Why Do Well-known Brands Still Advertise?

In many people’s eyes, a well-known brand really doesn’t have to advertise anymore. But why do so many big brands, including Red Bull, Pepsi, Coca-Cola continue to invest so much money in advertising? Just an example, they’re buying thousands of exclusive display fridges for promotion campaigns every year. Do people really not buy them after they stop advertising?

1. The falling of Jianlibao: Even “household name”is not reliable

We say that Coca-Cola is a well-known household name and it is a result of its continuous advertising. However, “household name” is always unreliable. Let’s look at a typical example that once used to be a “household name”: Jianlibao, which was called “Oriental Magic Water”, a miracle in the Chinese local soft drink market.

Jianlibao was born in 1984. As the first drink to add alkaline electrolyte in China, Jianlibao took the lead in introducing the concept of sports drinks to the Chinese and became famous after the Los Angeles Olympics in 1984.

The excellent advertising made it the top spot in the Chinese beverage market. Its sales reached an astonishing 5.5 billion in 1997, which is the sum of sales of Pepsi and Coca-Cola in China. At that time, the orange can of Jianlibao was a childhood memory of the 80s. It is not an exaggeration to describe it as a “household name”, but nowadays for the post-95s and the 00s, many people do not know what Jianlibao is.

The reason for Jianlibao’s sinking is complex, but of course, it cannot be attributed to the fact of no longer advertising. However, it objectively provides us with an excellent case for answering this question: The result of years of no-advertisement on a well-known brand is that consumers will forget it.

In fact, Jianlibao did not close down and is still selling. Now Coca-Cola, Pepsi, and Jianlibao are on the shelves at the same time. How many consumers will choose Jianlibao? For many young consumers, the word “Jianlibao” does not allow them to have any association.

Jianlibao is a typical phenomenon for us to explain brand advertising. So what is the essence of this phenomenon?

2. Forgetting curve: People are always forgetful

Forgetting curve People are always forgetful

• Theory

The forgetting curve of the German psychologist Ebbinghaus tells us that people’s forgetting speed of one thing is not linear, but begins to be high, and then slow down subsequently. The theoretical guiding significance of this discovery is that any memory must be repeatedly enhanced before it is forgotten, and repeated and repeated again.

Advertisers deeply understand this principle and repeatedly deepen their impressions before people forget it, in order to build a solid image. Otherwise, people will just forget it.

Regardless of the era of television advertising or the current Internet advertising, one indicator that brands are most concerned about when placing advertisements is the frequency of coverage. Normally, an advertising campaign will broadcast on television for four weeks and then stop for two weeks. And it will also cover the same crowd at least 3 times on the Internet. The principle behind this is to use the memory curve to enhance the impression before forgetting.

According to Nielsen’s data, an American is averagely exposed to more than 120 advertising brands. How to stand out from the crowd, advertising is a direct and effective way.

• Cases

Even if the impression has been repeatedly strengthened, if it does not strengthen over time, it will also slowly disappear in the minds of consumers. Let’s take another example: Li Ning, the gymnastic prince in China, was an idol of the entire Chinese people in the 1980s. It is not an exaggeration to describe it as a “household name”.

However, over 20 years later, how many people still remember Li Ning, a living gold medalist? When you ask the younger generation, many of them only know that Li Ning is a sports brand and does not know the once-everytime national idol and world champion. If Li Ning agrees, how many sports brands are still willing to accept him as their spokesperson? So Li Ning had long recognized the forgetting curve and made his name a sports brand early on.

By the same token, Yao Ming, who has not been exposed in the NBA game, has inevitably declined in popularity in the past two years. More than 60% of NBA players’ bankruptcy within five years after retirement is related to their lifestyle and financial thinking. But from another side, it shows how great the decline in business value brought about by the decline in exposure.

3. The mechanism of advertising: inform, persuade, remind, strengthen

For any product, its advertising audience can be divided into high-frequency consumers, low-frequency consumers, non-consumer. The advertising mechanism for these three types of people is different. According to the classic advertising theory, the logic of advertising comes from four aspects: inform, persuade, remind, strengthen.

  • For non-consumers, the role of advertising is to cultivate awareness, that is, “informing and reminding” in the role of advertising.

“We have new tastes again!”, “We have new spokespersons,” “We have new packaging,” and “We have new marketing themes.” Consumers need to be informed about all of these through advertising.

I did not drink Coke before 2014. For Coca-Cola, I was a non-consumer. But at one summer noon of 2014, when I finished swimming and was thirsty and hungry, the Coca-Cola lyrics bottle next to the newspaper kiosk was on promotion. I picked and chose the one with lyrics“original dream that will definitely reach”. The thirst was totally quenched in a minute, and because of the cool feeling, I became a low-frequency consumer of Coca-Cola.

