The findings presented in this website and the book The Momentum Effect, are the results of our investigation into the effect of marketing investments on the long-term growth of large, established firms. We looked at the conduct and performance of well-known corporations among the world’s 1,000 largest, covering a 20-year period from 1985 to 2004.
Data Sample
We started our investigation with the 1,000 largest companies (on the basis of their 2004 revenues), U.S. or non-U.S., quoted on the New York Stock Exchange. Out of these 1,000 companies, 498 did not exist in 1985, or were the result of mergers and so had to be excluded from the analysis. Out of the remaining 504 companies, some sectors were excluded because of the peculiarities of their competitive situation (oil, utilities, and so on), and full data was not available for all firms. This left a pool of 367 companies for which full data was available. We controlled different sectors of activities. We investigated different definitions of marketing, from the narrower and stricter consideration of just advertising to the broadest definition including field forces and all support functions. All analyses showed robust results in the same direction.
We looked at these firms’ marketing behavior and tracked the effect that changes in this behavior had on sales revenue, net earnings, and stock price. The figures presented in this website are base on an analysis of consumer goods companies. Of the companies in our sample, 119 belonged to this category. We have chosen this sample because it is the largest sector in the survey and because marketing is an important component of their cost structure. The sample in this example was ranked on the basis of the evolution of their advertising-to-sales ratio over the 20 years, but, as we said above, alternative definitions of marketing gave remarkably similar results.
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Pushers, Plodders, and Pioneers
We divided the firms into three groups according to how their marketing behavior could be described: Pushers, Plodders, and Pioneers. Because we were interested in the effect of extremes in marketing behavior, our three groups were divided in a 25:50:25 split. For simplicity, let us illustrate the results of our research with an example from one sector, the largest: consumer goods and services.
The Pushers were those companies that pushed their businesses hard in the traditional way, seeking to drive sales through aggressive increases in relative marketing spend. In our rankings, these were the firms in the quartile showing the highest increases in their marketing-to-sales ratio over the 20-year period. This group, on average, increased its marketing-to-sales ratio by 3 percent over this time.
Then there were the Plodders. These were the firms grouped around the middle of our sample—fully half of those in the study. Their marketing-to-sales ratio remained more or less constant for 20 years. These middling firms stayed in the safety zone of past behavior and took no drastic action one way or the other.
Finally, there was the remaining quarter—those firms that were, either boldly or foolhardily, pioneering a new path in the opposite direction from the Pushers, and decreasing their relative marketing spend. Taking Pioneers’ average marketing-to-sales ratio, we see a 4 percent drop over the timeframe.As with any statistically based study, there are important caveats. Within each group, there are companies that performed outstandingly well, and others that sit at the bottom of the shareholder value-creation table. But what we are interested in here is the broad perspective: How would an investment portfolio made up of Plodders have fared against one of Pioneers or one of Pushers over the long term, and what can the behavior of these firms tell us about which strategy stands the greatest chance of success?
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