The following was written by my friend, Dave Beckert, local Buffalo Media planner. It’s been useful over the years in developing budgets.
Based on two articles from the Harvard Business Review, there appears to be a connection between advertising spending and market share based on an analysis of Share of Voice (SOV) compared to Share of Market (SOM).
SOV is defined as an individual brand’s percent of the total spending for the category for a specific time period, while SOM is the same brand’s percent of total sales for the new category for the same time period.
Most mature markets are in a state of equilibrium where SOV and SOM do not generally change in a major way. An individual brand is in a relative state of equilibrium when its SOV approximates its SOM. Equilibrium exists with the competition when the primary market share leaders stay within ten percentage points of each other’s SOV.
The market leader’s SOV can be less than its SOM. However, when SOV falls disproportionately low, the marketer is vulnerable to challenges. Decreases in SOM among established brands (those with at least 13% SOM) start to occur when a brand’s SOV consistently drops below its SOM by 4% or more.
Smart marketers investment spend (SOV slightly exceeds SOM) to some degree to deter attack. To show major gains in SOM, you must create or exploit disequilibrium …using advertising spending as an offensive weapon, based upon an analysis of the competitive situation.
To show increases in SOM, your SOV must be double that of the leader for approximately 18 months and should equal approximately 25% of the total spending for the category. To gain SOM, it is best to target markets or products where competition is under spending (not protecting their SOM.) Marketers must resist the lure of cutting ad spending to generate short-term profits. Cutting spending too much means you lose the competitive war.