28: Advertising Budget, Brand Life Cycle, Synapses And Brand Soma
The advertising industry spends an impressive amount of money to create very subtle changes in the way people perceive brands. Within each firm, the marketing budget is important but poorly conceived: while manufacturing has "hard" numbers on which to base its projection of the resources it will need, advertising is largely about statistics and gut-feel - yet the manufacturing department (and the company as a whole) must depend on the marketing department for a critical figure: how many products can we expect to sell? Without that datum, all other calculations are pointless.
The budgeting process for advertising should begin by evaluating current activities.
- If they are successful, would we benefit by continuing to do more of the same? Could we do them more efficiently (get the same results for less cost)?
- If they are unsuccessful, should we discontinue them? Would investing more enable them to achieve success?
After that comes an evaluation of potential new activities: what else might we be doing that would have a positive effect on demand for our products?
(EN: This seems to be a bit hazy on budget between marketing and advertising, as the latter is a subset of the former. My sense is there's also considerable research expense in the marketing department, unrelated to activities that are currently being undertaken to increase sales, merely to monitor the market and competitors with an eye toward recognizing problems that would render our current activities less effective or opportunities that suggest additional activities should be considered.)
The author asserts that "the piece of the brand puzzle relating to the setting of a budget level is itself also changing these days" and it's worth revisiting traditional notions, with an eye toward how neuromarketing can be applied to these decisions.
Setting The Budget
The "textbook" method for setting marketing budget is a variation of the textbook method for setting any other budget: it is task-oriented: what actions could be taken and what is the cost of taking those actions?
To be practical, the textbook approach must be subject to available funds (we cannot afford to do everything that could be done) and an assessment of the productiveness of the activities (we cannot afford to do anything that costs more money than it makes). As such, possible courses of action are sorted, from the most to least productive, and we seek to do as many of the most productive things as we can afford.
At least, that's the way it should work - but doesn't. The reality of business is that most firms seek to spend the same amount of budget (or proportion of tot al budget for the enterprise) as they did in the previous year, increased to account for inflation.
The reality of business is also that budget is subject to politics and negotiation: the marketing department cannot be counted on to ask for a penny less than the previous year, nor can the finance department be counted on to grant a penny more, without considerable argument.
The underlying assumption is that we will continue to spend the same amount to perform the same activities, and these will continue to get the same results. Given the brand lifecycle, the changes in the market, the competitive landscape, and numerous other factors, this assumption is painfully ignorant.
Peter Field And AC Nielsen
Peter Field suggests the problem with budgeting is much worse than the author suggests above. "These are delusional times," Fields writes, specifically in regard to the notion of doing more with less. And in a way, we can "do" more with less, in that the least effective activities cost the least amount of money to do. As such, our efficiency is proudly proclaimed, and the volume of activity presented as evidence, and the lack of effectiveness conveniently ignored.
Within the industry, the advertising campaigns that win awards are often clever rather than effective. For example, the winners of the IPA Effectiveness Award for best online campaign "made little or no use of online" beyond having a basic web site. It's unlikely such campaigns achieved significant result, but because they were executed so cheaply, the ratio of revenue to expense is highly favorable.
Effectiveness and efficiency are not synonymous, and in fact are often at odds with one another. An efficient activity may achieve very little when you consider share of market rather than how much the activity costs, and the former should be the goal.
(EN: I'm sensing a bit of sleight-of-hand here. Perhaps it's a matter of scale: if you do a small, efficient activity on a larger scale, you should be able to achieve larger results - but this depends on the activity being scalable. For example, if you run an advert in a test market of 100K viewers, its results can be scaled up by showing the same ad to more people. However, if you build a Web site, your audience is "the web" - and building more Web sites or more pages on a site does not produce additional results in the same measure. As such, I have the sense the premise is sound in some instances but not in others, depending on the nature of the activity in question.)
Where share of market is concerned, the efficiency (cost/benefit) of a given activity is entirely moot. The primary evidence of effectiveness is increased share of voice, which has been shown to have a correlation to the ultimate intent, which is increased share of market.
The lesson for budgeting is clear: to seek effectiveness rather than efficiency, and to accept that achieving more results requires investing more budget in doing what is effective rather than efficient.
The Dynamic Difference Model
The author makes brief reference to this model, indicating a detailed discussion is beyond the scope of this book, but it's largely based on research done by James Peckham, who compared the advertising share of companies (their advertising budget as a percentage of their product) to their market share (the percentage of sales of their brand).
