Your Marketing Investment
by Mark Levit
Previously in the Partners & Levit Marketing Budgeting Library, we’ve discuseed the most common budgeting exercise, competitive position and market environment, new product activity, market growth and capacity utliziation.
BUDGET DICTUM 5: High levels of advertising and promotion investment are required for “low ticket” items.
Marketing investment levels decline rapidly as purchase volumes rise. A business, whose end users typically buy in volumes of less than $100, invests on average, $1.70 on media advertising and $3.30 on sales promotion. That’s nearly twice the amount for advertising, and three times the amount for sales promotion, that a business selling very large ticket items of over $100,000 will invest. What accounts for that? High ticket items are more likely to be customized and price insensitive when performance is at stake, whereas low ticket items are more frequently standardized, price sensitive, and likely to be pushed through channels by discounting and other promotional practices. In addition, we high-ticket items are purchased less frequently, and for that reason demand a less content persuasive effort.
But the greatest factor at work here is that businesses selling larger ticket items can market them directly to a few large customers, whereas those selling low-cost products must push them through wholesale and multi-level distribution channels. In some industries we find huge economies of scale created by focusing on a few large customers.
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 .