As usual we’ve been keeping a very close eye on all manner of developments over the past weeks (it is an aspect of our job after all) and our eyes were drawn to a very interesting bit of research that appeared a short while ago.
Simply put – and even then it’s a bit tricky – research carried out over the period 1985-2004 in the USA has shown that advertising-to-sales spend is inversely proportional to brand success.
We’ll give you a second to digest that rather interesting news.
And now we’ll try and explain it further; INSEAD business school’s Professor of Marketing Jean-Claude Larreche has investigated the advertising spends, financial and stock market performances of no less than 119 consumer goods and services companies (from industries as diverse as banking and pharmaceuticals) over a 20 year period.
Using this raw data he tracked spending in “absolute terms, relative to total sales, to profits and to share price”, he then ranked the results according to “the trend line of their total advertising spend relative to sales” (still with us?).
Finally he divided these results into three categories. The first being the top quartile whose ad-to-spend ratio increased over the period investigated. The second whose ad-to-spend fell and the third whose ad-to-spend had remained generally constant.
The results are startling; the companies who maintained a general constant have foundered, those that increased their ad-to-sales spend have managed to keep pace…but those that reduced their ad-to-sales spending have seen great success.
Yes, that was initially surprising for us too.
Surprising, at least, until we started thinking about it (and reading a bit more) and it all began to make sense.
Larreche relates his results to the internal workings of the companies studied and, in particular, the stresses their marketing departments are placed under. Paraphrasing, he says that those companies where focus is inordinately placed on forecasts and targets are the ones who find themselves in trouble. The reason being that an over-reliance on targets leads to a company looking inwards and only, really, trying to hit those marks (which go up every year) rather than watching the marketplace and doing their research and development properly.
As a result their ad spend will go up…but their sales will rise more slowly (or stagnate or even drop). This is because they have, essentially, sacrificed quality for quantity – and you don’t have to have a business degree to know that’s a bad idea!
Those companies that were more relaxed about targets and chose to focus more on the quality of their product and offers that appealed to consumers found a ready audience that generated huge responses (Larreche also notes that in absolute terms their marketing spend rose over the 20 years – but ad-to-sales ratios dropped due to sales increasing faster than budgets rose).
So what are we to make of all this?
We think this is one of those occasions where things should be taken at face value. The more you think Larreche’s findings through the more they make sense. And, as a result, we think you should all take notice. The traditional belief that throwing money at marketing because ubiquity is the key to success has been debunked (much to the relief of smaller firms we’d imagine!). Focusing on the product and how it can be improved for your consumers is what matters – the figures prove it.
And, of course, this is where experiential marketing comes in. As well as being cheaper than traditional advertising methods on the whole (though we’re the first to admit that spectacular can be expensive) it is also geared to prompt your audience to interact on a personal level with your brand…and is there any better way of demonstrating the quality, value and inherent merit of a brand than allowing your consumers to get to know it up close?
So – experiential marketing is geared to success. It’s a fact you know…