How Should You Spend Ad By David Ogilvy

How much should you spend on advertising?

Ogilvy & Mather can often answer this question through the use of a new analytical tool.

For the last year, Ogilvy & Mather has been using a technique that reveals the relationship between advertising expenditure, market share and profit.

This technique makes use of a mathematical model developed by the Hendry Corporation, an independent group of marketing consultants. Ogilvy & Mather is the only advertising agency with rights to use it. Its validity has been demonstrated with many products in many categories of consumer goods. The information needed for the model is available from the current files of most advertisers. No need for extensive market tests or elaborate market research. Results can be obtained quickly, and inexpensively. The technique is new. Some of our clients are using it in planning their advertising budgets. Others are testing it in the marketplace. Still others are considering how to apply it to their particular problems, or how best to translate what it tells them into marketing action. We believe it is an important new tool for guiding strategic planning. It forces objective thinking. The varying uses of the theory are reflected in the examples that follow. We put them forward to indicate how this new tool might help you clarify your own thinking about questions such as: What is the optimum spending level for your product? Analysis for one of our clients showed that he could cut advertising by $3,000,000 — with little decline in share of market but a significant increase in profits. A similar analysis for another client showed that he should double his already large advertising budget if he wished to achieve optimum profits. If you manufacture a product with a small share of market you may choose to advertise beyond the point of maximum profit — in order to maintain distribution. This analysis will indicate how much advertising should be used. On the other hand, if your product enjoys a high share of market, you may wish to sacrifice some profit in order to sustain this high share — for competitive reasons. Again, our analysis will suggest the appropriate advertising accomplishment. Whatever your marketing objectives, this new tool can determine the optimum level of advertising consistent with them. How much of your share of market is due to advertising? For some products advertising accounts for a major part of their share of market, without any advertising their survival would be doubtful. For example, one brand studied had an 11 percent share of market. Analysis showed that its share would be only 6 percent in the absence of advertising. For another brand, our analysis found that advertising contributed only one more point of nine. However, unit margins were high enough to make this one share point very profitable. We believe that for the first time it is possible to find out in dollars and cents what you are getting for your advertising dollars. How can you best allocate your advertising budget among different forms of media or among different brands of a single brand? Most manufacturers who sell a number of products determine advertising budgets brand by brand. However, profits for the company can sometimes be increased by spending more on some brands and less on others. This new technique can help individual brands while safeguarding company advertising expenditure as a whole. This is the case with one of our clients. The analysis showed him how to distribute the money so that, dollar for dollar, it was equally productive in each of his marketing areas. How can advertising budgets best introduce new products? For one of our clients we found that the marketing objectives for a new product could not be achieved at an affordable level of advertising. So we advised them not to launch it. For another new product, a brief market test was used to obtain data for use in the mathematical model. It was then possible to determine the optimum advertising budget. The analysis indicated that the advertising was used in the test would yield the most profitable results.