The following illustrations will explain the method Supposing a company has 5

The following illustrations will explain the method

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The following illustrations will explain the method: Supposing a company has 5 products A,B,C,D and E. Over a two year period their sales are tracked. Similarly the advertisement spends on the 5 products over a 2 year period can also be tracked. Table no: 9.1 A look at the above chart shows that on the overall the sales have grown by Rs. 216 lacs on an additional advertising spend of Rs. 50 lacs i.e., a 4.52 fold increase in incremental sales over incremental advertising. But against this overall 4.52 fold increase in incremental sales over incremental advertising, a closer look will reveal that the increase is not uniform across all 5 products. Product Sales in Rs. Advertising Spends in Rs. 2007 2008 Difference 2007 2008 Difference A 190 lacs 220 lacs 30 lacs 20 lacs 30 lacs 10 lacs B 100 lacs 170 lacs 70 lacs 20 lacs 30 lacs 10 lacs C 250 lacs 290 lacs 40 lacs 20 lacs 30 lacs 10 lacs D 60 lacs 76 lacs 16 lacs 20 lacs 30 lacs 10 lacs E 300 lacs 370 lacs 70 lacs 20 lacs 30 lacs 10 lacs 900 lacs 1126 lacs 226 lacs 100 lacs 150 lacs 50 lacs 136
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EVALUATION OF PROMOTIONAL SPENDS In case of product A, the increase is 3 times (30/10), in case of product B and E it is 7 times (70/10), in case of product C it is only 4 times (40/10), incase of product D it is only 1.6 times (16/10). While by themselves these figures may not mean something very significant, they are at least indicative of a general pattern viz., that while in the case of products B and E the incremental sales have been seven fold the incremental spend on advertising, in case of C the incremental sales has been 4 times, and in case of A and D, more so in the case of D the figures are not impressive at all. While a one year figure analysis may not be very conclusive, but if the trend/pattern remains the same over continuously 2 or 3 years the inference can definitely be drawn that in case of products where the incremental sales as multiple of incremental advertising continues to be much below the average across the board, advertising may not be having much of an effect. Coupled with this, one can also monitor at what stage of the product life cycle such low yeilding products are. If they are in the maturity stage or late growth stage, then it may be advisable to divert the advertising efforts and resources from such products to others where the return multiples are higher. But if study shows that such products are in growth stage or late introduction stage, then the advertising campaign needs to be freshly evaluated as to its contents, creative ideas and the medium being used. One point must be noted that this model can only be used to evaluate, in which particular product amongst the entire portfolio of products, advertising is delivering. It will only help in focusing on products where the return is better than others. 9.2 SALES PROMOTION Unlike advertising, where it is difficult to correlate advertising spends with the growth or otherwise, of sales, in the case of sales promotions the connect can be made very clearly.
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