Many CEOs are currently “obsessed” with Price Elasticity of Demand, or elasticity for short. Given the current economic climate, elasticity is an essential metric for businesses.
Elasticity refers to how sensitive a brand’s buyers are to price changes. When a brand product is “highly elastic,” that means demand for that product plummets when its price rises. Conversely, an “inelastic” product’s demand remains relatively unaffected by its price—and, therefore, it’s easier to raise that price as a reaction to something like inflation.
FMCG brands are usually the most vulnerable to elasticity due to the strong relationship between disposable income and private label brands. As Mark Ritson writes in his Marketing Week column, “As money gets tight the popularity of supermarket own labels will only increase, so the single most effective thing any marketer can do to protect their brand is build it.”
Marketers can help their business decrease price sensitivity for their brands and build market share by working with their CFOs to set their advertising budget above their current share of the market. Doing this in a recession has been shown to be twice as efficient. If a marketing budget is halved, however, marketers can see similar effects by doubling the effectiveness of their investments.
The reason why raising advertising budget above current market share builds market share so effectively is because it raises a metric called Extra Share Of Voice, or ESOV.
In a recent analysis, Robert Brittain and Peter Field used the Advertising Council Australia’s Effective Database to prove a strong link between extra share of voice (or ESOV) and an audience’s mental availability, along with several other metrics proven to help brands win long-term success.
Crucially, many of these metrics that aid with long-term success are also particularly impactful for a brand’s success during and following an economic downturn:
As co-author Brittain explained:
“Our analysis shows that brands with a positive ESOV; being those whose share of advertising spend is higher than their share of the market, were able to strengthen pricing and acquire more new customers. ESOV is therefore a critical planning metric that all marketers should be using to capitalize on the economic recovery and regain pre-recession levels of sales and profitability.”
Extra share of voice has been a key measurement model marketers use to plan media budgets since it was originally identified by John Philip Jones in 1990.
Philip Jones is a hybrid marketing practitioner-academic who codified SOV by conducting a large-scale study into a number of relationships between marketing and media investment and sales responses. Philip Jones published these findings in an article called “Ad Spending: Maintaining Market Share” for the Harvard Business Review and introduced ESOV to the world.
Philip Jones proved a strong relationship between SOV and market share. He also found that brands who “over” invested in advertising relative to their share of market were much more likely to grow their share of market over time. This relationship has been proven by numerous studies since: a brand whose SOV is greater than its share of market (SOM) is more likely to gain market share.
The amount by which a brand’s SOV exceeds their SOM is called their “extra share of voice,” or ESOV. The ESOV calculation is:
Extra Share of Voice = Share of Voice - (minus) Share of Market
For example, if a brand has a 10% SOM and a 13% SOV, then their ESOV is +3. It’s also possible to have a negative ESOV, which would be an indication that the brand in question is underinvesting in advertising.
ESOV is critical because, in essence, it is the primary way in which marketing contributes to growing market share. On average, for every 10 points of ESOV, a brand will achieve 0.5% points of market share gain. This 10-to-0.05% norm is reliable enough that it can, has been, and is used for market share forecasting purposes when setting targets and planning marketing budgets.
Unfortunately, ESOV is not a silver bullet for advertisers looking to prove value and set goals. For one thing, SOV is getting harder to measure, due to content proliferation, digital transformation, and media fragmentation. Second, unless you’re a very large brand, the exact relationship between ESOV and market share can be difficult to quantify and convey.
Despite these shortcomings, however, ESOV has become a critical metric for any brand looking to grow during and after the current recession. We’ll focus on three big reasons why:
Raising ESOV can be a particularly impactful strategy for marketers during a recession because:
In a recent webinar, Field and Orlando Wood broke down five lessons for the upcoming recession. Their third point was “back your brand – and reap the rewards.” To that point, they noted:
“The return on ESOV investment is greater during a downturn. In this particular recession, ESOV is cheaper than usual, as audiences (for some media) are higher. So advertising is an even better investment, and ‘going dark’ an even bigger mistake than usual.”
