To Spend or Not to Spend

A New Approach to Advertising and Promotions

By Emile GostelieRich HutchinsonMark Kistulinec, and Wouter-Jan Schouten

Trying to outshout the competition in an environment that is increasingly cluttered and costly can lead to frustration and low returns. With expenses for advertising and promotions (A&P) adding up to more than 20 percent of sales for many consumer companies—and with pressure from retailers to spend even more on promotions—managers are looking either to reduce these costs or to reap more value from them.

For A&P to be effective, companies must spend on the right brands in the right regions and convey compelling messages through the right channels. Given the confusion created by proliferating channels, many marketers are trying to understand which channels and promotion models are most efficient. That is a tremendously important but complex question that will take time to answer.

Yet even as marketers search for the answer, they can increase returns immediately and dramatically by allocating A&P expenses in a fundamentally new way. Our approach is founded on zero-based budgeting and an aggressive differentiation of investment levels by brand, market segment, region or country, and—ultimately—retailer. Companies that have applied this approach rigorously have freed up as much as 20 percent of their A&P investment. That, in turn, has allowed them to focus spending where it will have a much greater impact.