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Why most market expenditures fail to generate any impact
The astonishing fact is that most marketing results in no change in sales or profit if you disregard short-term blips. Nearly all marketing budgets are designed to affect brand preference in established categories and subcategories with established competitors. The great majority of these, on average, have no long term sales impact.
In virtually all categories, any major change in market position comes from the emergence of new subcategories. I studied the Japanese beer market for over 50 years and a major change in market share trajectory came only four times. Three of these were when a new subcategory was introduced (dry beer, Ichiban, Happoshu) and the fourth was when a subcategory was repositioned. In between, huge marketing expenditures simply did nothing. In computers big changes in competitive position occurred only with the introduction of new subcategories such as minicomputers, network computers, tablet computers, and so on. In automobiles we have seen 4 wheel drive, minivan, SUV, hybrid, and all-electric and more vehicles change the competitive landscape while “my brand is better than your brand” competition has little effect.
The implication is that firms should spend less, probably far less, on brand preference competition and more, probably far more, on brand relevance competition, winning by creating new categories or subcategories. That means that more investment is needed on big innovation i.e. those that are substantial or transformational, and less on little or incremental innovation.
Changing investment priorities requires a new mindset, strategic vision, culture, and perhaps people and processes as well. There are barriers-- the clout of the large business units, the pressure for short-term results, the difficulty of predicting untested ideas, and the incentive systems in place. However, to make market budgets have healthy ROI levels and to see real change in sales and profits, moving toward winning brand relevance competition is an imperative.
Posted February 15, 2011 / Permalink
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I agree, product innovation often misses the brand component and rather just hands the product off to marketing. dave
Wise words, and a confirmation of the Blue Ocean approach to strategy making. At best, competing on existing category attributes yields little competitive advantage and no real differentiation, while breaking out of those category markers and investing in new ideas can take a brand into new unchallenged territory. Sadly, that kind of action is generally beyond the mandate and the mindset of most marketing departments.
Thanks, my appraoch unlike Blue Ocean encourages the development of subcategories as well as categories and emphasized the need to manage their perceptions just like you would manage the image of a brand.
Good post and oh so true. I wrote a book on exactly this topic: how brands can and must drive product and service innovation, focussing on delivering on their promise. The book is aptly called 'brand driven innovation', AVA publishing, available on amazon. I would love it if you could take a look at it!
David, Is there any limit to this kind of individuation? In the end, isn't the high cost of new category and brand creation onerous? Hence marketing falls back on tried and true because most businesses aren't that innovative.
David, a topic close to my heart and one I wholeheartedly agree with. It's my firm belief that a good deal of "marketing" expenditure is best applied to customer service and retention strategies rather than the typical "head to head" brand preference spend and that true shifts in market share come from further back in the organisational chain (product and innovation) rather than marketing which can only ever really add the polish to what's been produced. Apple's marketing might be good, but it's not why people buy iPhones or iPads. Thus it makes sense to me that marketing goes further into customer retention strategy and further back into product development which requires the function to develop tools and strategies that it may not currently be comfortable with (especially in B2B).
I agree with your instinct that investing in customer service and retention is a good option. My take is that you are trying to form a new subcategory by developing some "must haves" for a portion of your customer base. You are then engaging in brand relevance competition - I discuss this in great detail in my new Brand Relevance book.
Your findings confirm my belief that at a deep level brand innovation has more in common with product development than it does with marketing. Brands create customers by advancing them to richer realms of value, and the brand team should be working shoulder to shoulder with product development folks to to help structure and guide development efforts. The goal, after all, is to advance customers beyond the reach of competitors in new contexts of the possible. Brand practice can bring deep insights to this process, and brand strategy married to innovation strategy is a powerful tool. This makes brands the real stuff of start-ups, where transformative value can be baked in, rather than rely on the ex post facto frosting of media campaigns.
— Added by Brian Phipps on February 15, 2011