This insight is supported by studies from previous recessions, which show the companies that bounced back faster following a recession usually didn’t cut their marketing spend and in many cases actually increased it.
Despite this data, however, cutting marketing budgets—and brand budgets in particular—remains a knee-jerk response to economic downturn in many organizations. As these organizations decrease their brand marketing efforts, their SOV will fall off in a corresponding fashion. This represents a unique opportunity.
By increasing brand marketing while competition pulls it back, a company can rapidly grow ESOV and gain corresponding market share. A WARC study on “Advertising during a recession” found that a spending increase of 48% during a recession wins virtually double the share gains compared to those who increase their expenditures more modestly.
Establishing the link between mental availability and ESOV was the original intent of Brittain and Field’s study. Mental availability is a measurement of how likely a brand is to be considered for a consumption occasion.
Brands with particularly high mental availability relative to other brands in their category are also more likely to be thought of first or even instead of other brands. For example, Coca-Cola and Pepsi have extremely high mental availability in the cola category compared to their competitors.
Brittain and Field found a definitive, linear relationship between ESOV and mental availability:
The relationship remains linear, all the way from -10 ESOV to +8: as a brand’s ESOV grows, so too does its mental availability in the minds of its category audience. This makes raising ESOV one of the most direct ways for a brand to raise mental availability.
Raising mental availability is particularly impactful during recessions. As other brands scale back their brand marketing and take the corresponding ESOV hits, brands that expand and invest in raising ESOV and mental availability can rapidly gain traction over previous market leaders during the recession by claiming greater mental availability in the minds of consumers.
To maximize mental availability through ESOV, marketers should focus on “mass reach and always on.” Or as Byron Sharp put it, “First, you have to reach everyone in the category… and spread your budget across time slots, across locations.”
On the road to reaching all potential category buyers, marketers have another consideration: the creative. We’ve spoken at length about the benefits and challenges of creative strength here, here, and here.
Creative impacts ESOV, with creatively awarded campaigns far more efficient at delivering greater SOM returns, faster. It also acts as an ESOV multiplier, delivering 2.5pp more ESOV efficiency than non-awarded creative campaigns. Creativity even delivers 4pp greater reductions in price sensitivity than non-creative campaigns.
Marketers face many creative considerations when planning their campaigns and delivering always on messages. From leveraging emotional, brand-building style imagery and video (which leads to a 2x increase in ESOV efficiency), to aiming for fame (a 4x increase in ESOV efficiency), to improving branding, to increasing creative quality (and proportion of spend on high quality creative), marketers can increase the strength of their creative to cut through the clutter and win more mental availability.
These are worthwhile considerations because, as Brittain noted, “brands with a positive ESOV; being those whose share of advertising spend is higher than their share of the market, were able to strengthen pricing and acquire more new customers.”
There is also a proven relationship between ESOV and enhancing the admiration of the brand, or raising the audience’s perception of the brand as high quality.
By gaining ESOV, therefore, a brand not only improves how frequently its product is first that comes to mind, but also how positively the brand is viewed in these moments.
Since there is a noted relationship between brand value and price inelasticity, this means that increasing ESOV is also one of the best ways to improve a brand’s price inelasticity. If consumers value the brand highly enough, after all, they won’t mind paying a bit more for what it sells.
ESOV is always important. In fact, as Field and Phillips proved, it remains one of the most important metrics for measuring the success of marketing. But it’s especially important right now.
As a likely recession looms, brands will recover and advance or fall behind based on their ESOV. Expect ESOV to remain the gold standard until well after the recession has passed.
One of the most efficient ways to raise ESOV is to invest in creative quality. The more memorable each of a brand’s ads is, the more they’ll contribute to ESOV. To find out more about increasing creative quality, get in touch with CreativeX today.