As we have mentioned to you in the past, we have pretty much stopped trying to measure the impact of our marketing. We historically measured it through marketing mix but stopped 2-3 years ago. We are currently working to try to establish a data science practice that would allow us to leverage single source data to measure but we are not there yet. My historical experience in marketing measurement was that most brands tended to have relatively similar responsiveness to advertising. The main difference in the return was the starting size of the brand. Big brands would have higher volume per $1000 spent vs. little brands because the lift was similar but the base that the lift was off of was smaller.
We are trying to do an exercise to garner support for marketing our big brands (for example our number 1 or 2 net sales brand depending on you look at it gets almost no support) and I am wondering whether there is a general CPG marketing elasticity? I would like to be able to say, for example, that $1,000,000 in marketing could be expected to drive approximately $x,xxx,xxx gain in net sales based on the typical brand lift observed in CPG. Do you have insight into that average marketing elasticity? Totally understand that there are deviations, some brands are more/less responsive, etc, but just as a general exercise, an average would work.
Any help you can provide would be great!
Larger brands do show a greater sales uplift from advertising than smaller brands. And as you note, this is largely due to the larger base of their sales that the advertising can work on. However, in fact, larger brands tend to have lower ad elasticities than do smaller (and, newer) brands.
Our work (as well as others’) has confirmed this empirically in multiple markets and countries globally (see our Advertising Intensiveness paper or there is more information in this doctoral thesis on Advertising Intensiveness, which confirms the work of John Philip Jones). Other work empirically examining advertising elasticities through meta analysis of over 50 separate studies to confirm the generalisation have also confirmed that larger brands tend to have lower ad elasticities than do smaller brands (Sethuraman, R., G. J. Tellis and R. A. Briesch (2011). “How Well Does Advertising Work? Generalizations from Meta-Analysis of Brand Advertising Elasticities.” Journal of Marketing Research 48: 457-471).
In our Advertising Intensiveness paper, we also provide the mathematical proof for the direct link between brands’ elasticities and their advertising intensiveness (specifically, that larger brands have smaller elasticities and this is reflected in them being have lower SoV than their market share).
A useful rule of thumb to work to in the absence of other information is an advertising elasticity of 0.1 in CPG categories.
N.D. and R.K.
29 October 2018
