Quote of the Day: on marketing spending ~ Brand Mix

Thursday, January 29, 2009

Quote of the Day: on marketing spending

Worthy of its own post is this quote from the Morgan & Rego brand portfolio strategy paper I talked about yesterday:

"However, our results also indicate that efficiency-enhancing efforts to reduce marketing expenditures can be counterproductive. We find that relative advertising spending is positively related to firms' cash flow levels and negatively associated with cash flow variability .... This suggests that in contrast to current accounting conventions, marketing spending appears to be an investment rather than an expense."
Now that's something that marketers having been saying forever but it's great to see it confirmed in a comprehensive empirical study (a 10-year study of 72 Fortune 500 companies).

Source: Brand Portfolio Strategy and Firm Performance, Journal of Marketing Vol. 73 (January 2009) by Neil A. Morgan, Associate Professor of Marketing and Nestlé-Hustad Professor of Marketing, Kelley School of Business, Indiana University and Lopo L. Rego, Assistant Professor of Marketing, Tippie College of Business, University of Iowa.


Jeffry Pilcher said...

Can you please speak up? The CFOs of America can't hear you. Thx.

karl@messaginglab.com said...

While I agree with the punchline, the rest of it is written in marketing doublespeak, which is too bad. The message is lost.

Martin Bishop said...

You think that was bad? I spared you the bit in the "...." section which talked about Tobin's Q and all sorts of other stuff. This is a real academic paper with all the trimmings!

Ben Kunz said...

The real opportunity for marketers is to use the pressure of recession to evaluate variances in performance within their budgets. I'm amazed at how many advertisers are happy to rely on old planning metrics for campaigns -- CPM, GRPs and the like -- which at best give only wild estimates as to how many see the ad, and tell you nothing about how few respond.

The real solution is to embed tracking systems such as 800 numbers, URLs, etc. into discrete ad components -- and find and kill the bottom 20% of performance. If advertising is an investment, you should expect quarterly portfolio reviews based on real performance -- just like you want to know how each individual stock performs.

None of this requires fancy systems (as the agencies that sell fancy analytics systems would have you believe). A call into your telephony provider can easily set you up with a phone data feed.

On a $1 million budget, identifying $200k in waste is simple enough. Get going, marketers! The time is now!

Pratiksha Jadhav said...

An important topic-I'm so happy to see it addressed.Marketing spending appears to be an investment rather than an expense. Brand harvest is one the India best branding company that offers complete branding including brand transition.

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