Inflation and Why You Should Keep Advertising

Episode Transcript

 

SPEAKERS

Mark Young, Justin Girouard

 

Mark Young  00:18

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

 

Justin Girouard  00:26

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

 

Mark Young  00:38

Oh my God, I'm not even gonna touch that. Okay. I tell you what I want to talk about today. And this is this comes out of a conversation that I just had with a client. So I want to 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.

 

Justin Girouard  00:59

Absolutely.

 

Mark Young  01:00

And packaging costs more than ingredients costs 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.

 

Justin Girouard  01:21

Yep.

 

Mark Young  01:23

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.

 

Justin Girouard  01:38

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 at all do all those things...

 

Mark Young  01:47

You have to ship it...

 

Justin Girouard  01:48

exactly. Like all those things still have to happen. There's no way to stop doing one of those things. But your marketing will just stop doing that no problem. Right?

 

Mark Young  01:56

Right, because we'll forego that. And the reason is, this is an accounting issue. And when you look at a p&l, or you look at a balance sheet, there's a couple of things that are wrong. The first thing is the p&l looks at advertising as a straight line item expense. This is this is an expense, this is money out the door, we're never going to see this again, like rent.

 

Justin Girouard  02:22

Right.

 

Mark Young  02:23

Accounting treats advertising, like it's rent.

 

Justin Girouard  02:26

Yeah.

 

Mark Young  02:26

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.

 

Justin Girouard  03:13

Slim to none.

 

Mark Young  03:14

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

 

Justin Girouard  03:19

Right, right, but similar deliverable. So you can you know, there's substitution can happen very easily.

 

Mark Young  03:26

So, when your company is 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. 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?

 

Justin Girouard  04:02

Again, very rare instances is that the case. Right?

 

Mark Young  04:05

Right. You got you got a face lotion out.

 

Justin Girouard  04:09

Right.

 

Mark Young  04:10

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.

 

Justin Girouard  04:21

Right.

 

Mark Young  04:22

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...

 

Justin Girouard  04:53

Wait, wait for it. Wait for it.

 

Mark Young  04:57

Advertising and marketing because if the price factories and selling you lose distribution and you don't gain distribution unless your IRA, and your Nielsen reports show that you're moving product.

 

Justin Girouard  05:06

 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.

 

Mark Young  05:16

So we need brands to understand when and I understand this sounds self serving, because we're the ad agency. So 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 I'm 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.

 

Justin Girouard  06:11

Yes.

 

Mark Young  06:12

And it takes way more energy to give an example it takes way more energy. If you are 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 car starts rolling, you can kind of put your hands on the trunk. And as long as you're going up hill, you can keep the car going. But you really put out a great effort when the car is dead stop to get a movie. 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.

 

Justin Girouard  07:06

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

 

Mark Young  07:21

Yeah, Walmart is just on a whole nother round.

 

Justin Girouard  07:23

 So so 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.

 

Mark Young  07:34

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

 

Justin Girouard  07:45

Simplify.

 

Mark Young  07:46

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

 

Justin Girouard  07:50

Yes.

 

Mark Young  07:51

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

 

Justin Girouard  07:59

Exactly.

 

Mark Young  08:00

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.

 

Justin Girouard  08:17

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 categories never been easier with the with Amazon now. So...

 

Mark Young  08:35

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

 

Justin Girouard  08:40

Exactly. So. So the ability for new brands that 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&Gs. No, you've got to worry about even smaller upcoming brands and new because now they can get into the market easier.

 

Mark Young  09:00

Yep.

 

Justin Girouard  09:00

And all of them are taking just as many sales from you as the P&G's of the world.

 

Mark Young  09:05

Yeah, I'm going to encourage people to do something take take your category of product, whatever category you're in, go to amazon.com or 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 ah well these a bunch of the brands have never heard of. Have you ever heard of death from 1000 paper cuts?

 

Justin Girouard  09:28

Exactly. Yes. Yes. Yes.

 

Mark Young  09:30

Because that's what there is. 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 is doing 20,000 a month. I'm like, I don't care about a brand doing 20,000 a month. Do I care about 100 brands doing $20,000 a month?

 

Justin Girouard  09:45

 Exactly.

 

Mark Young  09:46

And that's and that's real and then that is exist.

 

Justin Girouard  09:49

That is real.

 

Mark Young  09:49

 Now, let me give you the good news out of all this. The good news out of all of this is as we're talking to you and you are thinking about Jeez, well, 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 budgets where we're going to cut it from. So now you have something called Share of Voice, which we've spoken about before. Share 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's $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 voice, they have twice as much Share of Voice, then the other nine companies. The reason share 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.

 

Justin Girouard  11:49

Right? Because you can't outspend the category.

 

Mark Young  11:54

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

 

Justin Girouard  12:06

Exactly.

 

Mark Young  12:07

So now the only thing that's going to differentiate you other than your product...

 

Justin Girouard  12:11

Right

 

Mark Young  12:11

is how well can you tell your story. Now getting back to our share voice issue, when we talked about share 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 is 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've 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, and 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 cuts spending. This modestly sized consumer packaged goods company said we're going to stay on the gas. Now what happened was they captured and oversized market share. And when the Great Depression ends or ended. And remember, even if we're having a recession, it will end...

 

Justin Girouard  12:11

it will end

 

Mark Young  12:17

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&g. And that single decision on the part of Procter and Gamble, which were the two men that started at 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 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.

 

Justin Girouard  15:31

Yes.

 

Mark Young  15:33

So and now you see what the results are.

 

Justin Girouard  15:37

Absolutely.

 

Mark Young  15:37

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

 

Justin Girouard  15:42

No, probably not. Probably not.

 

Mark Young  15:45

Procter and Gamble,sells off and closes down brands that are bigger than than many people's entire companies that p&g just looks at and goes, Is this only $50 million brand, it's not worth our time.

 

Justin Girouard  16:00

Right.

 

Mark Young  16:01

No, it's hysterical.

 

Justin Girouard  16:03

Exact.

 

Mark Young  16:03

We can't get involved for 50 million. Yeah, it but they do. They just they jettison these brands that don't make you know, 100-100 plus million numbers.

 

Justin Girouard  16:15

Absolutely.

 

Mark Young  16:16

They get rid of it.

 

Justin Girouard  16:16

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 wont.

 

Mark Young  16:52

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

 

Justin Girouard  16:59

Exactly.

 

Mark Young  17:01

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

 

Justin Girouard  17:09

And it will come out.

 

Mark Young  17:11

It always does.

 

Justin Girouard  17:11

It always comes out. Right.

 

Mark Young  17:13

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

 

Justin Girouard  17:19

Exactly. Exactly.

 

Mark Young  17:21

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.

 

Justin Girouard  17:31

It will. And it comes back as well, even just on the current return on ad spend. 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 talked about in many categories is gonna push you forward. Right? You may not need to increase it. You might not need to increase it.

 

Mark Young  17:58

 Some people do but you may not need to incrase it.  And what is your long term plan? Do you believe in your country or your company? Do you believe in your product you believe in yourself? Are you living in, are you living in a world of abundance? Or are you living in a world of scarcity?

 

Justin Girouard  17:59

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? How have we looked at this? What else can we do to show our consumers at this time, and in you know, in our situation that we are bringing the most value because that might be the true turning point you need as we can strengthen this message some more keep the budget the same and really get to exponential growth that we're looking at?  That's a great point.

 

Mark Young  18:55

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 JekyllHydelabs.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 podcasts. 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 CPG insiders.com to be able to get hold of us or you can go to jandhlabs.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 result just go to JekyllHydeagency.com Or feel free to give us a call at 800-500-4210.