Non-consumers who seem to be “accidentally” transformed like me are inevitable in the eyes of Coca-Cola’s advertisers. Every day, there are millions of non-consumers who convert into low-frequency or even high-frequency consumers. This “accidental” conversion is actually the inevitable result of a long-term advertising infection.

In the summer of 2013, Coca-Cola’s nickname bottle advertisements increased the sales by 20% year-over-year, and this conversion is very important. It must be noted that even in the United States, the largest consumption market of Coke, 45% of households still do not consume Coca-Cola. As long as advertising can reduce this percentage by one percentage point, it is also an extremely successful drop for Coca-Cola.

  • For the low-frequency consumer, the role of advertising is to cultivate the reputation, which is “persuade” in the role of advertising.

One of the characteristics of the low-frequency consumers is that they often do not have a stable pursuit for a particular brand, that is, they drink Pepsi as well as Coca-Cola; they eat McDonald’s as well as KFC; they wear Nike as well as Adidas.

However, they are very important. Due to a large number of consumers’ choices, although low-frequency consumers are the long tail of brand consumption, their proportion of brand sales is actually very high. It is as if no one eats McDonald’s every day, and people always eat McDonald’s once in a while, but it is these enough consumers who occasionally eat once to support McDonald’s popularity. The role of McDonald’s advertising is to make sure that when you want to eat whatever you like, it is within your choice.

When I first graduated, I was exposed to a post-90s young editor. Every time she eats, she would choose Pepsi as her Cola. Even the instant clerk gave her Coca-Cola, and she would also switch specifically to Pepsi. I asked her why and she said: “Because Pepsi invited Wu Mochou as a spokesperson. I like her. Many people don’t like her, but Pepsi still goes for her. I have become a fan of Pepsi.” Consumers are just like this, they have many reasons to fall for a brand. A boy chooses to eat McDonald’s today probably because he likes the toy gift from the meal set. A girl drinks Pepsi recently just because Pepsi’s new endorser is her favorite singer. A consumer picks an unfamiliar drink just because the advertising fridge looks cool and attractive. Therefore, advertising companies must think of different advertising strategies to influence these diverse consumers.

  • For high-frequency consumers, the role of advertising is to cultivate loyalty, which is “strengthen” in the role of advertising.

At this time, the role of advertising has become to strengthen the sense of pride of loyal consumers. For example, you are already a loyal consumer of Pepsi Cola. Your fridge is full of Pepsi of different specifications. You must drink Pepsi when your friends meet. If Pepsi sponsors the World Cup at this time, or invites Leonardo as an endorsement, or released a video of a viral epidemic, you would just think: Well, this is the Pepsi that I love!

Allowing loyal consumers to be proud is also one of the important missions of advertising.

4. Competition and scale: If you do not advertise, others will.

The market where Coca-Cola is located is a fast-moving consumer market, and the fast-moving consumer market means a higher buying frequency. Unlike shampoos, cosmetics, and other products that emphasize functionality, Coca-Cola and Pepsi have little differentiation in product functionality and taste.

In 1970, when Americans did experiments, less than 10% of people could drink the difference between two kinds of cola. That is, the brand is an important way to maintain the purchase of bridges, and advertising is one of the most important ways to shape a brand.

The beverage market is extremely competitive, and maintaining the scale of advertising is very important for Coca-Cola. A simple rule of thumb for Coca-Cola companies of this magnitude is that in the short term (IE, where fixed costs are constant), size determines profitability because the marginal cost must decline in the short term. Let us give a simplified model:

Scale effect

• The Scale Effect

If the fixed input cost of Coca-Cola is 100$ (including factory, R&D, etc. which will not change with the cost of sales), 200 bottles of cola are produced each year, and the variable cost of each bottle of Coke is 1.5$ (IE, the material cost of a bottle of beverage). Then its total cost is 100+200*1.5=400$, and the average cost is 400/200=2$. If it sells 2.5$ per bottle, it can earn 0.5$. At this time, if the advertisement is stopped. The sales volume changed from 200 bottles to 100 bottles. The fixed cost remained unchanged. The total cost became 100+100*1.5=250$, and the average cost became 250/100=2.5$. If it still sells at 2.5$, then there is no making money, the profit rate becomes zero. This is the significance of the scale in the short term.

Of course, the reality is far more complex than this model is 1000 times. But in any case, for an industry, size and share mean bargaining power. When you are small and have a small share, your bargaining power for upstream suppliers and downstream distributors is very small. In this case, making profits is very difficult.

If you don’t advertise, others will do it. The scale of others will crush you. Unless you change your model, you are guaranteed to be profitable on a small scale. Otherwise, maintaining the scale through advertising is an inevitable choice.

Just come up with something new to touch your customers’ heart from today. Whether it’s a new packaging, a cool fridge or a creative video. Keep on with it, and in a unique way.