Most economists agree that it will take quite a while to stimulate
the economy, regardless of what the Bush administration does. This has led
management to cut back their promotional budgets.
On the surface it appears logical. After all, inflation and
fewer sales mean lower net income. In addition, the paring of this
"discretionary expense" is relatively simple and has very little
negative impact as far as management is concerned.
But before you wade into your promotional budget with a
massive red pencil, ask yourself a prudent question: How much should I cut from
the promotional (advertising, sales support and public relations) budget?
To answer this, also ask yourself
* What
does advertising do for us?
* Can
we accomplish this with a smaller investment?
* What
will happen in the future if we cut our promotional budget, keep it the same or
increase it?
* If
our competition is in the same position, is there a way to use the short-term
problem to our advantage?
Investing in Long-Term Objectives
Advertising is an investment in both immediate sales and
long-term objectives. It helps you retain your share of market/image among your
customers and prospects. It reinforces customers' commitment in doing business
with you.
Professional marketers and retailers look at advertising not
as an expense but as an integral part of their total marketing mix. This means
that, if it is at all possible, they maintain an aggressive advertising policy.
They know that promotion has a favorable effect on sales and income.
Today, there is a volume of data which indicates that during
recessions or other "difficult" times, the firms that trim their
advertising budgets suffer--and suffer hardest.
Additional research conducted to determine a method of
predicting sales from advertising found that companies that accelerate
advertising spending during market slumps perform better in both the short- and
long-term. For instance, researcher Vernon Van Diver studied more than 10,000
companies in approximately 800 business papers to find a relationship between
advertising behavior and subsequent sales. He found two interesting patterns.
* Companies
that advertise over their industry norm invariably, in succeeding years, have
rising sales curves.
* Companies
that advertise below their industry norm invariably, in succeeding years, have
declining sales curves.
Additional Research
Other researchers such as Charles Mill of BPA and Wes
Rosberg of Meldrum & Fensmith Advertising have drawn conclusions similar to
Van Diver's. Certain relationships between advertising and sales have been
proven time and time again.
* Sales
increases follow advertising increases but rarely in the same year.
* Sales
decline with increasing momentum after advertising is cut back.
* To
retain your share of sales, advertising must increase as much as the overall
average.
* To
increase your share of sales faster, advertising must be increased faster than
the industry norm over a period of four years or more.
* If
a marketer increases or decreases his traditional share of advertising among
his competitors, similar changes occur in his share of market.
* It
is now possible to predict--with a high degree of accuracy--what the volume of
sales will be at some future date.
* It
is possible to set an attainable sales objective very near maximum.
* It
is possible to determine the change in sales volume that follows each change in
the advertising budget, up or down.
* It
is possible to figure how much to allow for increases or decreases in
competitive advertising.
Using these principles, Van Diver conducted an additional
study of 100 businesses. He made predictions six months or more before earnings
and sales were disclosed. On the average, his predictions were within 1 percent
of the actual figures. Quite remarkable.
In a similar study, it was found that during a one-year
period, organizations that did not cut back ad spending enjoyed handsome
increases in both sales and net profits the next year. Sales were up an average
of 55 percent, and net profit was up 40 percent over the base year.
Advertisers who cut back ad expenditures experienced no real
growth during the period and their net profits could not keep pace with that of
consistent advertisers.
A Competitive Edge
Company management should exploit opportunities which lead
to an ever-greater competitive edge. If you want to be an industry player,
present yourself as one. Don't wait to place advertising until it seems like
all of the marketing variables are right.
By waiting, you provide the competition with the same
opportunities and, as a result, you all start out on an even footing.
A better alternative is to move forward on your publicity
while the competition is pulling in its horns.
In good times and bad, the more aggressive your advertising
is, the easier it is to meet and even exceed, your most energetic sales and
profit projections.
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