Half the input? .. less – much less – than half the impact

This is a specific illustration of the principles of an earlier topic (see ‘the Zombie business’ here) – that a business system needs some minimum recycling of cash to sustain its resources, and more than that minimum if those resources are to develop. (See that post here) This case concerns the minimum marketing spend needed to launch a new product.

A promising new brand

An impressive product manager on my executive course some years back told me of a bold step she had recently taken …

She was responsible for a number of brands in a large consumer products business, and had spent the past year leading a promising new product. The product had done well in pre-launch trials – consumers liked it, and as the company had little share of the target segment, a successful launch would not cannibalise existing product sales.

How to succeed

She had reviewed other product launches, and confirmed that past successes depended on the correct scale and timing of marketing and promotion spend.

  • Simple mass advertising effort made target consumers aware of a brand
  • Sophisticated ‘values’ advertising informed consumers about why they should want the product
  • Trial promotions won early sales to interested consumers, though they were at first not loyal to the brand
  • Loyalty promotions persuaded consumers to become loyal, buying only that product, rather than rivals.

Marketing folk may recognise this “choice pipeline” as similar to the old “AIDA” framework – awareness, interest, desire, action. But this is more rigorous, and can be quantified and simulated. Marketing costs drive the pumps pushing consumers up the pipeline – sales and revenue come from consumers who reach the top two states, and the brand’s profit contribution is the gross profit on those sales, minus the marketing spend … and minus the cost of sales effort to get the product into stores.

I am most grateful to Lars Finskud for showing me the power of this model.

The product manager had carefully assessed for the new brand how much spend was needed on each activity, over the launch period, to push enough consumers up this “choice pipeline”, fast enough to generate worthwhile sales and profits.

She had presented her analysis to the executive board she reported to, requesting the budget she needed.

Cautious management

Although impressed by the product’s potential and the rationale, the board agreed to only half of the requested budget.

The bold response she made was “If we only spend this reduced amount, we will capture only a small fraction of the target consumers. Sales will be nowhere near what we need, and we will not build a profitable brand. I recommend that we do not proceed with the launch.”

Why would she say that? … because of the “physics” of this pipeline.

Why half the budget won’t work

Consumers have a limited attention-span, so slip back down that pipeline if not continually pumped upwards! Loyal consumers start trying rival products, disloyals stop buying the brand at all, informed consumers forget why they should want it, and aware consumers forget the brand altogether.

Halving the marketing investment would simply not overcome this drag on the product’s adoption. Active buyers of the brand would reach only a small fraction of the required numbers, and sales would never generate enough gross profit to even pay for the marketing spend, let alone generate useful profits – the pink scenario below.

The general principle here? It’s a function-specific (marketing) case showing that …

Any business system needs adequate input of cash and/or effort to develop its potential.

The same applies to staff development (too little hiring and training, and we will not get the numbers of skilled staff we need); product development (too little effort leads to an inadequate range and quality of products); capacity (too little maintenance, and physical assets will deteriorate)


Class 6 of our course on building dynamic business models shows how to build a working model of this customer pipeline – and others (staff promotion, product development, asset maintenance). See free preview lessons here. Followers get a 1/3 SAVING – enter coupon ‘blog33‘ at checkout. .

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