The implications are that the effectiveness of ad-spend can be measured against market share: if a company buys 10% of all advertising for a product, and their advertising is as effective as anyone else's, they should expect to win 10% of sales. If they are spending less and gaining more sales, their advertising efforts are more effective than their competition; if they are spending more and gaining less, it is less effective.
Of note, a static analysis, measuring a given firm's effectiveness in a given year, is less useful to setting budgets than a regression analysis that compares the differences, year to year, in ad spend and market share.
(EN: I don't entirely agree with that, as it would presume all advertising to be equally effective and all expenditures to contribute equally to the total. While the notion seems good, the regression would need to consider component factors rather than gross expenditures - ad spent per channel, for example, would indicate that different channels had different returns. Even at that, I don't see a way of considering the effectiveness of an individual ad: one television commercial is more effective than another, which will corrupt the analysis.)
If advertising budget is set as a percentage of revenue, as it most often is, then this assumes that an increase in spending will result in a corresponding increase in sales - but the dynamic difference model offers a counterpoint, as the amount spent by the total market, not the amount spent by a single firm, is the denominator in the equation.
Regression analysis will also show that there is not a 1:1 correspondence between ad-spend and market share. Much of the efficacy of advertising is related to the existing strength of a brand - and as such, some firms will find that every point of advertising share buys them more than one point in market share, others will find that it buys them less.
In this regard, John Philip Jones analyzed the AS/MS relationship for numerous brands in various markets and observed a general phenomenon: that brands that are already popular get greater market share per increase in advertising share. It's theorized this is largely due to economies of scale as well as momentum, none of which should be surprising, though it does provide mathematical evidence to what would seem to be a common-sense expectation.
Where a firm has several brands in several markets, the dynamic difference model provides a handy method of allocating the firm's advertising budget among its brands. It is effective in allocating the scares resources to where they will have the most positive impact of the firm's bottom line.
Brand Life Cycles
There is also need to consider the lifecycle of brands, a phenomenon by which a new brand experiences rapid growth, levels off, and eventually goes into decline. This can amplify or negate the effects of ad-spend.
More importantly, it can lead to some mistaken assumptions: if ad-spend is reduced while the brand is entering the growth phase, the net effect will be that it did not matter that the company reduced advertising. But as the brand enters maturity, it will not experience the same growth without increased ad-spend.
The question arises as to whether brand lifecycle is a self-fulfilling belief. Given that the notion of lifecycle is widely accepted, it is entirely possible that companies consider it in their ad-spend, aggressively promoting a new brand, decreasing advertising as the brand gains maturity, and decreasing ad-spend as the brand begins to decline.
However, this is not universal practice, and it can be commonly observed that companies fight against the lifecycle, using advertising dollars to pump life into a brand whose sales are no longer accelerating, a false hope that results in tragic misjudgment.
Meanwhile companies that subscribe to the notion of the brand lifecycle may be unable to accurately gauge the point at which a given brand has reached, and prematurely pull support of an established brand that has significant room for growth to invest resources in newer brands - and given that most new brands are unsuccessful, this is starving a reliable profit-maker to feed a risky new venture.
(EN: I'm dubious of brand lifecycles except as derivative of product life-cycles. I don't recall a good example, outside of the fashion industry, in which brands underwent a rise and fall while overall demand for a given product remained stable. But substitute one for another and the ideas here seem applicable: a firm that manufactures a dying product such as VHS recorders can invest a lot of cash into advertising them, and even win public acceptance that theirs is the best VHS recorders around, but the impact of the ad-spend on the firm's profit will be a disappointment, though it may arguably win a greater revenue share of a dying market.)
Does Advertising Content Matter?
There has been for some time a debate over advertising as publicity: the suggestion that it doesn't matter what you say, so long as people notice the name of your brand. Neuromarketing supports both sides of the argument, as much depends on the recognition of the brand.
For a new brand, VX-50, the brand name, logo, and other elements that might cause it to be noticed are in themselves meaningless - it's just a jumble of raw sense-data with no product association, and marketers must provide informational and emotional messages to create and identity for the brand, so that people know what it is, what it does, and how they should feel about it.
For an established brand, WD-40, the audience is likely to be well familiar with the brand, the product, its uses, and the somatic markers experience has established about it. Repeating the informational and emotional messages provides no new information to the audience - but the mere mention of the name, the appearance of the logo and package, etc., are inherently evocative regardless of what the script of the promotional message happens to be.