We already know the marketing executives at Apple (NASDAQ: AAPL ) are geniuses. But an article by smartphone industry genius Horace Dediu shed some light on just how insanely effective Apple's marketing team is.
In 2013, Apple spent one-fourth of Samsung's (NASDAQOTH: SSNLF ) 2012 ad spend as the latter's budget zoomed past Coca-Cola's (NYSE: KO ) . More interesting, perhaps, is that Microsoft's (NASDAQ: MSFT ) ad budget climbed significantly in 2013, and represents a larger percentage of consumer sales than even Coca-Cola.
How Apple spends less
This summer Apple ran an ad with a narrator that explained, "We spend a lot of time on a few great things until every idea we touch enhances each life it touches."
This is a vastly different approach from Microsoft, Samsung, and even Coca-Cola. These companies take a shotgun approach to the market, putting out hundreds of different products.
Microsoft, might only make one phone OS and two tablet operating systems, but there are a slew of choices for the hardware the company's software runs on. The problem is worse in the PC market.
The expansive product lineup and distribution system makes it hard to make advertisements specific. Therefore, Microsoft, in conjunction with its OEM partners, must create a lot of ads.
Moreover, putting ad dollars to work with OEMs surrenders control over the message Microsoft is sending consumers. Microsoft is unable to create a consistent message, and this creates inefficient advertising campaigns. Microsoft's purchase of Nokia's devices division will help control the message with its Windows Phone line, but that's still a small section of its consumer business.
Samsung suffers a similar problem. As of the end of October, the company offered 40 different smartphone models on its U.S. website. That doesn't include models it produces specifically for emerging markets. The company is set to take a similar approach with tablets by flooding the market with new models of varying sizes and price points.
But the amount of money required to support such a large portfolio of consumer devices (remember, Samsung also makes TVs, displays, cameras, and all sorts of gadgets) is huge. Last year, as Samsung flooded the market with new phones, it increased its global ad spend 64%. Comparatively, Apple increased its ad spending by 10% in fiscal 2013.
The importance of brand
The Apple ad that I mentioned earlier wasn't for a particular product. It was for the Apple brand.
Coca-Cola's heavy ad spending is an effort to preserve its brand of sugar water. Soft drinks are essentially a commodity; brand loyalty is developed through advertising. Coca-Cola's brand is one of its biggest assets, just ask Warren Buffett, so it spends about 7% of its sales on keeping its brand on top.
Apple's brand is also very important to the company. Apple protects its brand not through advertising, however, but from doing the exact opposite of companies like Microsoft and Samsung -- it only makes great products.
The ad budgets of Microsoft and Samsung look like they're selling commodities. As both companies try to compete with Apple in smartphones and tablets, we've seen them spend aggressively in establishing both their products and their brands in the market.
Instead of differentiating themselves with innovative products, they've adopted a copy-cat strategy. It's not like either company is incapable of innovating; they both spend tons of money on R&D. But the massive spending has yet to result in a product that's clearly superior to the competition. As a result, the companies are forced to advertise heavily -- the products can't sell themselves like Apple's.
Coca-Cola's brand is maintained by strong advertising, but the most recent report from Interbrand shows that advertising can only take your brand so far. According to the consulting company, Apple overtook Coke as the most valuable brand this year, after Coca-Cola had spent 13 years atop the list. In the end, strong products will beat out strong advertisers.
Do ads work?
Horace Dediu's headline asks the question, "do ads work?" Certainly, they do. Microsoft and Samsung are high on the list of valuable brands, too, Samsung's revenue climbed 22% last year on the back of its huge ad spend, and Windows Phone is gaining market share, particularly in Europe.
But Apple doesn't rely on advertising. It relies on its products. If Apple believes it's no longer innovating, we might see it in its advertising budget first.
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