Brand Investment, Market Share and Walmart
In January we delivered our “Brand Bailout” stimulus presentation to the local Young Presidents Organization. One of our key assertions was that now, during depressed economic circumstances, is precisely the time to invest in and nurture your brand. Consider that one valuation of Coca-Cola’s business comprises 60% attributable just to the brand value.
As one Coca-Cola executive is quoted as saying:
“If Coca-Cola were to lose all of its production-related assets in a disaster, the company would [survive]. By contrast, if all consumers were to have a sudden lapse of memory and forget everything related to Coca-Cola the company would go out of business.”
I was recently asked if the first instinct of businesses to cut marketing and brand budgets was wise. Our opinion we now know accords with that of Walmart and their results as articulated in this February 17 New York Times article are illustrative.
It would be wise to cut such budgets, for example, if cutting spending is essential to the business surviving. It may also reasonable to cut advertising spending if competitors are also cutting such spending, as the brand’s share of voice would be maintained in proportion.
It would be unwise, however, if competitors are maintaining or increasing their ad spend, because the increase in a competitor’s share of voice can be difficult to recover from when the market returns to normal. Similarly, it would be unwise if current market conditions allow the brand to take advantage of lower media price rates and, by increasing advertising, obtain a greater share of voice in its market.
It would also be unwise for new brand launches to cut their planned advertising spending. Given the likelihood of lower media price rates and declining competitor advertising spending, now is a great time for a new product to maximize awareness at a lower cost.
Other factors must also be born in mind, such as that recessions are usually temporary and, indeed, periods of temporary economic contraction are not unusual. This means that many businesses should be considering and planning for the next period of growth.
The 2/16 edition of Advertising Age reports an advertising spending hike of 55% by comparatively frugal Walmart. Same-store sales have seen growth of 2% – 3%, while others in this sector have been hit hard with declining sales. By promoting its brand promise, Walmart is on track to gain market share from its competitors that they may struggle to win back. That will have consequences long after this depression ends.
Written by Stuart
David Day | Associates
About the Author: Stuart isn't often heard divulging his shady history. This, unfortunately, is not one of those times.