‘Why not drop selling from our budget and put it on advertising?’

Q: We’re in a similar but not the same situation as the company that asked you Friday about dropping advertising from their budget and putting it all on promo.

Ours is a case of allocating a little over half of the budget for selling and handing the amount over to advertising. This idea came from our new CEO. He’s from a large multinational consumer company where he said his successes all came from doing “advertising-led marketing.”

Our new CEO replaced our 25-year-long former CEO just last year. This former CEO of ours grew our company in the opposite way.

In every annual corstrat retreat, he would remind all of us that ours is a sales-driven company and we became what we are today because of sales.  In fact, we had minimal budget for advertising. That went to just occasional quarter-page print ads and sometimes small billboards.

Our new CEO told us that his predecessor was right in setting up a sales-driven organization to do the company marketing. However, he said that “the time has come for a needed change if we are to continue growing.”  And so he proposed shifting over half of the money for selling into supporting advertising.

Is this right? First of all, our sales are okay and business continues to grow. Secondly, we’re also making profit and continue to be profitable from one year to the next. Please help us understand this call for change that none of us see a need for.

A: We are familiar with our current issue. In fact, your situation occurs more frequently than last Friday’s issue about dropping advertising in favor of promo. This is because most marketing companies in the country are sales-driven. This is particularly true of domestic marketing companies.

Marketing department

For a sales-driven organization, we typically recommend the setting up of a Marketing Services Department and not a Marketing Department.

For revenue productivity as well as profitability, the need is for marketing services in the service of sales and advertising’s role is to support sales.

We have a sales-driven client company who advertises once or twice a year in newspapers so his sales reps would have a tear sheet of the print ad.  The sales reps carry this ad tear sheet to show their retail accounts that there’s ad support for the product they’re selling.

In contrast, a marketing-driven company is advertising-led in its marketing mix strategy, and sales simply co-exist with or is in support of advertising. These role definitions are important to keep in mind in your search for understanding.

Budgeting-wise

In your present situation, budgeting-wise you seem to feel like you are being made or being forced to make a choice in favor of more advertising and less of selling.

However, through the years you have come to believe that you’ve grown as a business and had been profitable with a budgeting strategy of more selling and less advertising. In the words of your former CEO: “We are what we are today because of sales.”

Your “is this right” question is in effect asking if the shift to an advertising-led marketing will be more revenue-productive and will lead to more profitability. If we benchmark against cases or companies pursuing either one of the two budgeting strategies, we will find that for every successful company navigating along the more advertising and less selling budgeting, there’s another equally successful company dedicated to the more selling and less advertising way of doing marketing.

Zara

For example, Zara, the Spanish chain store for clothing and accessories that CNN called “the Spanish success story,” is known to follow the unusual policy of zero advertising. Instead, its marketing strategy favors heavy investments in the opening of new stores. However, its truer competitive advantage is in speedy but quality product development.

Zara can develop a new fashion product and get this to its stores in two weeks. The industry average is six months. It boasts of creating as much as 10,000 new designs each year.

You can find a Zara store in Greenbelt 5 in Makati.

The contrast is United Colors of Benetton, a global luxury fashion brand from Italy. United Colors is known more for its provocative and controversial advertising campaigns than for its stores which number 6,000 of them in 120 countries. The United Colors ads contained images unrelated to any of its actual products. The graphics in those billboard-sized ads portray a variety of shocking subjects like the one that featured a deathbed scene of a man dying of AIDS. The most controversial ad showed a bloodied, unwashed newborn baby with its umbilical cord still attached. This one made it to the Guinness World Records 2000 as “The Most Controversial Campaign.”

If it’s true that either of the two budgeting strategies can be revenue productive and profitable, then it follows that either one will do.  Better yet, resort to one as the market circumstances dictate.

For example, if you’re after quick and widespread market response to a new product intro, you have to place a priority on advertising to do the job of reaching a lot of target consumers as quickly as you want to. But at the same time, you want to make sure that those consumers reached and persuaded by your ad to buy will be able to access your advertised product.

That’s the task of selling your stores. The good choice is as the Wharton School professor Paul Shoemacher has sensibly put it: “In any choice situation, avoid framing your choice decision as an either-this-or-that.  Instead frame it as a both-this-and-that kind of choice. Either-or is a prisoner’s dilemma. Both-and is win-win.” This is also our Rx.

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