I have a question - How much advertising is too much. We can easily identify situations where a business can benefit from more advertising, or other forms of marketing. But what about situations where it appears that the cost of advertising must be reaching diminishing returns?
This question arose in my mind related to two companies - Verizon and GEICO. Both have wonderful ad campaigns, full of features, fun, and financial information. Verizon has two major campaigns - "The Network" for its wireless business, and "The Cable Guy" for it's triple play phone, Internet and cable TV FIOS business. The ads are great, with the network geek and his army of helpers providing "the Network", and the cute FIOS guy always beating the bumbling cable guy to replace the customers cable connection with a new FIOS connection.
GEICO is even more pervasive, with four campaign themes - the gecko, the caveman, celebrity helpers, and the most recent, "money with eyes".
I think the ads are some of the best in media, and in fact I am a satisfied Verizon and GEICO customer. I have first-hand knowledge that the Verizon network is great, and that GEICO provides auto insurance at a good price with excellent service.
So I'm saying that the ads are great, and they honestly present products and services that are great. My question is - when is enough enough? These ads are pervasively presented on both TV and radio here in the northeastern USA. Do these company's know that the marginal cost of having more ads in the media is really leading to marginal sales and profits that make this investment possible, or is it possible that there are significant diminishing returns for this very high "share of voice"?
Finally, who will let these companies know that "enough is enough?". Probably not the ad agency or media buyer. Maybe the company's market research group, or brand marketing leaders (although they usually find themselves fighting for more money). The CFO has the other bias, so they are often looking to cut the marketing budget.
My sense is that a rigorous business case review would find that the optimal spending for ads on radio and TV might be less for established brands like Verizon and GEIO. What's your impression or opinion?
Thursday, March 19, 2009
Wednesday, March 18, 2009
The Good Liddy
I happened to be able to see the live testimony of Edward Liddy of AIG before a congressional committee today. I was very impressed with his leadership and forth-rightness in what was obviously a set of House members that were "loaded for bear". He answered each of their questions and had a valid point of view on the situation. He described AIG's Financial Products business, where all the trouble occured, as having a large book of business (over $2 trillion) that needed to be unwound in an orderly manner. His strategy was to direct the current AIG personnel to do that, and if they did that successfully, they would earn their contracted retention bonus. From what he described, this process was working well, in distressed market conditions, and the size of the portfolio had been successfully reduced to $1.6 trillion.
Hw indicated that he knew the "retention bonus payments" would cause an adverse reaction, but he was balancing that against the risk of not having experienced personnel on board to be able to efficiently manage the reduction of the remaining $1.6 billion in a manner that would yield the best return to the American taxpayer.
There will be more to come on this story, but my impression of Edward Liddy was very positive, in contrast to the last "famous" Liddy to come to Washington, the infamous G. Gordon Liddy from the Nixon administration. I'm happy that we have "a good Liddy" in the center of this crisis.
Hw indicated that he knew the "retention bonus payments" would cause an adverse reaction, but he was balancing that against the risk of not having experienced personnel on board to be able to efficiently manage the reduction of the remaining $1.6 billion in a manner that would yield the best return to the American taxpayer.
There will be more to come on this story, but my impression of Edward Liddy was very positive, in contrast to the last "famous" Liddy to come to Washington, the infamous G. Gordon Liddy from the Nixon administration. I'm happy that we have "a good Liddy" in the center of this crisis.
Turning the Corner
We are approaching the end of the 1st Quarter, and the US economy may be turning the corner. This "glass half full, and rising" perspective comes from the following:
1. As GM goes, so goes the USA. GM recently indicated that they will not take an additional $2 billion in funding offered by the US government. If GM can survive, or go into some sort of breakup/packaged bankruptcy as a stronger company than it appeared to be 3 months ago, this is a good sign.
2. Citibank stock it rebounding from under $1 to over $2.50 in a week. Same story as GM, if Citi can survive, this means less US government support for the US banking system.
3. Housing prices stabilizing. The reduction in housing prices and and interest rates seems to have reached a point that buyers are emerging, and home prices in some areas of the country are stabilizing. For example, on www.zillow.com, an Internet site that "quotes" current housing values, my home in NJ lost 20% in value since the time I bought it in 2005, but over the past three months the value has gone up 5% from the late 2008 low.
4. Quality merger activity. Four strong pharmaceutical companies (Pfizer/Wyeth and Merck/Schering Plough) has agreed to mergers, and there is word today that IBM might be looking to purchase Sun Microsystems. These transactions signal that company valuations on the US stock market have reached a "bargain" level, and may be signaling a bottom to the intense reduction in values that started in September 2008.
I'll update this perspective in a couple of weeks, but if these 4 points are "signs of life" in the US economy, recovery may be on it's way in the latter half of 2009, which would be much sooner than many other projections.
1. As GM goes, so goes the USA. GM recently indicated that they will not take an additional $2 billion in funding offered by the US government. If GM can survive, or go into some sort of breakup/packaged bankruptcy as a stronger company than it appeared to be 3 months ago, this is a good sign.
2. Citibank stock it rebounding from under $1 to over $2.50 in a week. Same story as GM, if Citi can survive, this means less US government support for the US banking system.
3. Housing prices stabilizing. The reduction in housing prices and and interest rates seems to have reached a point that buyers are emerging, and home prices in some areas of the country are stabilizing. For example, on www.zillow.com, an Internet site that "quotes" current housing values, my home in NJ lost 20% in value since the time I bought it in 2005, but over the past three months the value has gone up 5% from the late 2008 low.
4. Quality merger activity. Four strong pharmaceutical companies (Pfizer/Wyeth and Merck/Schering Plough) has agreed to mergers, and there is word today that IBM might be looking to purchase Sun Microsystems. These transactions signal that company valuations on the US stock market have reached a "bargain" level, and may be signaling a bottom to the intense reduction in values that started in September 2008.
I'll update this perspective in a couple of weeks, but if these 4 points are "signs of life" in the US economy, recovery may be on it's way in the latter half of 2009, which would be much sooner than many other projections.
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