BCG - New Advertising Approach

8/7/2019 BCG - New Advertising Approach

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To Spend or Not to SpendTo Spend or Not to SpendA New Advertising Approach toAdvertising and Promotions.


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AgendaAgenda


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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.

An OverviewAn Overview


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The BCG Way...The BCG Way...Zero Based Budgeting.

Freed up as much as 20% of

their A&P investment.

Focus spending where it willmake the impact most.


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Current State of SpendingCurrent State of SpendingSpending as per MarketSpending as per Market

Similar Level of Investment Across

Markets.

Bar 1 and 2: Small Investment. WeakMarket Position. No Impact.

Bar 3: Highly Competitive Market.Limited Investment. Unexploited Market.

Bar 4: Highly Competitive but a LowGrowth Market. Insufficient Funds to breakStalemate.

Bar 5 and 6: Strong CompetitivePosition. Excess Investment than Required.

Many Companies fail to OptimizeA&P Investments across their brand

portfolio.

M

arket

G

rowth

CompetitivePosition

High

Low

Weak ContestedStrong


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

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.

Shortcomings of Traditional ProcessShortcomings of Traditional Process


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New Budgeting ApproachNew Budgeting ApproachDynamics of Zero Based BudgetingDynamics 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 & Detectsinflated 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 Identifiesopportunities for outsourcing.

Forces cost centers to identify their mission and their relationship to overallgoals.


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A&P Spending Intensity: Varies from 5% to 45% across differentcategories.

Category

SupportSpending

as%ofgross

consumersales


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Company Market Share: Advertising investment directlyrelated to scale

and competitive position.

Relative Market Share

Adverti sing

as%of

Sales


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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 requiredfor 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.


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Three steps to identifying the optimal A&P investmentlevel are:

1. Measuring the effectiveness of past support spending.

2. Estimating the NPV of a growth, maintenance & harveststrategy for each brand and segment, taking into accountexpectations of future category growth & value.

3. Determining the spending levels required to reach marketshare targets for each strategy & the level of competitiveintensity for each brand, segment & region or country.

The Optimal ApproachThe Optimal ApproachThe Final SolutionThe Final Solution


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Assess investments in light of first 4 A & P supportdrivers:

a. Helps to identify underperformers.

b. May be wrong advert message or wrong mediamix

c. Lack of innovation or wrong pricing.

d. Diagnose & fix.

Measuring The Effectiveness of Past SupportMeasuring The Effectiveness of Past Support

SpendingSpending


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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.

Estimating the NPV of a growth, maintenance &harvest strategy for each brand and segment,taking into account expectations of future

category growth & value.


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Substantiate the need to reallocate investments.

Case1: A company has strong competitive position in a market of limited or nogrowth, it may be more inclined to adopt a maintenance strategy.

Case 2: In case of a contested strong or competitive position in a high growingmarket, the company might consider an investment strategy.

Case 3: If a brand has a weak position in a high growth market or a contestedposition in a low growth market, the company would be advised either to investin order to gain market share or to harvest

Case 4: If brand occupies a weak position in a low growth market, harveststrategy is best suitable.

Determining the spending levels required to reachmarket share targets for each strategy & the levelof competitive intensity for each brand, segment

& region or country.


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Recommended shift in A&P Investment as apercentage of turnover for one manufacturer.

Market

Growth

Competitive Position

High

LowWeak Contested

Strong


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ImplementationImplementation

Our Impact.

More Aggressive Differentiation of Investmentsacross brands and countries.

Companies can radically improve effectiveness oftheir spending by differentiating investment levels.

Companies can reap significant additional valuefrom Advertising & Promotion investments.

Fundamental Changes.

Establish fact based assessment of totalsupport spending.

From Incremental Budgeting to fact basedand greenfield discussions.

Involvement of General Manager &Financial Manager.

Resolving discrepancies betweenAdvertising & Promotions.


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A BCG Analysis.A BCG Analysis.


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Documents

BCG - New Advertising Approach