Strategic Ad Budget Allocation Method to Maximize Advertising ROI

Many of SPI's clients still use traditional methods for setting their yearly ad budgets, such as the 'percentage of sales' method, or the 'competitive spend' method. They might also decide on the ad budget allocation for each brand by just referring to the previous year's brand budget allocation and making minor adjustments.

Recently, however, we have seen several clients adopt a 'strategic budget allocation method' instead of the above mentioned methods in order to improve cost effectiveness (ROI). Here, we introduce a case study of how SPI supported a client set an ad budget allocation that maximized ROI of their advertising investments.

Consumer goods maker Company X wanted to implement an ad budget allocation strategy that would maximize ROI of their ad activities. Previously, the return of ad investment differed from one brand to the next, even though each brand had the same amount of ad spend. The reason for this was because the sales for each brand were being influenced by their different product characteristics, competitor activities, even weather temperatures, and so on. The first thing SPI did was to analyze and determine what the best ad budget for each brand was separately.

 

Based on the results of this analysis, we then conducted several simulations to select the best brand ad budget allocation pattern that would maximize ROI.

Brand Mix Simulation Patterns (Example)

We compared each pattern by looking at the 'upper limit sales' and the 'lower limit sales' and selected an allocation pattern taking into account both risk and returns. For example, Pattern 11 would be one credible recommendation because the range is most narrow, meaning it would have the most predictable results. However, in the end, the client made their final decision on budget allocation considering not only SPI's recommendation but also the sales strategies for each brand. For example, Pattern 10 might be a better candidate since product B will be allocated at least 5% of the total budget as opposed to none in Pattern 11.

To this day, we continue to work with Company X to further improve the ROI of their ad investments.

Author: SPI

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