Inflation and Why You Should Keep Advertising - Ep. 58

Well, Justin, this is. This is our continuing CPG insiders. But this is our first episode that is going to be on YouTube.

Yeah, yeah, we're excited. Expanding to YouTube. So now you all get to see these wonderful faces, not just these scintillating voices.

Oh, my God, I'm not even gonna touch that. Okay, I'll tell you what I wanna talk about today. And this comes out of a conversation that I just had with a client. That's why I wanna have the conversation. We're going through a lot of inflation right now. Costs are going up. So not only is cost, consumers going up, but the cost to manufacturing is going up.

Absolutely.

And packaging costs more and ingredients cost more and shipping, it costs more. And everything is going up when we have these increased costs. And as you know, we're seeing an increase in store brand sales because consumers are now looking to trade down to try to find the spots where they can save some money. So the last thing you want to do is stop promoting and stop advertising your brand. But for the bean counters, the quickest and easiest place to find money is to cut the ad budget.

Well, of course, of course. Right. Because it's not a fixed cost necessarily to them. You still have to make product. You still have to pay your employees. All those things still have to ship in. Exactly. Like all those things still have to happen. There's no way to stop doing one of those things. But you're marketing. We'll just stop doing that, no problem. Right, right.

Because we'll forego that. And the reason is this is an accounting issue. And when you look at a P and L or you look at a balance sheet, there's a couple of things that are wrong. The first thing is the P and L looks at advertising as a straight line item. Expense. This is an expense. This is money out the door. We're never going to see this again. Like rent, Right. Accounting treats advertising like it's rent. We use the building, we paid our rent. The time is gone. We don't recover it, we're never going to see it again. Also, we know that when we go to the balance sheet, the balance sheet doesn't have a line item on it to show what the asset value of the brand is. Now, the reality is the majority of consumer product goods on the market today are some type of commodity. You might have a patent, you might have a secret formula, you might have a different way of doing something. But the odds that you're the only one on the market that can do what you do is an extremely rare.

Event slim to none.

So usually there's some other product on the shelf that can do what you can do. Maybe not as well.

Right, right. But similar, deliverable. So you can, you know, their substitution can happen very easily.

So when your company's up for sale, typically the company who's going to buy it is either strategic. So they're building a portfolio that you belong in. They are a multinational and they're adding new verticals or they're a private equity company and they're rolling up a particular vertical.

Yep.

So the question is, what are they buying? Are they buying your ability to make this cream, this food, because is it really impossible for them to make that?

Again, very rare instances. Is that the case? Right, right.

You've got, you got a face lotion out, right? The odds on them not being able to make a face lotion is slim to none. Because I don't even need a factory to do that. I can go get a blender and come up with a formula and boom, I've got, I've got a lotion.

Right.

So what are they buying? They're buying the brand equity. And what makes up the brand equity? What is the top of mind awareness in the public? What is the sales volume? What is the distribution of this product equity? Brand equity is a function of advertising and marketing. Sales volume is a function of advertising and marketing. Distribution is a function of wait, wait.

For it, wait for it.

Advertising and marketing. Because if the product isn't selling, you lose distribution and you don't gain distribution unless your IRI and your Nielsen reports show that you're moving product.

Absolutely. And as we all know, the days of I'm on shelf now, my product will move because I'm on shelf are gone. They've been gone for years.

So we need brands to understand when, and I understand this sounds self serving brand because we're the ad agencies, of course we don't want to have our budget cut, but I'm hoping everybody believe me, this isn't about us right now. This is the reality is when you cut the ad budget, when you cut advertising and marketing, you reduce your future value. You are reducing the equity in your company. You are reducing its future value because yes, you might be able to cut advertising for the next six months and hold your own. Okay, My sales are good enough that even if I back off for six months, maybe even back off for a year, I'll still be above the Mendoza line. Except in the world of retail, just like in the world of sports, momentum matters.

Yes.

And it takes way More energy. Let me give you an example. It takes way more energy. If you were pushing a car, you're going to put out far more exertion to get the car moving than you are to actually keep pushing the car and keep it moving. Because once the car starts rolling, you can kind of put your hands on the trunk and as long as you're not going uphill, you can keep the car going. But you really put out a great effort when the car is dead stop to get it moving. When you cut off the advertising and marketing, when you come back, you have something that's dead stopped. It's going to take more inertia to get it moving again. Which means either less productivity from your marketing or you will now have to spend more to get back to where you were when you cut it off.

