Proctor & Gamble CEO A. G. Lafley once said, "We have a philosophy and a strategy. When times are tough, you build share."
It’s a quote that is repeatedly used during economic downturns to highlight the benefits of increased advertising during a recession. Rather than cut advertising and boost promotional activities, one of the best ways to survive and thrive during a recession is to spend more, not less, on brand advertising campaigns (the kind that builds future demand, reduces price sensitivity, and makes brands famous).
This is an effective recession marketing tactic because market share size > absolute sales.
No matter the size or scale of a business, it is a brand’s ability to capture as much market share as possible that determines its true success and potential profitability—even more than how many actual sales it has at any given time. This is because brands grow through market penetration: selling to as many category buyers as possible.
Peter Doyle writes in Excellence in Advertising, “It is normally much more profitable to be number one in a small niche market than number three in a huge market. It is market share which is key to performance, not absolute sales.”
Category leaders, and category creators, in particular, were found to account “for 53% of incremental revenue growth and 74% of incremental market capitalization growth” over a three-year period of study.
This is not uncommon. Market leaders (those with the greatest market share) typically experience the greatest ROI and Return on Sales, outperforming No. 2 brands by a factor of six (UK) and four (US), while brands No. 3 & No. 4 tend to be unprofitable. As Marketing Professor Mark Ritson writes in a recent column about the rise of private labels during downturns, “the brands in the middle, the number four ice cream brands, are fucked.”
Share of voice (SOV) represents a brand’s share of total category media spend. It is a simple and empirically proven model for calculating advertising budgets. To increase market share, business leaders need to set their advertising budget to increase SOV above their current market share levels, or SOM. This is eSOV. It is calculated as follows: eSOV = SOV - SOM.
The model stipulates that for every 10% extra share of voice, brands stand to gain 0.6% extra market share. The inverse is also true. If eSOV is negative, market share shrinks in proportion. Because they measure the brands share of a category’s total working media investment, these metrics are competitive. As some brands build, others must fall.
The Share of Voice-to-Share of Market advantage is even more pronounced during a recession because it is a competitive metric (as one brand increases, another must decrease). Typically, many brands cut advertising to save money. This actually causes the +.6% increase to rise.
Brands that invest in extra share of voice, or eSOV, to gain SOM during an economic downturn see more market share gains for their money. Maintaining advertising spend levels will return higher SOV as competitors cut back, while brands that increase their advertising spend by an average of 48% during a recession “win virtually double the share gains of those who increase their expenditures more modestly.”
Less competition for brand awareness means your brand advertising efforts go even further.
To grow market share and alleviate the lack of profitability that comes from having a smaller market share than competitors, marketers should invest their marketing budgets in increasing their eSOV.
In an analysis of 1,500 levers of advertising profitability, econometrics firm Data2Decisions found that brand size and/or market share deliver an 18x advertising profitability multiplier—the largest multiplier of any lever studied. Creative Quality came second, delivering an 12x advertising profitability multiplier, followed by budget setting across geographies (5x multiplier).
Analyzing the success of the German retailer Lidl, Mark Ritson reveals that big brands have it easier than small brands. They can invest less (maintain a negative eSOV) than their share of market due to the multiplier effects of their existing scale and size. To solve for this unfair advantage, Lidl significantly increased its eSOV (+16% for a few years). Between 2014 & 2017, this media objective, combined with the messaging objective of increasing brand perception, saw Lidl’s advertising contribute £2.7bn in incremental sales.
In Effectiveness In Context: A Manual For Brand Building, Les Binet & Peter Field, reveal that “Big brands have economies of scale when it comes to advertising. The bigger a brand’s market share, the more efficiently advertising works.”
There are multiple reasons for this. For example, “Bigger brands get more help from a host of non-advertising factors, such as higher product quality, lower costs, bigger NPD budgets, a bigger, more loyal customer base, more word of mouth and PR coverage, ‘network effects’, and so on.”
Based on the work of Byron Sharp and Ehrenberg-Bass, Physical and Mental availability are two other variables which benefit greatly from scale:
Drawing on a massive dataset (two million metrics and “hundreds of billions” in marketing expenditure) Analytic Partners found that the size of marketing investment is the most significant driver of marketing performance. Marketing investment is usually dependent on brand size, which means that bigger brands can outspend smaller brands. Fortunately, brands of all sizes have access to an effectiveness and efficiency multiplier: creative quality.
