Since rival carmakers watch one another and tend to match one another’s budgets, there is also a second feedback process at work; they learn not only from their own collective experiments, but from those of their competitors as well. Over time, carmakers build an innate, shared sensibility that reflects the accumulated results of hundreds of ad hoc experiments. This becomes the conventional wisdom of the company, and in many cases of the industry. Thus, most brands move gradually to an optimal level of advertising spend that is very close to the saturation point predicted by our model.
For example, beginning in the late 1990s, Volkswagen deliberately increased its advertising presence in the United States. This was part of Volkswagen’s effort to reposition its brand to leverage European styling, the promise of Japanese quality, and “friendlier” new nameplates (such as the new Golf and Beetle). The Gunn Report for Media gave Volkswagen its annual “World’s Most Creative Advertiser” award four times between 1999 and 2004. From the perspective of the model, however, and from the perspective of the rest of the industry, VW’s ad spend levels were disproportionately high. Since 2003, its spending levels have begun to moderate, although they are still high compared with the predictions of the saturation point model. (See Exhibit 3.) This is presumably because Volkswagen is discovering that its spending levels are not yielding commensurate sales and profitability. If that trend continues, we’d expect VW’s spending levels to trend back toward its saturation point.
But there are limits to the “trial and error” approach. It takes time to conduct all those experiments and develop the requisite awareness, especially for a new brand or a relaunch like Volkswagen’s New Beetle. During that period of experimentation, money may be wasted. Moreover, intuition isn’t quantitative. Many marketers, lacking proof that their own gut preference is correct, try to corroborate and justify it by benchmarking. They track their own media spending figures against those of competitors. But such exercises seldom lead to the validation desired, because there is an extremely wide range of media spend levels. Simplistic measures, such as ad spending per vehicle, can be uninformative and even misleading. Among mass-market automobile brands, media spending in 2003 ranged from $181 per vehicle at Ford to $1,612 per vehicle — nearly nine times as much — at Mitsubishi. Finally, when conditions change, another type of advertising spend strategy may be called for, and conventional wisdom is often slow to change.
A model like ours can make advertising decisions more resilient by bringing out into the open the otherwise hidden interrelationships that affect the advertising saturation point for any given brand. For example, BMW has an enviably small — yet sensible — advertising budget because of two relatively obscure factors: its small number of models in production and its distinctive and long-lasting brand identity. The strength of its brand has given it a small but loyal market base, and its advertising message has been consistent over time. The “Ultimate Driving Machine’’ slogan has appeared constantly since it was conceived in the mid-1970s. BMW has consistently spent less on advertising than the industry at large, because advertising isn’t needed to maintain its market share. (See Exhibit 4.)
Broadening the Scope
The saturation point model turns out to predict effective ad spending levels fairly well in the automobile category. But how well does it apply to other categories? The answer is still unknown. For many consumer products, such as cosmetics and food, advertising costs represent a much higher percentage of the ultimate price than is the case for automobiles. A can of soda is typically purchased on impulse. Its gross margin is minuscule compared with the margin on an automobile. And its saturation point can be affected by the popularity of the category as a whole, as we have recently seen with diminishing cola sales.