Advertising works. The challenge for C-suite is to convert success into higher share prices, Marko Matejčić, Head of Insights at MediaCom Switzerland, explains.
The immediate link between successful advertising and a successful business should be clear: advertising boosts sales and margins, helping to grow earnings and share price.
This simple truth should be a starting point for advertisers’ conversations with board members and investors. In reality, advertisers choose to speak their own meta-language that very few people outside advertising understand. Consequently, it is of no surprise that there is worrying lack of confidence in brand management, both within and beyond the marketing department. For example, if you ask any professional investors how to invest in the stock market if you don’t know anything about it they will probably give you straightforward advice to regularly buy (S&P500) exchange-traded funds and hold them long-term. On the other hand – ask advertising professionals how brands should invest in advertising in order to build their share price and you are unlikely to receive a simple answer.
However, there is a way to transform complex questions filled with this meta-language into straightforward answers. Financial institutions are a great example of this, since they are more likely to warn you about what should be avoided rather than advise you on what to do. The same principle can be applied to advertising: giving guidance on what not to do is often much more responsible, actionable and understandable than providing answers about what one should do.
By applying this approach to complex questions like “How can our advertising increase share price?” we can answer them by outlining factors which we are sure will have negative impact on share price.
- Don’t be too technical with advertising
Brands have rushed to become digital-first. The logic behind this goldrush is that as long as you have the right data and algorithms, everything else (including marketing fundamentals) is less important.
The problem is that algorithms are just tools that go through historical data and give a probability score. This can easily result in wasted investment as the people who are most likely to buy are people you often don’t need to advertise to. That’s why getting digital right is so hard. Adidas was the first to speak publicly about this, helping to kickstart the new effectiveness vs. efficiency debate for the industry.
- Don’t miss the opportunity to buy cheaper media in market downturns
How much you invest correlates to your market share development. Typically, for many products and sectors, if your share of advertising investment in your category is higher than your market share, then you would expect your share to grow. As the economy expands, advertising investments also tend to expand and vice versa. When the economy contracts, the same applies to advertising investments.
Kantar found that almost two-thirds of companies had slashed marketing budgets by an average of almost 37% last year. However, for any investor it should be logical that economic downturns are the best times to invest since retaining your investments while your competitors are reducing them will allow you to build share at a significant discount. Brand owners such as Procter & Gamble know this. In the years following the Dotcom bubble, the company’s then CEO A.G. Lafley famously stated “When times are tough, we build market share."
- Don’t rely on speculative investments
Advertisers often rush to test new technologies and channels for which intrinsic value is yet to be confirmed. The advertising industry delights in this ‘being first’ culture, which is often nothing more than speculation.
It’s true that, depending on brand size and market position, it’s often acceptable to expose a small percentage of your investment to high-risk solutions as part of a test and learn approach. The correct course of action, once the testing is over, should be to stop or scale down these investments to the level that is supported by econometric modelling.
This is very hard since it’s not unusual to see senior marketers invest hundreds of hours into the newest opportunities. This makes it emotionally difficult for them to make the rational decision. Direct Line Group has an evidence-based culture that acts as a great hedge against speculation.