That's the kind of trade-off described in a new report out from Information Resources, Inc. (IRI) that focuses on decisions made by consumer products companies as they consider short- and long-term marketing strategies. Sunil "Sunny" Garga, global services president at IRI, used the health care analogy in discussing with Marketing Daily the results of the newly released IRI report, "Long-Term Drivers Consortium Study."
Garga noted that over the past several years, brands have been "deforested due to aggressive trade promotion activities and short-term growth objectives" that are detrimental to brand health. He cited Gillette as a company that has focused on longer-term brand health versus getting caught in the aggressive promotion cycle.
Garga referred to a unique phenomenon among consumer packaged goods companies, who often use promotions to meet their sales numbers. "The more promotions you do, the more likely you are to make your short-term objective, but you'll have a higher likelihood that people get used to lower prices. There is real price elasticity here. People look for the deal and buy more when there is a deal. Now, you have trained the consumer to look for deals.
"So, there is this notion of 'how can we successfully build on the short term [strategy]?' What we have found ... is that long-term advertising can lower price elasticity," said Garga. "If you build a healthy brand over the long term, you can charge a higher price without seeing a loss in sales ... because you have built brand equity."
The study's participants are now taking a closer look at their own brands and quantifying the importance of TV advertising, in-store promotion, distribution and brand variety on the long-term health of their brands and the overall CPG industry, he said. "They can objectively make the right trade-offs in spending allocations, deliver required short-term ROI, and build sustainable brand value. This is about brand reforestation; that's exciting."
The year-long study included academic research conducted by professors at Tilburg University in Amsterdam and Duke University in North Carolina, using proprietary modeling methodology to control for short-term effects, while quantifying the key drivers of long-term brand health and growth, including TV advertising, in-store promotion strategies, distribution breadth and depth and brand variety. The new modeling technique uses five years of baseline sales and price sensitivity as indicators of a brand's overall health.
The consortium studied reviewed more than 24 categories and drilled down to 10 categories and 30 brands during the first wave of analysis. They studied five years of history to separate short-term versus long-term drivers and analyzed such categories as adult nutritionals, salty snacks, processed cheese, packaged fruit, food storage bags, spirits, soup, juices and household cleaners.
Initial results that represent major CPG categories and sectors show that:
TV and Distribution Remain Critical to the Mix: TV advertising and distribution are key drivers of a brand's ability to maintain long-term growth, with TV being the largest driver.
Today's Success Doesn't Guarantee Tomorrow's Success: Short-term response to TV advertising does not always result in long-term growth.
TV Advertising and Price Often Go Hand In Hand: TV advertising can, but does not always, lower price elasticity; distribution/variety was more likely to be associated with lower elasticity.
Trade Promotion Delivers Double-Edged Sword: Quality trade promotion offers a marketing dilemma: It is an important driver of short-term volume and long-term growth, but it also raises price elasticity in the long term.
Discounting Has Long-Term Implications: Price discounting drives increased price elasticity over time.
"The pressure to produce positive financial returns in the current quarter often ignores the long-term viability of the brand," said Garga. "It may take years to create a strong and prosperous brand, but the current metrics for brand evaluation are short-term focused."
IRI is currently recruiting for the second IRI Long-Term Drivers Consortium Study that will begin late this summer.
The second IRI Long-Term Drivers Consortium Study will also use brand information from a consortium of six to ten national CPG manufacturers to illustrate the relative importance of each driver to brand growth and health over time and will include an analysis of long-term effects relative to the short-term impact of in-store promotion and TV advertising. Consortium members will receive an in-depth analysis of the long-term drivers of their own brands as well as a view of how those brands compare to the CPG industry. They will also receive a positioning and strategy recommendation for brand growth, shaping the way their brands go to market in the future.