Slicing Advertising Spending Myths with Occam’s Razor

November 22, 2010

Marketing is a complex blend of art and science, and if you talk with anyone in the profession today, they’ll tell you it’s only getting more so. Audience fragmentation, new media form factors, the rise of social media, etc. is making life more complex, not simpler for CMO’s.

Occam's Razor -- Slicing Ad Spending Myths

Enter Occam’s Razor.  Occam’s Razor is usually attributed to the 14th-century English logician Father William of Ockham. Simply stated, it says that:

“simpler theories are, other things being equal, generally better than more complex ones”

 

Simplifying Rules of Thumb

Thus, it’s natural to use simplifying “rules of thumb” to reduce complexity to manageable simplicity.

Two of my favorite rules of thumb, which both happen to be true, are:

  • Double Jeopardy – Big brands are big because they have more users and those users are more loyal to the brand. Small brands are small because they have fewer and less loyal users. Said differently, in CPG there’s no such thing as small, niche brands.
  • Heavy Users – Across categories and brands, about ½ of a brand’s heavy users are not heavy users in the subsequent year. This is partly because some heavy category users become light or non-users (diapering parents who kid graduates from diapers), but also because some brand heavy users become are not heavy users in the subsequent year. This means that Marketers can’t simply assume that heavy users will stay heavy and need to work to keep them so.

Principals like these are powerful because they have both great explanatory power and also greatly simplify how to think about an important Marketing issue — a classic Occam’s Razor.

 

Marketing Principals: Heavy Users & Brand Loyalty

Advertising Spending Rules of Thumb

Here are two more well known principles:

  • Align advertising spend to a target % of revenue
  • Aim for a target share of voice

What’s different about these two rules versus the previous ones?

They’re not true. These are great “rules of thumb” for making key Advertising spending decisions, except for one small problem—there is no factual basis that they are right.

In a recent study, the Boston Consulting Group and Marketing Analytics, a leader in market response marketing, looked at Market Mix Modeling results across 75 CPG brands.

They then looked at these common guiding principles to understand whether they held true in practice. Here’s what they found:

Align Advertising Spending to a target % of revenue:

“We found no consistent correlation between marketing spending as a percentage of dollar sales and either marketing impact or ROMI.”

Aim for a Target Share of Voice:

“…we found that brands with a relatively higher share of voice, which we calculated as an estimated percentage of overall media spending in the category, did not consistently drive greater unit-sales volume—and often generated less gross margin for every dollar they spent on marketing.”

So, we’ve now successfully debunked two often used principles for deciding how much to invest and where. What now?

Advertising Spend & Marketing ROI: What and Now?

 

Three Considerations for How Much to Spend

First, understand the advertising elasticity of your brand.

Advertising elasticity is simply the change in volume divided by the change in associated advertising spend. It’s essentially a return on advertising spend metric.

Malcolm Wright, in the June 2009 Journal of Advertising Research, argues that advertising spend should be set based on Advertising elasticity as a % of gross profit, which for the average CPG brand, is about .11.

Second, understand how programming impacts your advertising.

Many studies have demonstrated that programming context impacts real world ad effectiveness.

Olympic themed ads score better in the Olympics than the same ads outside the Olympics. Ads for weight loss ads score better in “The Biggest Loser” than the same ads in other programs.

 

Ad Effectiveness Factor: Programming Context

Which programs and genres drive the best results for your brand?

Last, understand how creative quality affects ad performance.

All ads are not the same. Two different ads with different breakthrough levels (e.g. low and high) will require differing levels of media support to achieve the same ad recall (e.g. the high performing ad requires less media weight than the low performing ad to achieve the same outcome).

Breaking Rules with Occam’s Razor

Rules are made to be broken, except when they’re science based and not rooted in myth. In the case of ad spending, the smartest marketers are breaking the old % of ad spend and share of voice rules daily and, instead, focusing on advertising elasticity, programming and creative quality to optimize spend levels.

Shouldn’t you?

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Guest Post: Five Myths Marketers Believe About Presentations

November 15, 2010

This post is part of a continuing series of guest posts. Diane DiResta is CEO of DiResta Communications, Inc., a New York City consultancy serving business leaders who want to communicate with greater impact.

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Having coached a number of marketers on their presentations, it’s come to my attention that when delivering presentations even the most creative marketing professionals may be sabotaging their success. The reason many marketing ideas are rejected by management is not because of the quality of the idea. It’s more often because of the way the idea is presented.

Five Myths Marketers Believe About Presentations

 

Here are five presentation myths that marketers need to dispel:

1. It’s about the numbers. I’ve seen marketing clients who believe that if the numbers back up their idea, it will sell. Nothing could be further from the truth. Marketers fall in love with the numbers and make this the focal point of the presentation. Then they’re shocked when senior management isn’t excited about their new product launch.

Reality: It’s passion that sells. I had one client who was shot down after presenting a new product. The reason was not because it wasn’t a good product. It was because it wasn’t a compelling presentation. The feedback her manager gave me was that she presented the facts but there was no enthusiasm. Tell the story behind the numbers. Senior management needs to be sold in the same way the consumer needs to be sold.

Marketers, Take Note: Passion Sells

 

2. Defend your position. One client got into hot water because of a need to defend his idea. When you’re wedded to your way of thinking you can alienate your boss and your supporters.

Reality:  Defending a position may actually backfire on you. Some marketers believe if it isn’t invented here, it doesn’t count. Being flexible and open to other ideas will up the ante on your presentation. Listening and questioning are the keys to success in selling your idea. If you don’t know the answer admit it and offer to get back to the questioner.  “Fake it til you make it” does not apply here. You’ll gain more credibility if you’re honest.

