Optimizing Returns Throughout a Portfolio Requires Difficult Decisions

Profit

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Conversations on marketing effectiveness have been on the rise since the beginning of the year. Despite the challenges expected in the upcoming year due to elections causing economic and political uncertainty, the easing of inflation is refocusing people on developing their teams' marketing effectiveness for the future.

In November 2021, I discussed the importance for marketers to overcome their fear of pricing amidst cost inflation that would later increase consumer prices. In 2023, having a strong net-revenue management capability was crucial as many categories experienced low or no volume growth. Brands worked diligently to find ways to mitigate inflation in their cost of goods by sourcing ingredients, raw materials, and packaging that would reduce costs without compromising the consumer experience.

Investing in an uncertain environment

In light of consumers and retailers becoming less accepting of additional price hikes, it might be a good idea to reconsider investing in your brand. By doing so, you can help boost demand, increase market share, and maintain strong prices.

Investing during a recession is generally supported by academic evidence, but in reality, marketers face challenges. Organizations prioritize the bottom line and may not have the resources to increase spending. Strong brands, however, can strategically reduce brand investment without compromising their reputation or the habit of consistent spending.

The uncertain external environment has made many brands hesitant. They worry about lower demand than expected or unexpected cost increases. Brand marketing is seen as a risky investment, leading companies to be cautious in their approach in recent years.

The bottom line is still the most important factor for organizations, as they have many competing priorities, making it impractical to increase spending.

If your business is feeling confident and wants to take advantage of the current moment to get ahead, what should you focus on? Instead of just continuing as usual, now is a perfect time to question your assumptions. For companies that manage multiple brands, I believe this is where the discussion should begin. It is important to consider this before deciding on investments in specific brands.

Focus on future profitability

When determining how much marketing spend should be allocated to each brand in your portfolio, it is important to consider the potential for future profitability. It is beneficial to have a well-constructed portfolio where brands are strategically aligned with different opportunities, such as distinct motivations, occasions, or consumer typologies. This ensures that you are not competing with yourself and can maximize the effectiveness of your marketing efforts. Despite the temptation to allocate budgets based on the relative size of each brand, it is often more profitable to polarize spend in order to achieve better incremental profit.

When considering your business strategy, it's important to think about the role each brand plays. One way to determine this is by comparing the potential future profits of your brands. Look at the expected growth of each brand over the next few years and evaluate their track record in gaining market share. Additionally, analyze the effectiveness of your brand investments to see which ones give you the best return on investment.

Next, take into account the different gross margins of your brands when calculating their future profits. This will help you determine which brands are worth investing more in, based on their potential for incremental profit. It's wise to allocate more resources to brands that will bring in higher profits in the future and scale back on those that may not be as profitable.

Investing in excess share of voice across all your brands is not recommended, so choosing the right winners is crucial. The industry guideline suggests investing ahead of brands' share of voice, but measuring the impact, especially with the rise of digital media spend in walled gardens, can be challenging. It's essential to consider portfolio choices and total budget limitations when deciding where to allocate resources. Choosing the right winners is key when you can't afford to overinvest in excess share of voice across all your brands.

When evaluating your brand, it's important to not only consider the prompts provided but also to compare your brand's strength to that of your competitors. Many businesses focus their resources on their largest brands, which can be effective, but they may overlook opportunities with brands of similar size but stronger equity. By investing in these brands, you can make a significant impact on your consumers' preferences and gain an advantage over your competitors.

While tools like marketing mix modeling can enhance your analysis, the key factors to consider are likely to include category and segment growth, market share relative to competitors, brand strength, and profitability. These foundational pieces of data are essential for marketers looking to make informed decisions.

To help businesses make investment decisions in a challenging environment with limited resources, these strategies can assist in selecting the best options, showing the potential profit differences between them, and ultimately focusing on the most profitable growth opportunities. By effectively executing your plans and delivering results to your partners, you can strengthen the argument for investing in all brands, reaching a point where finance and management are eager to know how much more can be invested.

Editor's P/S:

The article highlights the importance of investing in brand marketing even during uncertain economic times. It suggests that strong brands can strategically reduce investment without compromising their reputation or market share. However, it emphasizes the need to prioritize future profitability and carefully allocate resources to brands with the highest potential for growth and incremental profit.

This approach requires a comprehensive analysis of brand performance, including market share, brand strength, and gross margins. It also involves considering the overall portfolio strategy and balancing the need for excess share of voice with budget limitations. By focusing on the most profitable brands and optimizing investment decisions, businesses can maximize the effectiveness of their marketing efforts and drive long-term growth.