Well, and again, as a reminder, there are two major factors that are at play here for any of our retail and we'll talk specifically about our retail brands. One, SKU rationalization is constantly happening and the pressure is only getting worse.

Yeah, Walmart is just on a whole nother round of it right now.

So to think that you can keep your sales the same and maintain that distribution, you need to get rid of that thought immediately because it's not going to happen.

Right. And don't forget, besides for SKU rationalization, there's also a big move on the part of many of the big retailers right now to eliminate the number of vendors in the store.

Simplify.

Right. So because they understand that it costs money to manage a vendor.

Yes.

So the vendors that are most likely get cut are the vendors with 1, 2, 3, 4 SKUs, not the vendors with 100 SKUs.

Exactly.

Because I can manage one relationship with P&G and have 300 SKUs in the store, or I can manage one relationship with your toenail product. And guess what? I still have to manage a full relationship.

Exactly. So that's the side of the retailer. Now let's go over to the side of the consumer. There is more competition in every single category of consumer packaged goods than ever before. Because the entrance into the category has never been easier with the with Amazon now.

So Amazon has really brought up all kinds of new brands that are coming out of people's kitchens.

Exactly. So. So the ability for new brands to come into your category now and to be stealing your sale is stronger than ever before. So it's not just now that as our brands that, oh, I've got to worry about the P and GS. No, you've got to worry about even Smaller upcoming brands and you. Because now they can get into the market easier. And all of them are taking just as many sales from you as the P and GS of the world.

Yeah, I'm going to encourage people to do something. Take your category of product, whatever category you're in, go to Amazon.com and walmart.com and look at the breadth and depth of how many people are in your category now with little brands you've never heard of. And when you think about, wow, these are a bunch of little brands I've never heard of. Have you ever heard of death from a thousand paper cuts?

Exactly. Yes.

That's what that is.

Yes.

So, yeah, this guy's got, you know, a fraction of a share, and this guy's got a fraction of a point, and this person's doing 20,000amonth. I don't care about a brand doing 20,000amonth. Do I care about 100 brands doing $20,000 a month?

Exactly.

And that's. And that's real. And that exists.

That is real.

Now, let me give you the good news out of all this. The good news out of all this is, as we're talking to you and you're thinking about, jesus, should I be cutting my ad budget? Is that the place to find the money? Because that's not the place to find the money. You need to find the money somewhere else. All of your direct competitors are having the same conversation right now, but many of them, many of them will decide, yes, the ad budget's where we're going to cut it from. So now you have something called share of voice, which we have spoken about before. Share of voice is, what percentage of the conversation in the country do you own? And what I mean by that is Simply this. If 10 companies each spend a million dollars in their ad budget, that means the voice is $10 million. There is $10 million worth of conversation going on about your category, trying to get the attention of consumers to like and remember and buy my version of this product. Okay? Now, if there's 10 companies and they each spend 1 million, they each have a 10% share of voice. If one of those companies spends 20 million, they now have a 20% share of voice. They have twice as much share of voice than the other nine companies. The reason share of voice matters is because the average consumer sees 5 to 30,000 ad messages a day, but can only recall 12 of them on a daily basis on an average. So the competition to be heard is massive. Now, little sidebar. This is why creative is so important.

Right? Because you can't outspend the category.

Right. Because even if you do everything perfectly well, you're just as good as the next guy who is also doing things perfectly well.

Exactly.

So now the only thing that's going to differentiate you other than your product is how well can you tell your story. Now, getting back to our share of voice issue, when we talk about share of voice, when your competitors cut their budget. So let's say last year your category spent 10 million, and let's say your competitors, some of your competitors, cut this year. And now your category's at 5 million. If you stay at your 1 million, you don't need to increase your budget. If you stayed at the same budget as last year, while your competitors are running scared and cutting, all of a sudden you doubled your share of voice. You now have twice as much share of voice in the marketplace for the exact same number of dollars because fewer messages are going out to the public trying to steal that person's attention away from your message. Last thing I'm going to leave our audience with on this is a story about a little consumer products company that was not a really big company. And they were back. They were in business prior to the Great Depression. So this company was a consumer products good company in Cincinnati. And they made soap. And they made Soap. Since the 1890s. Great Depression came along, everybody cut spending. This modestly sized consumer packaged goods company said, we're going to stay on the gas. Now, what happened was they captured an oversized market share. And when the Great Depression ends or ended, and remember, even if we're having a recession, it will end. It'll end when the Great Depression ended or when a recession ends, the brand that stayed on the gas and was capturing mindshare, their comeback is exponential compared to the other brands. Because as the consumer starts spending on brands, this is the brand I've always wanted. This is the brand I've been seeing. I've been holding off, but now I can do it. Now, as most of you probably guessed, that small company was called Procter and Gamble, that was P and G. And that single decision on the part of Procter and Gamble, which were the two men that started it, making Ivory soap, that decision on their part, that we are not going to run afraid, we are not going to back down. They accepted the notion that regardless of what's going on in the economy, people will still need soap, people will still want to buy good products. And they believed that regardless of what was going on in the political world, that they were going to control the outcome of their company, not let the environment control the outcome of their company. And now you see what the results are.

