There is a trade-off between promotions and profits and, contrary to UK marketers' views, it can be measured, says Liz Hamson
Promotions are rarely profitable. And advertising campaigns that have not prompted potential customers to shell out their cash within a week probably won't work at all.
These are just two of the highly controversial theories put forward by leading expert on marketing effectiveness John Philip Jones.
The Syracuse University lecturer believes that many of the marketing strategies deployed in the UK are ill-conceived, badly executed and then poorly evaluated. In a hard-hitting speech earlier this month on the impact of marketing campaigns on profitability: Advertising, Promotions ­ New Evidence and Actions, organised by Billets Marketing Sciences and The Economist, he blamed the "fluffy" marketing executives who treated their discipline as an art rather than a science and claimed that the impact on profitability could not be measured.
In fact, the impact of advertising on the bottom line can be measured, he said. The Americans have been doing it for years and the results speak for themselves.
It has long been accepted in UK marketing circles that the most effective marketing campaigns are those that gradually gather momentum and reach a critical point at which the brand has developed its own equity' and the consumer is primed and ready to buy.
Not so, says Jones. Few people are aware that there is a direct trade-off between advertising and profits," he says. "It's a tight and sensitive balance. The important point is that it can be measured ­ in the last 10 years this has become possible with the advent of new technology like scanners.''
Jones has carried out research into the immediate, medium-term and long-term impact of 220 advertising campaigns in the US. He says: "The accepted model is the burst model [where the impact gradually accumulates and then bursts]. But only 20 cases followed this model. The rest followed the general axiomatic pattern of steeply increasing returns at first, followed by diminishing returns. That's why we have to use our first exposure as well as we can."
There are three factors that will optimise that first exposure, he says. "The ad has got to be likeable ­ give people a bit of a kick. It has to communicate its message visually not verbally. And it's also got to elicit a response that is both emotional and rational."
But not necessarily through the TV. This, by definition, means repetitive exposure and therefore the prospect of hitting the diminishing returns point of the graph (Figure 2). The key is an integrated multi-media campaign that reaches a substantial portion of the target group at least once with minimal duplication, says Jones, citing Andrex's brand managers as pioneers of the approach in the UK.
"They managed to maintain sales at high values as a result ­ and the bigger you are as a brand, the less you have to spend and the less share of voice you have to have to maintain position.'' (Figure 1)
He is equally forthright about the impact of promotions on the bottom line. "They are good at shifting volume, but not at creating profitability," he says bluntly. "Three-quarters of marketing spend is going below the line. It's horrendous, not just for advertisers but for the prospects of the brand."
While grocery promotions have shot up 15% in recent years, sales revenues have only increased by 5%. This does not bode well for the future of brands that continue to plough their money below the line, he says.
But for those who ditch the idea that marketing is purely intuitive rather than based on hard evaluative research, it could be a different story.
Wrapping up the seminar, David Bridges, Billets chief executive, urged marketers to wake up to the fact that though they may not like being accountable for their performance, they are.
Unveiling a five-point action plan for enhancing returns on investment and maximising profit (Figure 3), he added: "Accountability is important and should be seen as an opportunity."
Disappointingly, it would appear that only a minority of the business community of UK plc buy into this philosophy. Said Bridges: "Only 7% of UK marketers have these sort of tests in place."
But, he says, the myth that the impact of advertising and promotions cannot be predicted is just that: a myth.