute found that Bigger brands on average see a slower decline than smaller brands when they stop advertising.[iii]
Mark Ritson, in his presentation, draws attention to ESOV efficiency for different brand sizes. He points out that they found that bigger brands can sustain market share even at lower levels of ad spend. More on that later. Additionally, Paul Dyson published a report through Data2Decisions, where they found that brand size and share could provide an 18X multiplier on advertising profitability.[iv] This paints a very dark picture for smaller brands, who are not only at a disadvantage in terms of marketing budget but also on ad effectiveness. Unfortunately for the smaller firms, they can’t magically change our brand size during the next month or even year.
The second most significant contributor to effectiveness is the creative quality. The quality of the ad itself is a key determinant in how well it does (who would’ve thought?). This is an area that a small brand might be able to punch above its weight class. The same Paul Dyson study mentioned earlier found that the creative could provide a 12X multiplier on the ad profitability. At the same time, Nielsen attributed 47% of an ad’s success to the creative itself. When looking at the data it seems clear that excellent creative is not an area to skimp on when trying to get away with a small budget. You’re far better off investing in a solid piece of creative once a year, than if you were to produce loads of sub-par ads a couple of times a month.
Additionally, Mark Ritson believes that the effective use of distinctive brand assets is essential in helping consumers recognise your brand in the ad. Byron Sharp in How Brands Grow recounts a study where they found that only about 40% of ads were remembered the next day, and of that 40% only 40% of the ads could correctly be attributed to the brand it was for. The continuous use of a brand’s distinctive assets (its logo, colours, fonts, etc…), is essential for making sure that consumers can successfully link a firm’s ads to the brand.
A fourth variable impacting the success of advertising is of course the media spend behind it. Jon Philip Jones popularised the idea of Excess Share of Voice in the early 1990s. Since then many studies have found similar correlations between a firm’s Share of Voice and its Market Share (SOM). Share of voice (SOV) refers to a firm’s media spend relative to its competitors.[v] The law of ESOV (ESOV = SOV - SOM) simply explains that there exists an equilibrium between SOV and SOM. If a firm spends above that equilibrium (it has a higher SOV than SOM) the market will return it to equilibrium at a higher SOM. The same applies if a firm lowers its SOV, it will eventually lose SOM. Studies have found that with every 1 point increase in ESOV, firms see an average of 0.5% to 0.7% increase in SOM per annum. Mark Ritson shared the case of Lidl in the UK.[vi] They increase their ESOV to +16 points in 2013, and by 2019 had grown from 3% SOM to 9%; the equivalent of £2.4bn in annual incremental sales. Not only does ESOV have a strong correlation to market share growth and by effect sales revenue growth, but a 2018 study by Ebiquity and Gain Theory also found that a 10% increase in share of voice can decrease people’s price sensitivity by 5% to as much as 20%.[vii] Although this might not help a small brand make better use of a small marketing budget in the short run, this does make a strong case for advertising investment in the future.
Furthermore, channel selection and combination also have a positive effect on the effectiveness of advertising. Paul Dyson’s research found that using a multi-channel approach could provide a 2.5x multiplier on ad profitability. Mark Ritson came to a similar conclusion in his study, seeing a general increase in effectiveness as the number of channels used also increased. A common trap that a lot of smaller brands seem to fall into is exclusively relying on owned media channels (eg. the firm’s website and organic social media). These seem like ideal budget-friendly options, especially when comparing them with traditional channels like TV. These channels are best used as a means of engaging frequent buyers and helping potential buyers from moving from consideration to purchase. As such, it is relatively ineffective at reaching as many category buyers as possible; which is necessary for creating long term value. In order to do that, a firm will need to turn to paid media channels and use as many channels overall in order to boost effectiveness.
The final driver of advertising effectiveness to focus on is combining long and short term approaches. The Godfathers of Effectiveness, Binet and Field, highlighted the inherent differences between short term activities (Sales Activation) and long term activities (Brand Building) all the way back in 2013. The idea is that advertising works in two distinct ways. On the sales activation side, you find ads promoting a single product and using rational arguments to push for a sale (eg. discounts, sales, etc...). These ads work best when tightly targeted at in-market buyers. This is where our earlier conversation about owned media fits in. Although your website might not reach all the buyers in the category, it only needs to reach those interested in buying now.
On the other hand, you have brand-building ads aiming to increase the mental availability of the brand. These ads use emotional messages in order to be better remembered and target all potential buyers in the category. The trouble that a lot of firms run into is that a significant portion of their marketing budget is dedicated toward short term activities. There are probably various reasons behind this trend; the accessibility of channels, the ease of measuring commercial effects, etc…
The Ebiquity and Gain theory research mentioned before points out that only about 42% of advertising’s effect can be seen in the short term. This means that majority of the effect (58%) lies in the long tail and will only be seen in 12 months+. They also found that on average a +1% change in brand health (specifically brand consideration) can drive an uplift of 0.5-1.5% total annual sales. Tom Roach and Dr Grace Kite developed the model below to explain how the long term and short term activities impact one another.[viii]
“[The above chart shows the] perspective of a common real-world scenario, that of a digital-first brand whose initial strong growth from always-on performance activity has levelled off, after which point brand-building activity is successfully deployed in order to take growth to the next level...It shows growth initially being driven by always on activity in performance channels, and the impact of that activity reaching a plateau which often happens when saturation point is reached. Then it shows the impact of a successful decision to layer in ‘brand-building’ activity. Note that this brand activity both delivers its own short and longer-term sales impacts, as well as improving the sales generated by performance channels. It also shows the compound effects of all this marketing activity working together and becoming stronger over time as the brand-building activity is further optimised.”
By applying the drivers of effectiveness as mentioned here, you can ensure that the limited marketing budget that you do have is optimised. Using long and short-term approaches together with channel combination, with a properly branded and exceptional ad, you can potentially multiply the profitability 15-fold.
Based on the research, Managers should consider the following key factors in order to maximize marketing effectiveness and achieve more with limited budgets:
By applying these drivers of effectiveness, marketing managers can optimize their limited budgets. Combining long and short-term approaches, leveraging multiple channels, and prioritizing creative quality and brand recognition, it is possible to multiply profitability by up to 15 times. Embrace these strategies and make the most of your advertising budget, achieving exceptional results even with small resources at hand.
In the next report, we’ll be looking at some more creative ways firms might be able to tap into human nature to get more mileage from their marketing budget.
i. Check out Mark Ritson’s presentation on The 10 key factors driving advertising effectiveness
ii. Read about Nielsen’s study on When it Comes to Advertising Effectiveness, What is Key?
iii. Take a look at the Ehrenberg-Bass Institute’s research on What Happens When Brands Stop Advertising
iv. Download Paul Dyson’s Report on the Top 10 drivers of advertising profitability
v. Take a look at this article from Nielsen on Budgeting for the Upturn – Does Share of Voice Matter
vii. Read about Ebiquity and Gain Theory’s Case study: Profit Ability: the business case for advertising
viii. Read this article by Tom Roach and Dr Grace Kite on The Wrong and the Short of it
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This report was a collaborative effort and without the aid of our colleagues, it might've looked very different. The following individuals have made significant contributions to this series of reports: J.Moolman, I.Barnard, S.Brealey, and E.Gentle. We thank you all for being so generous with your time.