Marketing Communications

190 CHAPTER 6 BUDGETS

In Table 6.2 , it can be seen that the percentage of profi t-takers among brands with a small

market share is low. Th e higher the market share, the more profi t-taking brands will appear:

59% of brands with a market share of 16% or more have an SOV that is lower than their SOM.

Some explanations can be off ered to explain this phenomenon. Small brands have to invest in

communications to create brand awareness. Larger and usually older brands are oft en being

‘harvested’. Communications budgets are cut in order to make the brand more profi table.

Among brands with market shares larger than 13%, harvesting could be a valid explanation

for their profi t-taking status. Twenty-eight per cent of profi t-taking brands are able to

charge a price premium and two-thirds of profi t-takers are able to gain market share.

Economies of scale in advertising are explained by Jones as a tendency for popular brands to

benefi t from above-average purchase and repurchase frequency. He calls this phenomenon

`peneftraftfion supercTharge' and fiflflusftraftes Thfis ftTheory wfiftTh 's Lux brand. Lux fis sofld fin

30 counftrfies and Thas an average markeft sThare off 17% and an average SOV off 14%.

is able to keep the market share stable and occasionally enjoys sales increases. In some

markets, Lux tried to economise by lowering SOV. In markets where SOV was below 12%,

SOM began to fragment. Th e conclusion is that the under-investment barrier is 5% (17 − 12%).

Th e relation between SOM and SOV provides an objective tool for companies to compare

their communications spend with the budgets of other players in the market. Th is allows

marketers to make a better analysis. Th e average SOV helps to estimate the maximum under-

investment that big brands can aff ord without losing too much of their market position.

Figure 6.5 SOV effect and strategies for different market positions

Source : Reprinted by permission of Harvard Business Review. Based on ‘Ad Spending: Growing Market Share’ by Schroer, J.C.

68(1), 1990. Copyright © 1990 by the Harvard Business School Publishing Corporation. All rights reserved.

Table 6.2 The relation between SOV and SOM

All brands Profit-taking

brands % in total

Investment

brands % in total

Total 1096 44 56

SOM 3% and less 224 27 73

SOM 4%–6% 218 37 63

SOM 7%–9% 153 41 59

SOM 10%–12% 112 45 55

SOM 13%–15% 77 56 44

SOM 16% and more 312 59 41

Source : Reprinted by permission of Harvard Business Review. Based on ‘Ad Spending: Maintaining Market Share’ by Jones, J.P., 68(1),

1990. Copyright © 1990 by the Harvard Business School Publishing Corporation; all rights reserved.

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