Unless your name is Coca-Cola, which sells its products in all but two countries around the globe, or you are the sprout from which nearly all technological innovation over the past decade has sprung (i.e., Apple), then chances are advertising is a key component to success.
The interesting tidbit that goes along with advertising is that more dollars spent does not necessarily translate into more dollars brought in. Also, it depends on what type of advertising a business is targeting as to whether or not the ad campaign is ultimately successful.
Luckily for us, research firm Advertising Age did all the hard work and compiled its annual list last year of the companies in 2011 that spent the most on advertising. Not surprisingly, 36 companies, even including the aforementioned Apple, spent in excess of $1 billion in 2011 on ads.
What I intend to do today is have a look at the top five spenders in terms of dollar volume, figure out what these companies are doing right or wrong, and determine if there are any investing lessons to be learned from the type of media or audience that these businesses are targeting.
No. 5: AT&T , $2.36 billion
Whereas most businesses increased their ad budgets in 2011, AT&T's actually shrunk from roughly $3 billion down to $2.36 billion. AT&T is in the highly competitive telecom service provider business and it frankly has to spend to (1) try and keep up with Verizon, which has a considerably more extensive 4G LTE network than AT&T, and (2) differentiate itself from many of its other peers, which, frankly, have found themselves on America's most hated companies list. I personally feel the company does a good job branding itself as the old staple in U.S. telecommunications, and it tends to see smaller turnover than many of its peers.
No. 4: Comcast , $2.47 billion
Speaking of the most hated company in America -- at least in previous years - Comcast takes fourth with nearly two-and-a-half billion in ad spending. Comcast is really pushing simplicity under one bill with its Xfinity offering, which combines phone, Internet, and cable under one plan. What this plan really appears to be is a disguised attempt to detract consumers from a growing trend of cutting ties with their landline phone. Although landlines aren't big growth drivers for Comcast anymore, their low maintenance costs result in big margins. Comcast is certainly doing what it can to improve its image, but it still has a long way to go with consumers.
No. 3: Verizon , $2.52 billion
Are we noticing a pattern here in the first three companies? Telecom and Internet service providers are widely disliked and competition is incredibly fierce, meaning these companies have to literally browbeat consumers with their strengths over and over in order to drive home their point. As I stated previously, Verizon's turnover rate tends to be higher than AT&T's, but it also has a considerably more advanced LTE network that could give it the upper hand in the coming years. Targeting the younger generation will definitely help move the needle in Verizon's favor.
No. 2: General Motors , $3.10 billion
I actually found it very interesting that GM spent nearly $1 billion more in 2011 than rival Ford , yet the latter has seen considerably better domestic results since then. General Motors has had to spend heavily to rebrand itself after emerging from bankruptcy in 2010. With Ford having an edge among younger buyers with its more fuel-efficient EcoBoost engines and GM growing at a slower pace in emerging markets like China relative to Ford, it needs to do something -- and blending innovative new designs with beefy ad budgets is a big part of that plan.
No. 1: Procter & Gamble , $4.90 billion
Procter & Gamble, the company behind Tide detergent, Crest toothpaste, and dozens of other consumer products, easily took the top spot in 2011 as the U.S.'s largest advertiser at $4.9 billion. With increasing competition and brand-name household products that often command a pricing premium to store brand, P&G has needed to step up its advertising campaign to reinforce the quality of its products and encourage consumers to step up to its higher-quality products.
What's the takeaway?
If anything, we've been shown that top-dollar spending doesn't always translate into big revenue increases. P&G has struggled in recent years with a big marketing budget that hasn't delivered the expected bottom-line results. This doesn't mean P&G ads are failing so much as they're trying to target consumers' buying habits at a time when spending is naturally going to be down because of higher payroll taxes and delayed tax refunds.
This brings me to my second point: Timing is everything. P&G's timing to spend nearly $5 billion in ads certainly wasn't perfect, but plenty of banks, including JPMorgan Chase and Bank of America, have been taking advantage of low lending rates to encourage mortgage and refinancing activity and increase the quality of their loan portfolios. With banks usually among America's most hated companies, the opportunity for them to offer consumers the ability to save money could help restore their very fragile brand image.
Finally, advertising that's geared toward online audiences and younger generations appears to be giving businesses the best bang for the buck. This is the reason Ford has been running circles around GM lately with its fuel-efficient cars and also why Google increased its ad spending by 60% to just a hair more than $1 billion in 2011. Social media is giving brand-name companies a new mode of communicating and personalizing with the public, and many of these companies are taking advantage of it.
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The article These 5 Companies Spend the Most on Advertising originally appeared on Fool.com.Fool contributor Sean Williams owns shares of Bank of America, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool recommends Apple, Coca-Cola, Ford, General Motors, Google, and Procter & Gamble. It owns shares of Apple, Bank of America, Ford, Google, and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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