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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Branding Malaysia

Branding products is hard. According to McKinsey & Company, up to 90% of products fail to become brands, despite the approximately US$1.5 trillion that is spent annually on marketing.

Branding countries is even harder. There are fewer than 200 countries worldwide. This means that the stakes are higher in terms of tourism, investment, exports and even international influence. But the rewards are huge. Tourism is now the number one industry in the world. But how do you brand a nation?

Increasingly fragmented media and an increase in leisure time activities is making it harder to reach consumers. For instance, a survey by Willard Bishop Consulting in the USA found that in 1995, it took three TV commercials to reach 80% of 18-to-49-year old women. In 2000, a mere 5 years later, it took 97 ads to reach the same group.

Furthermore, due to increasing global & regional competition for tourist dollars, an international “one-size-fits-all” tourism strategy is no longer effective. Indeed, consumers are now unable to differentiate between all the sand, azure water, blue skies, smiling children and so on. Countries must brand themselves by aligning differentiated offerings with the values and requirements of specific segments.

Special attention should be paid to retention branding and Internet-based data collection and communications. The goal of the project is increased tourism among targeted segments in terms of first-time and repeat visitors, length of stay and amount of spending. Other goals include development of appropriate benchmarks and other measurements.

But Nation-branding is not, as many think, simply a matter of advertising. There are actually six forces involved in branding a nation:

• Tourism: This includes promotion, as well as people’s experiences visiting the country as tourist or business travelers.

• Exports: These are powerful ambassadors of the country’s image abroad (but only when it is clearly stated where they are made).

• Government actions: Governments must not only be involved in traditional diplomacy, but public diplomacy as well. This involves communicating directly with the people of other countries through cultural and scientific exchanges, PR, etc.

• Investment: How does a nation attract – and reward – international investment and talent?

• Culture: In many ways, a nation’s culture represents its soul. Nations must work at publicizing their cultures, which can range from dance and theater to famous authors and artists.

• People: Countries are judged by their people on two levels. The first is according to the high-profile leaders, media and sports stars. The second is the general population. How do they behave abroad and how well to they treat international visitors.

As we all know, the international business world has changed dramatically. Branding now requires a consistent ability to establish, maintain and grow profitable relationships with customers in specific segments. Brands must now adapt to the emerging business and customer imperatives of tomorrow, which include a special emphasis on research and data collection and analysis, effective customer, channel and employee communications, operational excellence, accountability, service and the ongoing ability to meet customer requirements.

A beautiful, award winning, commercial with enhanced imaging that blurs the line between truth and fiction and looks the same as every other country is not the way to brand a nation.

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Longtailing brands

Amazon, Apple, Malaysia Tourism, Google, Yahoo. They're all at it! And it could be why they're so profitable. But what is it? Essentially, it's about using technology, and the data revealed by using that technology effectively to shift from mass markets to niche markets and to make a profit doing it. Amazon realised some time ago that due to space constraints, a traditional book store has a limited number of books it can stock (around 130,000 for all you anoraks), and, understandably, prefers to focus on those very popular books that sell well rather than a store full of niche market titles that do a great job of gathering dust but little else.

Amazon doesn't have such shelf space problems and can therefore offer a greater range. Using some neat software, collaborative filtering, your purchase history is analysed and similar books, often at the end of the longtail, are listed in one of the margins on the next page you look at. This neat little service that often consistst of niche titles related to your initial search, now contributes more than 30% to Amazon's sales.

In the mass economy that no longer exists, firms, with some exceptions, would manufacture a product, use the 4 P's to sell it and hope for the best. Basically, try to guess what the market wants. If a product didn't sell (despite millions spent on A&P - but let's not got there!), it was withdrawn and the firm simply tried again, with a different product. Longtailing allows firms to put the whole lot out there, and see what demand there is for what. But you need to get it right. Provide information and use filters. Supermarkets, Department stores, Electronics stores, even cinemas now have a bewildering array of choice on their shelves that can intimidate shoppers. Once the shopper makes a purchase, the filters will ensure you conitnue to give shoppers what they want, the information you provide will ensure they have enough data to make a rational choice.

But what are the implications for brands? In the short term, the impact will be minimal and will be focussed primarily on the technology sector or those firms that use technology - Amazon, eBay, Asiatravelmart, Yahoo, Google and so on. But in the long term, in much the same way that the net has impacted travel, your future purchases will be influenced by what you learn from the net. If you can research a product and learn about its features and benefits you will be more inclined to purchase it. Assuming the company uses the data it has on you, it will then notify you of related products as and when they are available. This will have a significant effect on profitability as time and resources are not wasted developing products that fail.

This should also be of interest to any Malaysian firm looking to make the move from a cost focused strategy to a niche focused strategy.

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