Impact of Great Creative in Sales Forecasts
Updated: Jan 21, 2020
Let's review some standard sales forecast inputs...
When conducting a sales forecasting exercise, there are a number of fairly standard inputs that we have to feed into a forecasting model. In addition to the identification of a target population, and obviously its size, we also have to estimate initial trial, an initial repeat rate, a secondary repeat rate, anticipated purchase cycle, and an assumption about packs bought per buying occasion. We also have to make assumptions about the distribution and awareness build in year one (either entered directly, or estimated from a detailed media plan and separately modeled). And there are obviously other factors, such as sampling and couponing, which don’t need further explanation here.
These are all fairly standard inputs in all sales forecasting models currently available, including those available for "rent" by consultancies. But perhaps the most powerful, yet overlooked, variable in the entire equation is advertising impact. Great creative generates a multiplier effect that is significant - and enough to overcome many of the mathematical constraints inherent in other marketing mix variables.
A simple example will demonstrate this clearly. Let’s assume that we have a sales forecast for a new snack product. An estimated target population, based on consumers within the household, is presumed to be 35MM, and from a concept-product test we have estimated trial of 20%, and first-year repeat of 65% (i.e., about 2/3 will make one repeat purchase in the launch year). We’ll assume, for simplicity that the average number of packs per purchase occasion (for both trial and repeat) are an average of 1.0. Similarly, if we take a typical distribution and awareness curve based on an average marketing plan, we might assume, say, 50% distribution by the end of year one, and an average 40% brand awareness achieved in the marketing plan.
The base forecast
So, the simple math would be something like: (35MM x 50% x 40% x 20% = 1.75MM trial purchases) + (1.75MM x 65% = 1.14MM repeat purchases) for a total volume of around 2.9MM units. But that also assumes average creative (based on a copy test vs. ad norms). But what if we have an advertising agency that was able to create a great campaign and wonderful creative?
In the context of an average sales forecast, the difference between 40% and 50% awareness, while significant, is 10%. Given the asymptotic nature of advertising awareness, the marginal return of each additional advertising dollar flattens the curve out rapidly. The same is true for distribution, albeit with a more linear relationship between spending and added points of sale. A company’s ability to go from say 50% distribution to 70% distribution is still going to be significantly more costly, because the large distribution outlets have already been captured, and what remains is the difficult blocking and tackling of smaller regional players which are, by default, more expensive to gain.
But let’s get back to the impact of good creative on the same marketing plan. It is not unreasonable, nor is it uncommon, to get great creative from your agency partners for the same amount of money that it might cost you for mediocre, or even lousy, creative. Yet the multiplier effect of great creative is far greater than what might be achieved through nominal increases in awareness or distribution.
Great creative is the most powerful multiplier
Assuming that the product proposition is sound, a 40% improvement in ad impact would race through the entire sales modeling exercise like freight train. Let’s assume that we can get really superior creative from our wonderful agency friends, and are able to generate an ad impact score of 1.4 (where the norm would be 1.0). That takes our 2.9MM unit forecast in year one to 4.1MM – a far greater impact than a marginal 10% increase in awareness or distribution (which would only get us to around 3.2MM - 25% less). Yet we always think that both awareness, distribution, and use-up rates are the holy grail in a sales forecast.
Of course, the fundamental inputs of a sales forecast are truly important, but the ability to connect with the consumer through great creative can often turn a mediocre story into one that truly resonates in the marketplace and captures consumers' imagination.
So, when assessing the performance of your creative, especially in the context of a new product launch, give your agencies room to run! They may just come back to you with the kind of creative that will produce the multiplier effect we just saw. And that can make the difference between a winning formula vs. playing for a tie.
More appreciation is needed for the pieces of a sales forecast that really matter: great creative, with a great product behind it, is almost an unstoppable winning formula.