Maximising profits across a portfolio means making tough choices

There has been a notable resurgence since the beginning of the year in conversations on marketing effectiveness. Though the year ahead is likely to be no less challenging than the few which preceded it, with elections provoking economic and political uncertainty, perhaps it is the easing of inflation which is turning people’s minds once again to developing their teams’ marketing effectiveness muscles for the times ahead.

In November 2021, as we faced the cost inflation that would subsequently push up consumer prices, I wrote about marketers’ need to overcome their fear of pricing. Indeed, having a highly developed net-revenue management capability proved essential in 2023, as so many categories saw low or no volume growth. Beyond the obvious matters of headline pricing, shrinkflation and portfolio management, brands worked hard behind the scenes to mitigate inflation in their cost of goods by sourcing ingredients, raw materials and even primary and secondary packaging which would save costs without harming the consumer experience.

With consumers and retailers now less tolerant of further price increases, it may indeed be time to look again at brand investment, with a view to stimulating demand, taking market share and keeping prices resilient.

Investing in an uncertain environment

Though academic evidence always supports investment through a recession, the reality for marketing practitioners is less straightforward. The bottom line remains king and organisations have multiple priorities, meaning spending more is not practical. What’s talked about less often is that strong brands can judiciously take a holiday from brand investment, albeit without having false confidence or breaking the good habit of continuous levels of spend.

The uncertainty of the external environment has also created some stage fright for many brands. What if latent category demand is less than expected? What if there are unforeseen increases in the cost base? Brand marketing remains a vulnerable investment, and that’s why we have seen companies be cautious at best for the last couple of years.

The bottom line remains king and organisations have multiple priorities, meaning spending more is not practical.

Let’s assume for a moment, though, that the confidence is there, and your business wants to seize the moment to get ahead. What should you be thinking about? Rather than picking up where you left off, it’s a great moment to challenge assumptions. For businesses managing portfolios of brands, this is where I think the conversation needs to start. This should come before consideration of investment in individual brands.

So how much marketing spend should go across each of the brands in your portfolio? Hopefully you have a well-constructed portfolio where brands are aligned against different opportunities – be they distinct motivations, occasions or consumer typologies – and therefore you are not competing with yourself. Even with this in place, many businesses split their budgets across brands roughly in line with their relative size. In fact, it is usually the case that better incremental profit can be achieved by polarising spend.

Focus on future profitability

To do this, consider the role each brand plays in your business strategy. Differential levels of investment can come from comparing the relative future profit potential of your brands. You can determine this future profit potential by considering the latent future category and segment growth of each brand for the next two to three years, then assessing your brand’s track record in growing market share, which would increase its proportion of the future category revenue. Also consider the effectiveness of brand investment if you have that data – relatively speaking, which brands return more per pound spent?

Finally, when you factor in the different gross margin of different brands to work out the profit from their future growth, you can get to a different view on how attractive investing in each brand may be. In essence, give more generously to those which will deliver better incremental profit in the future and steal from those which won’t.

You can’t typically overinvest in excess share of voice across all your brands, so picking winners is important.

The industry rule of thumb of investing ahead of brands’ share of voice has strong evidence but, in truth, because of how significant digital media spend in walled gardens has become, it is tricky to measure. It also overlooks the portfolio choices and finite total budget businesses have – you can’t typically overinvest in excess share of voice across all your brands, so picking winners is important.

As well as the prompts above, you can challenge your thinking further by looking at your brand strength relative to the competition – that is, your market share relative to the strongest competitor. Businesses often overspend on their biggest brands, which can be the most efficient option, and miss opportunities for brands which are of similar size to competitors but have stronger equity. Investing hard behind those latter brands can cause the biggest favourable swing within your consumers’ brand repertoires. This is how you can really win when your brand is head-to-head with others.

The 2024 Agenda: Tight budgets mean marketers will have to do more with less

Though having things like marketing mix modelling can strengthen some of this thinking, most of the inputs here – likely category and segment growth, relative market share, brand strength and profitability – are foundational pieces of data for marketers.

In a world where businesses are hesitant to invest and there are finite resources, these approaches can help you pick your bets, demonstrate the likely incremental profit between different approaches, and ultimately invest behind the most profitable growth. As you succeed in delivering what you have laid out to your partners, you will start to build back up the case for investment across all brands, ideally getting to the point where it is finance and general management asking how much more you can spend.