‘Should we drop advertising from our budget and put it all on promo?’

Q: It’s budgeting time for us for next year, 2012. For some time now, we’ve been debating about advertising because our CFO [Chief Financial Officer] told us that she once read in your column that budgeting wise and since 20 years or so ago, the ad-to-promo ratio has been reversed.  Whereas it was 70:30 in favor of advertising some 20 years ago, it’s now 30:70 in favor of promo. She said your column once cited Unilever’s campaigns for both its new and relaunched products as following this 30:70 A&P formula.

In our case, during the height of the recession in 2009, we actually did not advertise at all. We poured into promo half of the ad budget. And sales went up although only minimally but it increased nevertheless.  Last year and this year, we restored the budget item for advertising but only half as much as before. Again, we placed and added the other half on promo. And sales continued to increase.

Our CFO argued that those past three years’ data is proof enough that we could have had much more sales increase if only we transferred the full ad budget to our promo budget. For “further proof,” she said we should ask you.

And so we’re asking. First of all, is that reversal in the ad-to-promo ratio true? Secondly, can we really expect to obtain that “much more sales increase” if we add the entire ad budget to the promo budget?

A: We will answer your two questions in the sequence that you asked them.

So first, we’ll tackle the news about the reversal of the ad-to-promo ratio. That reversal is true. However, our validating data are about the ad and promo budget for FMCGs (fast moving consumer goods). In fact, for this product category, there’s a trend from 30:70 moving toward a 20:80 ratio in favor of promo.

For consumer services, we only have scattered anecdotal data but no survey data.

Your CFO probably has also heard about this increasing investment in promo at the expense of advertising and so decided to go overboard for promo.

It looks to us like she’s probably thinking: “If the ad budget is eventually headed toward 0 percent, why don’t we be pro-active about it.”  For being anticipatory, she should be congratulated. But whether the direction of that anticipation is correct is where she should be challenged and that brings us to your second question.

So now to your second but more important question: “Can we really expect to obtain that ’much more sales increase’ if we add the entire ad budget to the promo budget?” Most likely, you cannot. Here’s why.

If a “much more sales increase” means an optimal rise in sales, we’d say that’s very unlikely to happen. But a sub-optimal increase can take place just as much as what you called a “minimal increase” can also occur.

The sales synergy you’re looking for is in the “A&P” and not in either one of these two alone nor in “P” (promotion) alone just because almost every FMCG is now heavy or even very heavy into promo. That’s what the “&” in the A&P is for. Advertising and promo are co-existing in order to gain for you optimal sales results.

The 30 percent or 20 percent for advertising will therefore not go to zero percent if you want that optimal sales. You mentioned that your CFO cited Unilever’s campaigns as support to her position in favor of promo.  That’s correct insofar as the 30:70 or even the 20:80 ratio is concerned but not for a 0:100 budget partitioning of the A&P budget.

Let’s talk in concrete terms. Consider if you will, a specific and highly successful Unilever campaign. That’s Vaseline Shampoo launched with a single variant called “Vaseline Amino Collagen Shampoo.” Its success is indicated by how quickly it attained the ranking as the second-biggest shampoo brand in the country. It’s now No. 2 to Sunsilk, long the No. 1 market leader shampoo brand and a Unilever brand as well. A.C. Nielsen’s shampoo brand share tracking data suggests that the Vaseline share gains came mostly from P&G brands.

While Vaseline Shampoo was very heavy into both consumer and trade promo, it did not neglect advertising. It invested in advertising for at least two important reasons.

One is that promo’s extent and speed of reaching the target consumers is limited by where it is taking place, namely, in the retail stores. A much wider coverage and a much quicker reach is advertising’s asset, not promotion’s.

The other reason for the need to advertise relates to the need to persuasively communicate Vaseline Shampoo’s product message or what’s known today as its “consumer value proposition” (CVP). The brand’s CVP promises that “Vaseline Shampoo restores proteins to hair so it remains soft, shiny and fragrant – the key indicators of healthy hair.” It is in the character of advertising to do this job of persuasively communicating this CVP. Promotion’s role is somewhere else; it’s in following through the persuasion with the incentive for the persuaded consumers to take action, purchase action in favor of the advertised Vaseline Shampoo.

So there’s the answer as well as the Rx for what to do with your second question. Keep in mind the co-existing role that advertising and promotion play in relation to each other and in relation to what you’re after, namely sales productivity.

Keep your questions coming. Send them to us at [email protected] or [email protected]. God bless!