Topic 1: Put Your Resources Allocation where the Strategy Is.

Example: US Yogurt Market: 2010-2013.

1. The total market grew from $4.8 bn to $6.2 bn, an increase of 29%. This made yogurt one of the fastest growing categories in the US.

2. A closer analysis revealed that sales of regular yogurt were actually declining during this period of 3 years (-6%).

3. The growth of the whole category was actually being driven by one single sub-category called “Greek Yogurt”. Greek Yogurt sales increased more than 5-fold from $390 mn to $2.6 bn (88%).

4. The bulk of the sales was generated in the North East region by one single brand, Chobani. The remarkable growth story of Chobani brand is well documented by now.

Data can be misleading and if not understood deeply can lead to totally erroneous resources allocation. Companies end up overinvesting in declining categories and conversely underinvesting in fast growing ones. In order to stay competitive, one needs to identify the growing business cells in the industry and prioritize investments accordingly.

Marketing budgeting process is a tricky one and is mostly governed by sheer inertia. In one study done on 1800 companies in 2019, a high correlation of 0.92 existed between the budget a business unit received in one year and how much it received the next. Most CMOs and CFOs confess that the marketing budget allocation to the BUs is either “last year’s budget +/- x%” or quite simply, “Y% of last year’s sales”. A global passenger airline was found to invest 60% of its global marketing budget on its home market – a cluster of countries that contributed to 40% sales that were either stagnating or declining. It missed out investing in overseas growth opportunities.

Fact-based marketing budgeting boosts marketing performance. If one needs a fair share of granular growth, then the marketing budget allocation approach needs to reflect that granularity of what is happening in the market.

Marketing budgets allocation should be aligned to P&L responsibilities or else chaos will ensue. If the company is structured by brands, then the budgets should be split by brands only. The same goes for BUs and Product Categories.

Align Allocation Criteria with Business Priorities: A. Financial Criteria: Top-line revenues, gross profit (present and expected). B. Strategic Criteria: Market Growth, or the strategic role of market or category. C. Marketing Criteria: Share of Voice (SoV) or Brand Strength.

Specify Investment Thresholds:

A. ROI-Based: below and above which the expected marginal benefits strongly decline.

B. Strategy Based: to cap spending on low-priority business cells

C. Capability-Based: to curb funds allocated to investments with limited marketing capabilities.

D. Benchmark-Based: to ensure marketing spending is in line with industry best practices or it reflects the SoV required to break through the clutter.