Choosing the Right Promotional Mix
Choosing the right promotional mix for marketing communication might be a difficult task: Whether to go old-school and emphasize advertising and personal selling or to go with the hype and ensure the maximum amount of resource on eWOM and ensure your products have been reviewed online by customers. Luckily, science has examined these questions, and we are pleased to inform you that we have the answers waiting for you.
You and other marketing professionals have a wide variety of instruments that you can use to create the most effective promotional mix for your company. But which one is the most effective? You can invest, for example, in advertising, increase personal sales activities, create an electrical word-of-mouth effect on social media, or develop tools for product reviews in online and offline stores. But which of these alternatives is the best? And more importantly, do you know which one is the most effective for your company? Or for your brand? There are numerous case examples for and against every instrument. Some of them show that the advertising ROI is negative, while others proved it to be positive. In some situations, investing in social media WOM has been a total waste of money, even when other examples state the exact opposite. And still, some cases assert that the only way for effective marketing is to create an online product review platform, which outperforms personal selling by multi-fold numbers. So how do you figure out the most efficient mix, and more significantly, what is the most practical combination of promotional approach in your circumstance? Let’s start by reviewing some scientific literature that analyzes over 7 600 elasticities, all studied with scientific thoroughness, without vested or biased interests.
Elasticities and Averages
One of the most powerful instruments any marketer will always have in hand is pricing. Cutting prices by half will increase sales, but for obvious reasons, every marketer seeks alternative ways. Since the price’s elasticity is easy to understand and among the largest of all instruments, let’s compare other ones to pricing. An average pricing elasticity, based on 367 price elasticities from 220 different brands, was -1.76 in the 1980s, indicating the well-known fact that demand is very responsive to a change in price. More interestingly, in 2010, based on scientific studies investigating 1 851 elasticities, the elasticity had dropped down to -2.62. So, the impact of pricing on purchasing had increased by almost +50% within less than three decades. We don’t know the current price elasticity value but based on a hypothetical linear increase of price elasticity over time – the artificially calculated value of the slope between the former and latter elasticities, the price elasticity in 2019 would be -3.3.
For now, we know the price elasticity values, so we can compare them to promotional mix elasticities and figure out which of them is the most effective one. Based on an analysis of 1 153 scientifically studied advertising elasticities, the short-term elasticity is .12. Even though the long-term elasticity increased the effectiveness of advertising slightly, it’s still far from the price. Moreover, the analyses of 4 246 elasticities of Reviews, eWOM and Personal selling are higher as opposed to advertising elasticities. The exact elasticity depends on the valence and volume (eWOM and Reviews) and short-term and long-term perspective (advertising and personal selling).
Averages Are No More Than Averages
Looking at the above figures, one could conclude that the most powerful promotional method to influence customers is personal selling, not advertising. Indeed, based on Dorfman-Steiner equilibrium conditions for maximizing profits, an example company with 10 000 000€ revenues spending 400 000€ on advertising and 600 000€ on personal selling, has an advertising budget in balance (4%) but the benchmark ratio for personal selling (11% vs. 6%) refers to inefficient use of the budget, given the average industry ratio is not skewed.
Even though the average enables a marketer to analyze his or her overall budget efficiency ratio, it’s not the whole truth. The effectiveness of eWOM generated in social media depends on various product characteristics, competitors’ actions and source characteristics, whereas, as we learned elsewhere that advertising effectiveness depends on numerous interactions between the Customer’s characteristics, the Source, the Message and the Strategy, and the purpose of the campaign. Understanding the characteristics that influence the given promotional communication media within is the key to success, although the average provides an excellent overview of media potential for your company.
Furthermore, another analysis of >1150 elasticities found that while advertising elasticity in 1980s was 0.22, within 30 years it had decreased to 0.12. In comparison to price elasticity, which in average is -2.62, the difference in effectiveness is 22-fold. That is, back in 1980s if an advertiser wanted to increase advertising effect with one percentage point, he or she was required to increase advertising budget with five percentage points. But in 2008 the advertiser who wanted to increase the advertising effect with the same one percentage point, required to increase advertising budget with 30 percentage points! Thus, the difference between 1980s and 2008 was sixfold, and you can only guess how much more it is now over a decade later.
From good news to bad, and finally to realism. Sure, the advertising effectiveness leaves much to be desired. But yes, naturally there are number of things influencing on advertising effectiveness besides the advertisement itself, like, for example, pricing strategy, weather, competitors’ actions, prior experiences and friends’ recommendations.
1. Based on thousands of scientifically examined elasticities: Out of four discussed alternatives, on average, the marketer’s most important promotional instrument for short-term use is the volume of product reviews (if applicable), and for long-term it’s personal selling.
2. However, the average is not the whole truth. An optimal promotional mix is only possible if the interaction between instrument characteristics and the desired outcome is optimized.
3. Each promotional instrument has its pros and cons, and the most influential mix for your company and brand can be analyzed.
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Copyright © Steinheide Oy 2019
Copyright © Steinheide Oy 2019