Balancing Promotions and Advertising
There are short- and long-term growth opportunities to be had for consumer packaged goods companies if they focus on a more balanced approach between promotion spend and media advertising.
That’s the conclusion of a new study by Chicago-based IRI and global media company Turner, which found that shifting even 10 percent of promotional spending to media advertising could increase ROIs by as much as 10 to 25 percent. Currently, CPG marketers spend as much as 66 percent of their marketing dollars on promotion.
“A 10 to 25 percent increase in ROIs from a 10 percent shift makes a substantial difference for CPG companies as the choices for connecting with consumers increase,” said Bhanu Bhardwaj, principal of IRI Media Center of Excellence. “Today, many marketers are hesitant to switch their spending from promotions to media because they fear its short-term impact.”
But IRI’s analysis shows that media and promotional spending produce a similar short-term ROI, “yet a more balanced media investment brings an additional long-term ROI two to three times higher,” Bhardwaj continued. “And marketers measure their advertising success by leveraging the IRI Lift solution, which ties media exposures to actual offline purchases and optimizes in-flight media measurement and increases return on advertising spending.”
For their analysis that leverages three years of data, IRI and Turner mined marketing mix studies across 62 brands representing $20 billion in sales and $3 billion in marketing spend across food, beverage, health care, beauty and home care aisles.
The research generated three key takeaways:
1. The short-term ROI of media investments is comparable to standalone promotional efforts; however, when considering the long term, the ROI of media spend is two to three times higher than promotion.
Over-promotion of CPG brands can “train” shoppers to buy products only when they are on sale, increase everyday price sensitivity and limit the ability to drive price increases, thereby contributing to a loss of brand equity. Focusing on a more balanced and resilient approach between promotion and media allows marketers to support a cycle of breakthrough, resonance and recall, which in turn brings stronger brand equity, more consistent growth and higher profit margin, the study indicated.
2. The short- and long-term benefits of media advertising are not limited to large brands.
While large brands are known to profit from media spending, smaller brands benefit as well, as media provides the opportunity to emphasize product benefits and other worthy differentiators. Over time, smaller brands that invest right in media generate higher growth, the study asserted.
3. A 10 percent shift in spend from promotions to media will substantially improve marketing ROI and support long-term brand growth.
Given the healthy short- and long-term impact of media advertising, marketers should realign a share of promotional dollars to media to stop brand erosion, the study recommended; this shift will enable marketers to reinforce brand equity, support shopper loyalty and drive consistent brand growth.
Developing a comprehensive media strategy is essential, and this study reinforces the power of good creative and targeting.
Retailers should keep these findings in mind when collaborating with their CPG suppliers. A carefully crafted, multitiered strategy can be effective in targeting the right consumers at the right times, thereby driving sales in center store and other categories.