We have discussed a few times about ESOV (Excess Share of Voice): brands that set their SOV (Share of Voice) above their SOM (Share of Market) tend to grow, and those that set SOV below SOM tend to shrink.

The rate at which a brand grows or shrinks tends to be proportional to its Extra SOV (ESOV), defined as the difference between SOV and SOM.

ESOV

We’ve also seen that ESOV Efficiency (how fast the brand grows per unit of investment above equilibrium SOV) changes based on brand’s sector and other variables:

  • For consumer brands, 10% ESOV causes market share to rise by 0.6 % points per annum, all else being equal.
  • For B2B brands, the corresponding figure is 0.7%
  • ESOV Efficiency for online brands is more than double vs. offline brands.
  • ESOV Efficiency for subscription brands is approx double vs. series brands.
ESOV efficiency

Once you understand the dynamics, you should’t be surprised that the ESOV law is still valid during a recession like the one that almost certainly will be generated by the impact of the COVID-19 virus pandemic.

In fact, as many brands in the category pull all – or most – of their promotional spend, the relative value of maintaining an advertising budget becomes significantly more compelling. Let’s say all the companies in your category cut their promotional spend in half, for example. Suddenly your budget that was 10% of the total share of voice now doubles to 20% as a result. Just keeping advertising spend flat will put your brand in a dominant position.

This has been recently explained by Mark Ritson (The best marketers will be upping, not cutting, their budgets) and Peter Field (Advertising in recession – long, short or dark?).

While it is critical that marketers (and their CEOs/CMOs) understand the ESOV principle and stop cutting budget, this could be not enough. In fact, it tells just a piece of the full story. HBR’s study “Roaring Out of Recession” by Ranjay Gulati , Nitin Nohria and Franz Wohlgezogen (2010) shows how brands should carefully balance investments in marketing/promotion, R&D and new assets with improvement in operational efficiency (= cost cutting) in a time of recession.

Businesses that just boldly invest more than their rivals (in marketing, sales, R&D, hiring, etc.) during a recession don’t always fare well. Organizations that focus purely on promotion develop a culture of optimism that leads them to deny the gravity of a crisis for a long time. They simply don’t notice that because the pie is shrinking, they must capture an even larger share from rivals to keep growing. 

During recessions, winning brands (progressive companies, as they are called by authors) develop new markets and invest to enlarge their asset bases. These companies also judiciously increase spending on R&D and marketing, which may produce only modest benefits during the recession, but adds substantially to sales and profits afterward. So they cut costs, but they rely on that approach much less than their peers do.

Based on the research, these brands – approximately 9% of the overall sample analysed – flourished after a slowdown, doing better on key financial parameters than they had before it and outperforming rivals in their industry by at least 10% in terms of sales and profits growth.

This is why the ESOV law of promotion and advertising should be always balanced by other actions and must be considered as a piece of a bigger picture.

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