3. Tell them everything you know. Some marketers do a data dump, believing the listeners should be information rich.

Reality:   Good speaking like good marketing gets to the point. When pitching a product or concept if you give too many details, the listeners tune out.  Tell them what they need to know – not everything you know. When it comes to delivery, less is more.

Effective Public Speaking for Marketers

 

4. Keep Talking. Some marketers believe that by dominating the conversation they’ll push through their ideas. The squeaky wheel may get the grease but it won’t necessarily get you the business.

Reality: Know when to shut up. A running faucet will eventually flood a room. Don’t drown in your own verbiage. Come up for air. Master the pause.

5. The Company Knows Best. Departments  have their own culture. Expectations may range from using  a standard version of a PowerPoint template to having a tradition of all presenters being seated.

Reality: Tradition doesn’t have to reign. Breaking the rules can be used to your advantage. A text-only deck is not as impactful as slides that contain a few visuals. Just because presenters traditionally speak while seated in a boardroom, doesn’t mean you shouldn’t stand. Effective presenters know how to stand out and blend in. You can respect company culture and also infuse your personal brand.

To give a good presentation remember the three  Cs – clear, concise, and compelling.

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Diane DiResta is CEO of DiResta Communications, Inc., a New York City consultancy serving business leaders who want to communicate with greater impact — whether face-to-face, in front of a crowd or from an electronic platform.  DiResta is the author of Knockout Presentations: How to Deliver Your Message with Power, Punch, and Pizzazz, an Amazon.com category best-seller and widely-used text in college business communication courses. http://www.diresta.com

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Should Your Advertising Target Heavy Buyers ?

November 11, 2010

Heavy users are every Marketers dream segment. Large sales, highly profitable (usually), and inclined to stay with your brand forever. Large sales: yes;  highly profitable: usually;  inclined to stay with your brand forever:  not necessarily.

Should Your Brand Advertise to Heavy Buyers ?

 

Do Heavy Buyers Really Stay Heavy ?

Jenni Romaniuk and Samuel Wight, both of the Ehrenberg-Bass Institute of Marketing Science, recently conducted an analysis of heavy buyer buying behavior using 2006 Kantar Worldpanel data.

Buying behavior was defined using multiple schema—using both relative consumption (e.g. top 20% of consuming HH’s) and also purchase frequency (number of purchase occasions per year).

They examined 15 categories and 139  CPG brands across the 2006-2007 time period. Their analysis shows that, on average, about 50% of heavy buyers become non heavy buyers of the same brand in the next year.

Let me put that differently: heavy buyers aren’t heavy buyers forever. They can become light or non-buyers if you’re not paying attention to them.

Heavy Category Buyers and Category Effects

Of course, some heavy buyers become non heavy buyers because they leave the category (e.g. parents of a diaper age baby). But even after looking at category heavy buying, Romaniuk and Wight’s analysis still shows that 65% of category heavy buyers remain heavy buyers in the subsequent year.

This is surprising to say the least. What should Marketers do about it? Romaniuk and Wight suggest focusing on light or non-buyers given the annual churn of heavy buyers and also the fact that growing brands growth is often due to the acquisition of non or light buyers.

I agree with this, but also think that CMO’s need to ask the question: “what do I need to do to keep my heavy buyers buying heavily?” And, how do I turn light buyers into heavy buyers?

3 Considerations for Advertising to Heavy Buyers

1.  Heavy buyers are not heavy buyers indefinitely.  As the Ehrenberg-Bass data shows, Marketers cannot just assume that heavy buyers will hang around and stay loyal. You have to constantly re-earn their loyalty.Marketers need to have a continuing dialogue with heavy buyers and find new ways to delight them.

2. Heavy buyers tend to be more profitable.  Although there is some debate on this point, especially in promotion intensive categories, most analyses I’ve ever seen show that heavy buyers not only buy more, they also tend to be disproportionately profitable.

3.  Competitors often target your heavy buyers.  Heavy buyers are attractive not just to your brand, but to competitors as well. Heavy buyers tend to be the gold that every brand likes to mine—so if you don’t mine it, some other brand will.

Targeting Based on Buying Behavior

Dissenting Opinions — Issues with Heavy Buyer Targets

All of the above seems obvious, but there are dissenting opinions on this. Kevin Clancy wrote a blog post in his “Shocking Truth of the Month” series titled: “Heavy buyers are the worst target for most marketing programs.”

His argument is twofold. First, heavy buyers tend to be more deal and promotion conscious and are, therefore, inherently more price sensitive and less profitable. Second, competitive heavy buyers are already “psychologically locked” to a competitive brand and hard to convert.

There are no doubt cases where the first is true–e.g. brands have heavy buyers who buy the brand heavily because it’s often on sale. Make sure your brand doesn’t fall into this trap. His second point contradicts the first. If consumers are locked-in to another brand, then they are inherently loyal and unlikely to be price sensitive.  Lastly, my point is not to advertise to competitive brand heavy users; it’s to consider targeting your own heavy users before they become light users.

50% — A Loss Too Much?

Let’s come back to the central point here:  that 50% of your heavy buyers are likely not going be your brands heavy buyers next year. And on average, this will contribute to a -15% loss in sales for your brand all things being equal.

Assuming you’ve done your homework and know they’re not just loyal, but also profitable, then the question remains: should your advertising target heavy buyers (before they’re not heavy anymore)?

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