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Establishing Your Marketing Investment Part Three

By Mark Levit

Previously we discuseed the most common budgeting exercise and competitive position and market environment budgeting.

This article presents the second of our ten budgeting rules or, as Partners & Levit refers to them, Budgeting Dicta.

The second consideration to make when budgeting is your brand’s New Product Activity.

BUDGET DICTUM 2: The higher the level of new product activity in the market, the higher the marketing investment. The greater the share of new product activity engaged by a company, the greater its marketing investment.

The level of new product activity in the market and the position of the marketers’ new products relative to its competitors should affect its advertising and promotion budgets. “New” products are those that typically require a long design period, and separate product management. These are not line extensions, product improvements, or cosmetic changes.

What impact do new product introductions have on the marketing investments of all the market participants? High levels of new product activity in a market increase marketing investment levels significantly as competitors inform prospects of their new offerings and maneuver for superior market-share. It’s precisely during periods of change, and the resulting new product introductions, that market structure is least stable and significant gains in share can be achieved.

Let’s examine the implications of new products on advertising and promotion investment. First, we’ll look at the impact of all competitors’ new product sales as a percent of market sales on advertising and sales promotion levels.

We see that businesses in markets which have zero (less than .01%) new product sales, invest, on average $.90/$1,000 on media advertising, as compared to $1.50/1,000 by businesses in markets with high levels (20% or greater) of new product sales. We see a similar increase in sales promotion initiatives.

Introducing many new products to the market should dramatically increase marketing investment. In fact, the new product marketer will spend more than twice as much on advertising and promotion as companies with few new products.

If you’d like to discuss the budgeting cycle and how to plan for it, contact our Managing Partner, Mark Levit at 212.696.1200 now.

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