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“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.”
Company GHI, a leader in Consumer Care, is concerned about the manner in which its Advertising & Promotion (A&P) and Sales & Marketing (S&M) spends are allocated across its branded product portfolio. Because the biggest brands typically always secure the highest A&P and S&M resources, less successful brands are in a constant tug-of-war for scarce resources until such time as their contributions to sales targets become more noticeable. The company is convinced that some brands do not fulfill their early commercial potential and peak much later than expected because they are starved of vital resources during their early 'ramp up' phase. The company is unsure as to how to allocate its annual A&P and S&M resources across its branded product portfolio over the next 3 years.
Decision Frame
Given its annual sales growth goals, how can Company GHI optimally re-allocate its constrained A&P and S&M resources in order to maximize the potential of its branded product portfolio in which products are at different stages of their commercial growth?
Decision Options
'Trim The Fat' from all product lines by cutting back on 'non-essential or superfluous services'.
'Maximize Productivity' across all product lines by conducting a 'bang for the buck' Efficiency Frontier analysis.
'Maximize Sales And Gross Margin Growth' across the breadth of the product portfolio by way of an annual A&P and S&M elasticity of sales demand analysis.
Methodological Approach
While all 3 decision options required a different methodological approach, Option 2 provided valuable insight into the efficiency with which each A&P and S&M dollar was being spent. However, this analysis did not provide sufficient reason to believe that the future would look more or less like the past and that increasing spends on the most efficient brands would yield the highest ROIs. PPVC therefore recommended that Subject Matter Experts from the branded product lines engage in an elicited elasticity analysis in which the demand responsiveness to fixed increases or decreases in A&P and S&M spend be determined annually for the next 3 years, taking into account the competitive landscape.
During a series of discussions with the Core Team, PPVC recommended that the company look at maximizing Gross Margin in addition to Sales as the latter metric would provide little information on profitability. Once the A&P and S&M elasticity of sales demand analysis was completed and consensus achieved among stakeholders within the product lines, a multiple objective linear program (MOLP) was constructed with differential weights to Sales and Gross Margin as the objectives. By applying a series of different weights to these objectives, the optimal portfolio of A&P and S&M investments across the branded product line was found for each pair of weighted objectives. While Option 3 proved to be a far superior choice to Options 1 and 2, PPVC was required to provide significant training and education in the MOLP methodology before it was accepted in the company.
Recommended Solution
'Maximize Sales And Gross Margin Growth' across the breadth of the product portfolio by way of an annual A&P and S&M elasticity of sales demand analysis. This strategy enabled Company GHI to engage in more prospective, data-driven analysis in order to determine its annual A&P and S&M spends, with the understanding that policy decisions could always be made to override the best analytic solution.
Postscript
Because of the successful analytic approach in Region A, Company GHI is considering rolling out this MOLP methodology to optimizing A&P and S&M resource allocation to all remaining geographies.
