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New Research: In Most Cases, CPG Ad Spend Pays Back In The Long Run.

With the current state of the economy comes pressure on consumer packaged goods advertisers to cut back spending, but a just-released analysis by consultancy Gain Theory suggests that CPG companies doing so risk sacrificing revenue and profit.

“Advertising does boost the bottom line of CPG companies in the majority of cases,” Gain Theory Managing Partner Jon Webb says, “but this needs to be tempered by the fact that it does not happen in the short term. In many cases, it takes longer than a year.”

The CPG or FMCG (fast-moving consumer goods) category remains a staple of radio advertising, with the largest such company, Procter & Gamble, wrapping 2022 by placing a record 15 of its products on Media Monitors' weekly chart, led by Vicks, Bounty, Mr. Clean and Crest in the top 30. As of mid-year 2022, P&G had cemented its hold as the top radio advertiser, with 3.6 million spots on U.S. broadcast radio.

With continuing talk of a recession in 2023, what return-on-investment should P&G or other CPG advertisers expect? Gain Theory's analysis of ROI at margin – accounting for all costs associated with an uplift in sales – shows that, based on the performance of more than 200 brands over the last few years, the average short-term ROI at margin is only 0.43, with a range from a 0.12 at the minimum to a 0.96 maximum. “This is problematic given most marketers use return on advertising spend to measure campaign outcomes and determine future ad spend,” Webb says. “If the campaigns they are measuring do not pay back over the short term, then they risk making crucial decisions based on sub-optimal data.”

By analyzing ad spend by food and drink companies in North America and Europe, Gain Theory found it takes an average 94 weeks for CPG ads to deliver a positive return, with the earliest payback at 61 weeks and longest at 150. “This means that a campaign that ran in the summer of 2022 could still be having an impact in spring 2024, [and that] even the best-performing brand does not see a return within a year,” Webb says.

Related findings from the study show that the larger the brand and the greater the profit margin, the faster advertising pays back, but, as Webb cautions, “the further we go into the future, the harder the discount rate bites.” Also noticed, more creative ads have both a stronger short-term ROI and pay back more quickly over the longer term. Of greater concern, Webb says, is that “brands in mature, low-growth markets and a small number of large brands struggle to generate a return from advertising over a two-year timeframe, unless it is backed by new product development into adjacent markets.”

While, as Webb notes, some brands never see an ROI – and in such cases, “ad spend should be cut unless there is definitive proof that this would see the brand de-listed, re-positioned on shelf, or suffer other adverse consequences” – the major takeaway for CPG is staying the course when it comes to ad spend. “ Armed with this knowledge, marketers can have confidence when having conversations with senior stakeholders that budgets should be more protected.”

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