Another way to increase eSOV efficiency is to invest in long-term brand building creative (efficiency here is the measure of how fast, per unit of investment, the brand grows the campaign above SOV). Creativity acts as an eSOV multiplier, delivering 2.5pp more eSOV efficiency than non-awarded creative campaigns. Creativity also delivers 4pp greater reductions in price sensitivity than non-creative campaigns.
Investing in high-quality creative is an efficient way for brands to get more from ad spend, without spending more.
As the data shows, scaling up a brand’s market share is the most effective and efficient way to spend a marketing budget—especially during a recession. But that’s easier said than done, especially for smaller brands.
As marketers scale their brand up to position it for long-term efficient growth, data suggests these are some of the most useful tactics they can consider.
The predominant advice has always been to scale as quickly as possible through growth before profitability. This economic downturn, however, is different. Inflation, stagflation, the cost of living crisis, and many other factors make profitability a more appropriate approach.
Because brands grow through market penetration (or acquiring new customers), Peter Field & Les Binet argue that prioritizing growth over profitability is an optimal strategy. “Gaining market share as quickly as possible,” they write, “avoids the small brand trap and brings economies of scale.” Small brands must spend heavily to increase their eSOV and grow their market share. Achieving scale is a critical function of profitability.
In an analysis covering close to 40% of all EU small and medium firms, researchers found that “firms in the desirable state of high growth/high profitability are much more likely to originate from profitable firms with low growth than from growing firms with low profitability. Firms in the latter category are instead more likely to retreat to a low growth/low-profitability state.”
While delivering profitable growth is the gold standard, it remains difficult to achieve. The implication for marketers and brands is to scale as quickly and efficiently as possible. Leveraging advertising is a powerful catalyst for scale, so how can marketers make the most of their advertising efforts?
An analysis of 247 TV commercials from 33 CPG brands revealed that small brands benefit from advertising that conforms to category conventions. Summarizing the study, Contagious magazine writes, “Small brands benefit from imitating competitors, the researchers suggest, because customers are then more likely to associate them with the category and think of them in buying situations.”
The most powerful creative approach was emotion.
“When small brands kept the emotional themes of their ads consistent, their sales improved significantly. A 1% increase in consistency in low-arousal emotions (eg, warmth, nostalgia, love) boosted small brands’ average cumulative sales by 3.82%, while a 1% increase in the consistency of high-arousal emotions (eg, eroticism, action, humor) increased them by 2.26%.”
However, larger, well-known brands benefit more from differentiation – diverging from these norms and using distinctiveness to maintain salience.
After brands hit a certain limit with marketing efficiency, incorporating mass media advertising into the media mix becomes a necessary step. While more expensive and less measurable, it has a profound effect on driving growth.
For example, in a previous Solve for X email, we wrote that ‘these brands are usually at inflection points in their advertising, with their campaigns increasingly inefficient as they reach everyone that’s easy to convert. On this subject, Tom Roach writes, “layering in mass reach advertising can help them achieve a step-change in growth.’
When switching to mass media, creative approaches may change. Focusing on emotional, brand advertising performs better than rational, product messaging.
Big brands have the marketing budget necessary to balance short- and long-term mass media initiatives long enough to make both effective. If smaller brands want to do the same on a smaller budget, they can’t afford for a single ad to be less effective than it could be.
Keeping ads as effective as possible is particularly difficult when brand building because, as content teams produce more ads more rapidly, the Creative Quality of each individual ad tends to fall.
This is something even the largest brands struggle with. An increase in Creative Quality Score is statistically correlated with a decrease in CPM and an increase in Ad recall and CPCV. But the average Creative Quality Score of a Fortune 500 company is only 28%, which means 70%+ of their creative work is inefficient. That can add up to millions in wasted advertising spend.
As marketers continue their brand building efforts, they’ll have to find a way to prevent their average Creative Quality Score from dropping.
This is a multi-part, weekly series exploring — through data — how marketers can deliver brand consistency and some common pitfalls to watch out for.
Part one spotlights data on the value of brand consistency, part two explores the science of brand consistency, part three explores the value of Distinctive Brand Assets, part four unpacks how to develop brand consistency, part five highlights why brands are adopting Creative Quality, part six looks at brand alignment, part seven breaks down the importance of scale, part eight reveals how brands are managing scaling challenges, part nine looks at how brands are scaling their marketing efforts.
The next article in this brand consistency series explores how creative data can help brands looking to scale marketing efforts. Read it here to explore a framework to overcome these challenges and grow brand consistency.