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In applying for your marketing budget, media investments are highly decisive. If you develop effective campaigns but can not get your messages accross in media, all efforts are useless. How do you estimate the proper media budget? Here are some suggestions:

 

Your brand is fine where it is now

  1. Make an estimation of the media investements in the category for the next period;
  2. Reserve at least the size of your market share in media spend (share of voice);
  3. Calculate your advertising elasticity and multiply with your gross margin;
  4. Compare the two outcomes (2) and (3), this is your bandwith for media investments;

 

You have a steady position and want to grow next year

  1. Make an estimation of the media investements in the category for the next period;
  2. Reserve at least the size of your expected market share in media spend (share of voice);
  3. Calculate your advertising elasticity (it is probably high if you have grown in the last period);
  4. Divide the expected growth in market share by your ad elasticity (3), then multiply by expected total media investments (1);
  5. Add up (2) and (4);

 

Your brand is shrinking and you want to stop that

  1. Make an estimation of the media investements in the category for the next period;
  2. Reserve at least the size of your current market share in media spend (share of voice);
  3. Estimate where your brand would end next period all things equal, note the absolute difference;
  4. Calculate your advertising elasticity (it is probably low);
  5. Divide the expected difference (3) by your ad elasticity (4), then multiply by expected total media investements (1);
  6. Add up (2) and (5);

 

Growth as well as stopping a downfall costs extra. In both scenarios we have to learn new customers new behavioural routines of buying and using our brands! In a metaphor this has been compared with army forces. Conquering and defending territory (fighting) are very costly, maintaining a territory (occupation) is less costly.

 

  • Media spend of the category is sometimes hard to calculate. The Nielsen Company is reporting in many countries and markets worldwide on media investements. Make sure you understand what data is included (i.e. online) and how it is represented (i.e. impressions, media value gross, net) and to what extend (i.e. display only).

 

  • Calculating ad elasticity is estimating what every extra media euro spend (share of voice: SOV) would contribute to growth of market share (share of market: SOM):

 

ρ = (Δ SOM / Δ SOV) * (SOV / SOM)

or

ρ = (Δ SOM / SOM) / (Δ SOV / SOV)

 

  • Scenarios
    • Share of market or share of voice did not change: elasticity is zero (advertising effects can not be determined);
    • Share of market went up, share of voice went down: eleasticity is negative (your brand invested less in advertising and still gained market share, probably other factors played a role);
    • Share of market went down, share of voice went up: elasticity is negative (your brand invested more in advertising and still lost market share, check creative performance and the level of SOV);
    • Share of market went up and share of voice went up: elasticity is positive (between 0-1 is relatively low, bigger than 1 is high and you should invest more in media to accelerate).