To Spend or Not to Spend

A New Advertising Approach to

Advertising and Promotions.
Agenda
An Overview

∗ A cluttered & costly environment with growing competition adding to the Advertisement & Promotion costs.

∗ Expenses of Advertising & Promotion adding up to more than 20% of sales with increased pressure from market forces to spend more.

∗ For effective Advertising & Promotion, spending on the right brands, right regions via right channel with a compelling message.

∗ Choosing the right channel for Advertising & Promotion is tremendously complex question for a marketer.

∗ Returns can be increased immediately & dramatically, by using the funds the new way… “The BCG Way”.
The BCG Way...
Zero Based Budgeting.

Freed up as much as 20% of

their A&P investment.

Focus spending where it will

make the impact most.
Current State of Spending
Spending as per Market

Many Companies fail to Optimize

A&P Investments across their brand
portfolio. Similar Level of Investment Across
Hig Markets.
h

∗Bar 1 and 2: Small Investment. Weak

Market Position. No Impact.

∗Bar 3: Highly Competitive Market.

Growth
Market

Limited Investment. Unexploited Market.

∗Bar 4: Highly Competitive but a Low

Growth Market. Insufficient Funds to break
Stalemate.

Low
Weak Contested
∗Bar 5 and 6: Strong Competitive
Strong Position. Excess Investment than Required.

Competitive
Position
Shortcomings of Traditional Process

a. Limited Consideration to A&P intensity and sensitivity in different

markets.

b. Fails to recognize the fundamental choices to be made among growth,

maintenance and harvest strategies for each brand, segment, or
country.

c. Market Share, Support Investments are not linked to the A&P Budgets.
New Budgeting Approach
Dynamics of Zero Based Budgeting

∗ Efficient allocation of resources, as it is based on needs and benefits.

∗ Drives managers to find cost effective ways to improve operations & Detects
inflated budgets.

∗ Useful for service departments where the output is difficult to identify.

∗ Increases communication and coordination within the organization.

∗ Identifies and eliminates wasteful & obsolete operations and also Identifies
opportunities for outsourcing.

∗ Forces cost centers to identify their mission and their relationship to overall
goals.
A&P Spending Intensity: Varies from 5% to 45% across different
categories.
Support Spending

consumer sales
as % of gross

Category
 Company Market Share: Advertising investment directly
related to scale
and competitive position.
Advertising as % of
Sales

Relative Market Share

Threshold Investment Level:

∗ Below a minimum level, it is useless to invest in advertisements & promotions.

Category Responsiveness to A&P:

∗ Investment required to increase the market share is 2 to 4 times that required

for maintenance level.

∗ More effective if a breakthrough innovation exists.

Future Value of the Category:

∗ The value of growth in market share can vary greatly among brands, segments,
regions, countries depending upon market growth and profitability.
The Optimal Approach
The Final Solution

∗ Three steps to identifying the optimal A&P investment

level are:

1. Measuring the effectiveness of past support spending.

2. Estimating the NPV of a growth, maintenance & harvest

strategy for each brand and segment, taking into account
expectations of future category growth & value.

3. Determining the spending levels required to reach market

share targets for each strategy & the level of competitive
intensity for each brand, segment & region or country.
Measuring The Effectiveness of Past Support
Spending

∗ Assess investments in light of first 4 A & P support

drivers:
a. Helps to identify underperformers.
b. May be wrong advert message or wrong media
mix
c. Lack of innovation or wrong pricing.
d. Diagnose & fix.
Estimating the NPV of a growth, maintenance &
harvest strategy for each brand and segment,
taking into account expectations of future
category growth & value.

∗ Enables management to choose among three strategies:

∗ Harvest,
∗ Growth and,
∗ Maintain.

∗ Other factors to be considered are:

∗ Brand Voltage and,

∗ Market Segment within an Umbrella Brand.
Determining the spending levels required to reach
market share targets for each strategy & the level
of competitive intensity for each brand, segment
& region or country.

∗ Substantiate the need to reallocate investments.

Case1: A company has strong competitive position in a market of limited or no

growth, it may be more inclined to adopt a maintenance strategy.

Case 2: In case of a contested – strong or competitive position in a high growing

market, the company might consider an investment strategy.

Case 3: If a brand has a weak position in a high growth market or a contested

position in a low growth market, the company would be advised either to invest
in order to gain market share or to harvest

Case 4: If brand occupies a weak position in a low growth market, harvest

strategy is best suitable.
 Recommended shift in A&P Investment as a
percentage of turnover for one manufacturer.

High

Growth
Market

Low
Weak Contested
Strong

Competitive Position
 Implementation

Our Impact. Fundamental Changes.

∗ More Aggressive Differentiation of Investments ∗ Establish fact based assessment of total

across brands and countries. support spending.

∗ Companies can radically improve effectiveness of

their spending by differentiating investment levels. ∗ From Incremental Budgeting to fact based
and greenfield discussions.

∗ Companies can reap significant additional value

from Advertising & Promotion investments. ∗ Involvement of General Manager &
Financial Manager.

∗ Resolving discrepancies between

Advertising & Promotions.
A BCG Analysis.