Absolutely, yeah.

I mean, is anyone ever going to catch Procter and Gamble in the consumer packaged goods category?

No, probably not. Probably not.

Procter and Gamble sells off and closes down brands that are bigger than many people's entire companies that P and G just looks at and goes, yeah, this is only $50 million brand. It's not worth our time.

Right.

No, I mean, it's hysterical.

Exactly.

We can't get involved for $50 million.

Come on.

Yeah, but they do. They just, they jettison these brands that make, you know, 100, 100 plus million numbers.

Absolutely.

They get rid of them.

No, absolutely. Like you said. So when we're talking about. Again, things are getting tighter. Okay. And we are trying to make sure that we hold on. Well, you got to generate more revenue. That's one option. Right. You either make more money or you cut costs and that's always where you're at. So right now, the danger of cutting this cost is that top line is going to drop and you might not ever be able to get it back if you make that call today, because it will drop. There's no way.

It will cost you. Here's the thing. It will cost you more to recover than had you stayed on the gas.

Exactly.

And you will not experience the exponential explosion that will come as the economy comes out of the doldrums.

And it will come out.

It always does.

It always comes out. Right.

Nothing is ever as wonderful as we think it is and it is never as bad as we fear it is.

Exactly. Exactly.

So no matter how fearful people are of the economy, no matter what you think of what's going on in Washington right now, this too shall change.

It will. And it comes back as well. Even just on the current return on spend is what we've talked about. Consumers buy products based on value. So the key right now is to, as you said earlier, and I want to make sure that this isn't lost, don't cut your spend. Holding your spend, as you talk about, in many categories is going to push you forward.

Yeah. You may not need to increase it.

You might not need to increase.

I mean, some people do, but you may not need to increase.

You may not. Right now's the time to say, what's our message? How are we communicating? Are we creating the best value? Because that might be the area where you need to take a look at your spend. Spending more never hurts from an advertising perspective. Right. But that might not need to be the focus it might need. Are we creating the value? Have we looked at this? What else can we do to show our consumers at this time in our situation that we are bringing the most value? Because that might be the true turning point you need is we can strengthen this message some more, keep the budget the same and really get the exponential growth that we're looking at.

And what is your long term plan? Do you believe in your country or your company? Do you believe in your product? Do you believe in yourself? Are you living in a world of abundance or are you living in a world of scarcity?

That's a great point.

When you live in a world of scarcity, you're always afraid there won't be enough. When you live with a mindset of abundance, you always know you control your future and you can create more. And that's where we want to be. That's what America is about. That's what we want our businesses to be about. Well, that's it for the first YouTube episode of CPG Insiders. As always, if you have any questions, feel free to reach out to Justin. Feel free to reach out to myself, Mark Young. All you have to do is go to cpginsiders.com or you can go to the website which is jekyllheidlabs.com and again, you don't have to worry that you're not a client. You don't have to worry that you're not paying us money. We're always happy to talk, listen to your ideas, give you opinions on things. And that's it for today's episode of CPG Insiders. As always, if you like the show, please leave us a five star review wherever you get your podcast. And if you have any questions or you just want to bounce ideas, feel free to reach out to Justin or reach out to me. You can go to cpginsiders.com to be able to get ahold of us, or you can go to j&hlabs.com that's the agency website and you can find us both there. And we will see you on the next episode. If you're looking to greatly increase sales on your CPG product, don't hesitate to contact us at Jekyll and Hyde Advertising and marketing. By the way, the only advertising agency with a guaranteed go to Jekyll Hyde agency.com or feel free to give us a call at 800-500-4250.