17 August 2009 · By Earl J. Wilkinson
It's not difficult to understand the irony of an industry that suggests its advertisers spend 5% of their revenues on marketing themselves in the pages of newspapers that, themselves, are marketed with often only one-third of the firepower.
In short, newspapers don't practice what they preach when it comes to marketing.
This is a shame because marketing works. And there's plenty of evidence to support it – especially during recessions.
One of the best resources for marketing knowledge is the Strategic Planning Institute in the United States, which maintains a database of more than 3,000 strategic experiences dating back more than 40 years. PIMS (Profit Impact of Market Strategy) measures the relationship between business actions and business results.
Simon McDonald, research manager of the Financial Times, drew from this database in a recent conference speech to draw a correlation between “share of voice” and “perception of quality” for products by consumers. In short, “the higher the share of voice, the better the quality perception of the product.”
For those needing a translation: Quality perception is the leading factor affecting profitability. The better share of voice, the higher perceived quality of the product or service. It's not so important that the amount of money spent, but rather what is spent versus the competition.
McDonald gave the example of BMW and its record of profitability, market share, and premium pricing over the past quarter century in the United Kingdom.
“Last year, BMW, Mercedes, Lexus and Land Rover were all spending roughly the same amount of advertising their cars, a little behind the Audi spend who had the largest share of voice at around 23% of the market,” McDonald said. “The downturn hits and all brands, with the notable exception of BMW, cut back on advertising by 10%. Now, without spending a single pound more, BMW is on par with Audi with respect to share of voice, and pulled ahead of three of their other big competitors.”
What if BMW had been more “courageous” and increased their marketing spend by 10%? They would have the largest share of voice in the luxury car market. If they had increased their spend 10% two consecutive years, they would have been “top of mind” position in the heads of car purchasers. And if they market themselves properly, they should shift market share during this recession.
Why does any of this matter?
Because recessions are opportunities for the courageous. It's a message newspapers are (or should be) pushing among its house accounts during today's downturn.
McDonald describes a “virtuous circle” involving share of voice and a company's success. High share of voice directly impacts perceived quality, which improves brand image, which can be used to grow market share, which should allow a company to premium price, have economies of scale, and increase profitability.
Yet the Financial Times researcher goes further. He points to a McGraw Hill study of companies in the U.S. recessions of 1974-75 and 1981-82 that “showed that those companies which aggressively increased their marketing budgets during the downturn reported back a significant increase in sales two and four years after the downturn finished.”
Said McDonald: “Four years after the 1981-82 recession, those who had increased their advertising budgets during the downturn reported sales growth of 2.5 times greater than those who did not maintain their advertising budgets.”
In fact, beware of the delayed effects of cutting marketing budgets. McDonald said that because marketing often doesn't pay for itself in the first year, cutting marketing may increase profits in the short-term. Yet citing studies by Biel, Hillier and the PIMS database, McDonald concludes that “in the longer term it can be demonstrated that those who increase or maintain adspend during recession will emerge more profitably and with larger market share.”
This sort of message needs to be fed to our advertising sales representatives. And this sort of budget needs to be fed to our own marketing departments. Let's practice what we preach.
Earl J. Wilkinson is executive director and CEO of INMA. He may be reached at email@example.com or via Twitter at @earljwilkinson. This post is part of The Earl Blog at INMA.org.
Earl J. Wilkinson is executive director and CEO of INMA. In his interactions with INMA members worldwide, Earl has one of the broadest views of newspapers of anyone serving our industry today. He is a trendspotter and a leading advocate for cultural change, transformation, and innovation. This blog represents his unique view of the emerging global news media industry.