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Making the Strategic Argument
for Advertising
During Difficult Economic Times
CARF Workshop
Toronto
Wednesday, March 6, 2008
Jay Handelman
Associate Professor, Marketing
Queen’s School of Business
KRAFT BOOSTS AD BUCKS
“But the key to our future in all our businesses
is continuing to ensure that we have invested
appropriately in marketing support and
innovation” – Irene Rosenfeld, Kraft CEO
“If we could cut ad spending,
our earnings per share for this quarter
would increase noticeably”
Advertising as an Expense
Advertising as Investment & Innovation
Advertising as an Investment: Customer Value
Short Term Customer Satisfaction
Perceived Relevance of Tangible Attributes
Of Brand/Service to Consumer
Perceived Relevance of Intangible Aspects
Of Brand/Service to Consumer
Value =
Quality
_______
Price
Customer’s Feeling of Being Treated
With Respect
Customer’s Feeling of Supporting a
Socially Responsible/Ethical Company
Tangible Costs: Monetary, Time, & other
Transaction Costs
Perceived Costs: Social, Psychological,
Functional Risks.
Which One Has More Value
For Our Target Consumer?
American Eagle: $49.50
Value Village: $3.99
Advertising as an Investment: Customer Value
Short Term Customer Satisfaction
Perceived Relevance of Tangible Attributes
Of Brand/Service to Consumer
Perceived Relevance of Intangible Aspects
Of Brand/Service to Consumer
Value =
Quality
_______
Price
Customer’s Feeling of Being Treated
With Respect
Customer’s Feeling of Supporting a
Socially Responsible/Ethical Company
Tangible Costs: Monetary, Time, & other
Transaction Costs
Perceived Costs: Social, Psychological,
Functional Risks.
Cardinal Rule of Customer Value
Value Resides In The Mind of the Consumer
The Implication…
Your brand does not reside in the
Corporate Board room!
It resides “out there”:
-Amongst consumer groups;
-In brand communities;
-In chat rooms, discussion groups,
MySpace, YouTube, FaceBook…
McDonald’s Experience with
“Supersize Me”
Larry Light Coins The
Term “Brand Journalism”
“Identifying one brand position,
communicating it in a repetitive
manner is old-fashioned,
out-of-date, out of touch.
Brand journalism is a brand
narrative, a brand chronicle, a
way of understanding what
Larry Light, Executive VP,
happens to a brand in the world”
Global Chief Marketing
Officer
The Need For Innovation
Chevy Tahoe
“Taking the Axe to Unilever’s Hypocrisy”
- Toronto Star, November 2007
1) Talk Like a CFO
Fixed Costs
Break Even
(Units)
=
Selling Price – Variable Cost
(per unit)
(per unit)
1) Talk Like a CFO
Short Term Customer Satisfaction
Perceived Relevance of Tangible
Attributes Of Brand/Service to Consumer
Value =
Quality
_______
Price
Perceived Relevance of Intangible
Aspects of Brand/Service to Consumer
Customer’s Feeling of Being Treated
With Respect
Customer’s Feeling of Supporting a
Socially Responsible/Ethical Company
Breakeven
=
(units)
Fixed Cost
SP/unit – VC/unit
(Contribution margin)
Tangible Costs: Monetary, Time, & other
Transaction Costs
Perceived Costs: Social, Psychological,
Functional Risks.
2) Longer Term Orientation:
Manage for the Upturn, Not the Recession!
Major Brands Increase Ad Spending
“Our pricing realization was not as strong as we would
like it to be, because we don’t yet have suitable brand equity”
- Irene Rosenfeld, Kraft Chairman, CEO, AdAge Feb. 4, 2008.
2) Longer Term Orientation:
Manage for the Upturn, Not the Recession!
Remember:
Customers do not go away during a recession.
They may take a spending “time out”, but they
are still there. What you do during a recession
will impact longer term consumer perceptions.
3) Economic Slowdowns Can Be
Times of Opportunity
1973
iPod
2001
1974
1980
Walkman
1979/80
1982
2001
Summary
In times of economic slowdown:
Focus on investment in selling price
Keep innovating to maintain a social presence
Focus on building long term customer value
Look for opportunity brought by economic
change