Commentary
SOV Is DOA
- by Pat LaPointe , Op-Ed Contributor, November 16, 2010
For example, if your measured ad spend was $20 million in a category where total measured spend was $200 million your SOV would be 10%. If your market share was 13%, you might argue that you are underspending on an SOV/SOM basis, and that more funding was required to maintain share. You may be right, but not for the reasons you cite. And even more importantly, more marketing credibility has been squandered on this simple argument than perhaps any other single metric over the past 20 years.
CEOs and CFOs see right through the SOV argument and regularly tear it to shreds in budget meetings. They tend to outright reject the premise that SOV drives SOM, absent any clear data to the contrary.
If you understand the mindset of the CEO and CFO, you know they are very able to envision scenarios where spending even less money on marketing than your competitors could be beneficial if A) the existing core value proposition is better than the competitors' and customers know it; B) the money would be better spent improving the core value proposition than investing in efforts to "sell" the current inadequate version; or C) the shareholders would benefit more by dropping the savings to the bottom line. Although not often stated, these intuitive expectations are almost always fueled by concerns about the relative effectiveness of the current marketing/advertising investments to begin with.
In this environment, the marketer who enters the meeting with an argument to raise spending levels to achieve some SOV target is actually heard to be saying "Johnny has more money, so I want more." And as soon as that impression is created, you might as well polish your resume because your influence over the marketing budget is now far smaller than even your most conservative hopes.
Nevertheless, relative spend pressure in the marketplace can and often is shown to have an impact on how market share migrates. So how do you bridge this gap credibly?
First, understand the difference between SOV and "Effective SOV" (ESOV). ESOV begins with relative spend, but then adjusts it up or down based on relative strength of your core value proposition and/or message execution. Taking our earlier example, if your spend was $20 million in a $200 million spend category, you would index your 10% SOV by looking at the relative strength of your ad copy execution. If copy testing told you your message was at parity with your competitors, your ESOV would equal SOV at 10%. But if your copy was 30% stronger or weaker than competitors, your ESOV could be 7% (10%*(1-.3)) or 13% (10%*(1+.3)). In other words, you may in fact need to spend more money to maintain an effective level of marketing pressure -- even more than you originally believed. Alternatively, you may be benefiting from a strong message and providing an effectiveness dividend to shareholders by requiring less ad spend due to your very stong message.
Calculating ESOV by using ad effectiveness is good, but using relative strength of your value proposition (the perceptions of the appeal of your product/service vs. your competitor's before taking ad execution into account), is even more encapsulating of the impact of marketing spend.
CEOs and CFOs see ESOV as a legitimate analysis of relative strengths and weaknesses. Consequently, using ESOV doesn't cost you any credibility points. But it doesn't unilaterally gain you any unless you are simultaneously able to explain the impact of ESOV on profitable share shifting. It's one thing to know what your ESOV is as a starting point, but quite a bit more impressive if you know how a projected change in ESOV would translate into incremental revenue and margin flows.
There are several ways to determine the incremental impact of ESOV on financial outcomes. The first is with classic marketing mix models, which can help you better understand the historical relationship. If the category dynamics are relatively stable, this might be sufficient to project the outcomes into the future.
If you either cannot implement mix models OR are in a very dynamic category where the past is not a good predictor of the future, then you can use a combination of analytical and choice-options research techniques studying both your own and your competitor's advertising to better understand the relative behavioral impact of each.
Neither method is perfect. But by triangulating on estimates of the relationship between ESOV and share, then consistently measuring it periodically to refine your understanding, you ensure that the next budget meeting will be a much more intelligent and fact-based discussion -- where both you and your recommendations come out alive and healthy.
Pat: While I theoretically generally agree with your premise about SOV, there are some situations (especially in the consumer packaged goods industry) where the concept of SOV has some merit. This happens because manufacturers have to be concerned about the quality of retail distribution their brand will obtain --and it's been proven many times over that this has a huge impact on the performance of a brand. I've seen many a situation where a retailer's decision as what quality of distribution it gave a brand was swayed by the amount of advertising and the SOV the manufacturer was willing to invest behind it. The retailer's rationale was that advertising was likely to not only positively impact a brand's sales but it could also have a meaningful impact on store traffic if the brand was well received by consumers. So, from the retailers perspective, the higher the SOV the better and the more shelf space they were willing to provide to brands that were aggressively supported by advertising. I'm not saying that I agree with this rationale, just that this can be the reality of the retail marketplace.
Don't you think it is a non-sense to keep a SOV metrics based on investments in the conversation era ?
Your brand and competitors represent a certain amount of SOV but ordinary customers speaking about you or your competitors on FB, blogs, Twitters... do exist too !
they should be taken into account
Good feedback. Thank you.
On the point about the relationship between SOV and retail distribution, I acknowledge the connection. But let's realize that it is based on the retailer's assumption that the advertising for a given product will be at least average in effectiveness. Manufacturers who have above-average ad effectiveness can use ESOV as a selling point in support of either lower or higher ad spend when talking to retailers, as well as potentially then redirect some of the dividend to in-store promo or other retailer-friendly tactics to further ensure shelf space.
On the point about conversations, yes there is a bit of disconnect between the "push" and "engage" approaches to marketing. In most categories however, success is found by integrating the two effectively. This seems to suggest that SOV/ESOV will still be relevant - perhaps more for how it stimulates engagement and conversation - but still relevant I think.
Your SOV and SOM needs to coordinate with your distribution too. Is your product on the shelf? Is is fresh? How much shelf? Distribution costs and availability? Besides, all of the reasons of why and what and how and where, many CFO's don't take any of this into consideration; they just want to cut costs.