28 July 2005

How much should a manufacturer spend on marketing

A number of Malaysian manufacturers are looking to make the move from OEM to OBM. And little wonder as the potential profits are significantly higher. But it isn't easy. Building a business based on a price only strategy is relatively easy. Just offer the client a better price than the factory next door and the deal is done. But anyone can sell something on price. Successful businesses are built on relationships not price. Factory wages in Malaysia are significantly higher than India, Vietnam, Indonesia and other competitors so it's a short term strategy. What's needed is a fresh approach that includes significant investment in a number of areas such as operations, the organisation, sales, marketing, retention and others. But how much should they spend on marketing?

Well, in the US, the bigggest economy in the world, manufactuers will spend nearly $120.1 billion on marketing. This marketing budget includes advertising, direct marketing, events, and other activities. Yet manufacturers won't spend the most money in every category of marketing. When it comes to direct marketing, for example, retailers will spend $24.5 billion this year.

Manufacturing represents nearly $1.5 trillion of the U.S. gross domestic product. But that's not the highest amount, retailers actually spend a higher percentage of their revenues on marketing.

So at a rough estimate, depending on the industry, manufacturers should expect to invest approximately 10% of sales on marketing. The strategy should be to invest in measurable activities like direct marketing and online promotion.
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