3/15/2023 0 Comments Ad wars competitors![]() ![]() A competitor with an aggressive ad spending strategy will keep up the attack only so long as it is adding to market share.Competitors that understand the spending game will establish this equilibrium at a level so high that no upstart can afford the extra sustained investment needed to increase its share. Most of the time, competitors are in a state of equilibrium where the leaders’ market shares remain stable despite marginal changes in their ad expenditures.The relationship between spending and share change appears after about 18 months, and reliable correlations can be established after 3 years. Judging from studies of many consumer products over the past several years, this difference must be at least double the main rival’s outlay. Advertising spending can determine advances and retreats in market share-but only when a big spending difference among competitors has been maintained for a long time.Under such circumstances, the following patterns emerge: ![]() Of course, truly superior or inferior advertising content is an important factor in the gain or loss of market share, but I am not talking about that here. Let’s examine the impact of advertising spending in situations where competitors’ products are more or less the same (for example, people can’t really tell one paper towel or deodorant from another), and competitors’ marketing, promotion, and advertising people appear to be equally effective. They know that advertising should not be managed as a discretionary variable cost. They do not raid their budgets to ratchet earnings up for a few quarters. What do these great marketers have in common? Among other things, awareness of a key factor in advertising: consistent investment spending. ![]() Coke and Pepsi invest so much in advertising that they make it cost prohibitive for anyone else to compete with them. Kellogg and General Mills, waging an escalating ad spending war in breakfast cereals, together now command 65 % of the market-and their stock trades at much higher valuations than other food companies. In peanut butter and coffee, P&G invests more in advertising and less in discounting than its major competitors. Procter & Gamble, for example, has built its Jif and Folger’s brands from single-digit shares to category leaders. Most important, they understand the balance of advertising and promotion expenditures needed to build brands and gain share, market by market, regardless of growth trends in the product categories where they compete. They also know that price promotion buys shelf position. The marketers at some companies, however, remember that brand value and consumer preference for brands drive market share. They may win the volume battle today, but they lose the competitive war. They practice the art of discounting: cutting ad budgets to fund price promotions or fatten quarterly earnings. But recently, many marketers have lost sight of the connection between advertising spending and market share. Remember Schlitz? Electrasol? Bosco? Ipana? Remember the days when brand loyalty grew year by year? Today’s most successful brands of consumer goods were built by heavy advertising and marketing investments long ago. ![]()
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