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(Don’t Outspend, Outsmart and Outreach)
Both ANA and 4As studies confirm that the best way an agency can add value for a client is through strategic thinking. Lack of that power is also the number one reason why clients switch agencies. So what is the best strategy in these troubled times?
Before The Profit Dip
We know that as marketing budgets increase, audiences to those initiatives eventually reach a point of diminishing returns. It follows that sales also level off. So there is a point beyond which if marketing budgets increase and sales flatten, profits will decrease. Every brand should test or model to find this inflection point and modify their marketing strategies to remain on the upside of the profit curve.
Old Strategies – New Realities
Old school strategies use mass media to increase audience penetration in hopes of generating more sales. But specific brands aren’t and never will be bought by everyone, far from it, so this strategy can easily lead to overspending. The old 80:20 adage held that 80% of a brand is bought by 20% of the public. But a new Study released in 2008 by Catalina Marketing revealed that a much smaller number than 20% account for the vast majority of sales for the average package goods brand. They studied 1364 CPG brands in 23,000 stores and 54 million homes and found that only 2.5% (1 in 40 people) account for 80% of the average brand’s sales. These are the loyal customers who return time and again to buy the products they favor. They are called “Core Consumers.” Using existing proprietary or syndicated research and a little arithmetic it is easy to identify the size and character of the core group for any brand. But will saturating the core with more mass advertising and traditional appeals really persuade them to buy more product? Will blanketing consumers outside the core convince them to buy at all? Probably not. That is an archaic and unprofitable strategy.
A New School Strategy – Socializing Viruses
Among major brands in the US, currently one-third is spent in direct marketing and two-thirds in advertising. Within advertising, traditional media consumes 93% of spending, while the Internet represents 7% and viral/social/mobile media less than 1%. Therein lies opportunity and leverage.
Business Week published an Intellseek Study a few years ago that concluded consumers were 50% more likely to be influenced by Word of Mouth (WOM) than by ads seen on TV or radio. Furthermore, we can demonstrate that the average prime time commercial has a $1000 CPM against the average brand’s core consumer. Viral media couldn’t possible cost that much and it is more believable and persuasive. This “new school” strategy is to use more viral media (Internet/social/mobile/WOM) with proper incentives, to enlist the core consumer to attract and persuade consumers from outside the core to join them. This is far less expensive, more selective and more personal than traditional strategies. Malcolm Gladwell wrote extensively about this in “The Tipping Point.”
In the early eighties, Walter Reichel, then Media Director of the old Ted Bates agency called for advertisers to place 5% of their budget in a new medium – Cable Television. Today cable consumes more than a third of the money spent in television. The time has come to consider doubling and broadening spending in viral media from the present 7.5% to 15%. It is time for agencies to organize themselves to research, plan and present integrated campaigns across media platforms in a way that will build brands and preserve profits in more unique and less expensive ways. So don’t try to outspend competitors. Stay below the profit inflection point. Outsmart your competition with a smarter outreach.