In a sentence: probably less than you think.
Competitor advertising is a strange one. We accept (hope?) that our advertising drives our sales, otherwise what is the point of doing it? It’s not unreasonable to suppose that competitors’ advertising drives their sales, otherwise what is the point of them doing it? Add to that everyone’s favourite canard – share of voice – and you have the perfect ingredients for inducing a panic.
Everyone’s second-favourite canard
An elementary confusion – sales and share
When we’ve had these discussions with clients often what they’ve come down to is a confusion between sales and share. In an expandable category, it’s perfectly possible for competitors to increase their share of sales, whilst having absolutely no negative impact on your absolute level of sales. In this case, their media activity (and, in fact, pricing and promotional activity) is temporarily increasing sales for the whole category, the increase going primarily to them (well, it is their media activity, to be fair). Your sales are the same, but theirs increase, ergo their share rises and yours falls.
Scale of impact
But assuming that’s not the case here, what does econometric modelling tell us about competitor advertising stealing our sales? Well, if there is a general take-out, it is that competitor steal is often a lot smaller than you would suppose, and the reason for this probably lies in the size of media contribution. In developed categories, the percentage of sales driven by one’s own media is around 5% (of course depending on the category dynamics, how much advertising each brand does and so on).
When you think about it, that’s not a lot. If the direct, positive effect of your own media is only 5% of your own sales, then how big do you think any indirect, negative effects on your competitors’ sales will be? Now, factor in category expansion (meaning it’s not a zero-sum game), now factor in the fact that any sales you ARE stealing may be coming from multiple competitors, spreading the impact thinly. Suddenly, perhaps it’s not so surprising that any competitor steal, if it exists, is negligible.
Much depends on the category
Of course, much depends on the category. In FMCG we usually find little, if any, evidence of competitive media steal from the brands we model. In other sectors, we do find some evidence of steal. Unsurprisingly, this tends to be where the competing product is a direct and close substitute, and where there is a significant amount of spend, focused in a short period. And even then, the effect is small.
If you want to see steal, look at promotions
Media is, of course, just one driver of sales. By far a more important short-run driver is promotions. Here, very occasionally we see evidence of competitor steal. But we wouldn’t want to over-egg it. The majority of competitor promotions don’t steal. Only the most generous, deep-cutting, aggressive promotions have a negative impact, and then that impact is still relatively small.
Weirdly, competitor advertising may increase sales
In some cases, we’ve seen evidence of competitor advertising increasing sales. At first, we thought, not unnaturally, that we were doing something wrong in the models, or that it was a statistical fluke, and so on, but after kicking the tyres we managed to persuade ourselves that it was a real effect. What seemed to be happening in these instances was that competitor advertising was generating demand – and footfall – for the category as a whole, but these customers weren’t necessarily buying the product advertised, but rather checking out the category as a whole.
The classic case is durables. You see an ad for a Zanussi washing machine (assuming they still make them) but while you’re in that well-known electrical retailer whose name can also mean a type of exotic cuisine, you check out the new range of fire-resistant machines from Beko. Generalising, common sense tells us that this will tend to happen in heavily competed categories comprised of capital goods (goods bought to do a job, rather than for their intrinsic enjoyment) with low brand loyalty, e.g. discount furniture.
“Person Adjusting Control on Front-load Clothes Washer”
But before we get too excited at the prospect of free sales thanks to our competitors, it’s worth bearing in mind that somewhere, in a marketing department on the other side of the M4 corridor, another brand manager is reading this self-same article and rubbing their hands in a similar fit of glee.
Your competitor, on the other side of the M4 corridor, pondering how he can steal your sales. Or not.
That’s always a good question to ask. Much of the discussion so far and, to be fair, many of the questions we are routinely asked, has centred around the short-term impact of competitor media. What about in the longer term? Well, there’s less that econometrics can tell you here. Brutally, econometricians struggle to identify any long-run effects and to convincingly tie them back to a particular burst of advertising. How much more are they – we – going to struggle to tell you anything about the impact of competitor advertising on your sales in the years and months ahead?
On one hand, if your competitors are routinely outspending you 10 to 1 with impactful copy, then you may well see a gradual shift in the base level of your sales vis-à-vis theirs. On the other, maybe that shift is due to the fact they increased their distribution by 20% over the same period. Or that they consistently undercut your prices by 10% the whole time.
The bottom line: it could be a factor, but it’s impossible to say.
Realistically, what are you going to do about it?
We’re pragmatists at heart and, when all is said and done, there really is only one critical factor in this whole debate: what are you going to do about it?
Suppose for a minute that your competitors are outspending you and that you know, somehow, that this is costing you sales right here, right now.
What do you do?
You could move your main ad campaign to coincide with theirs, to try and neutralise its effects. But what if that just diminishes the impact of your advertising? It may eliminate steal, but at a cost of producing a smaller incremental effect – and lower ROI – than you are used to measuring for your media.
How about spending more? Well, possibly, but if you had an extra million or two to spend, is it necessarily the best way to spend it, going head to head with your competitors to neutralise their steal? If your advertising is currently efficiently deployed, this would mean spending at inefficiently high levels and reducing your ROI to potentially achieve some unquantifiable gains.
Plus, look at it this way. One day, in the not-too-distant future, they will sit in a darkened room at their media agency, eating their sweet-meats, whilst the account exec grinds through 50 slides of post-campaign analysis pointing out that you increased your ad spend during their last campaign. What will they do next, those fellow devotees of John Philip Jones? Right. You risk touching off an arms race, and the only people who win arms races are arms dealers.
You could try a sneaky promotion during their campaign – we’ve seen that work before – but when all is said and done, anything you can do here is probably frittering around the edges and the brutal reality is you will have to suck it up and get on with life.
In summary, then, it’s about what you do, stay focused on optimising your activity and doing what’s right for you and don’t get too distracted by what the others do. It’s probably not impacting you as much as you think, and there’s very little you can do about it.
To discuss what you can do to boost your sales, get in touch.