2009 $2,791I like to measure advertising expenses in "Coca Cola companies", a Coca Cola company being about $3 billion per annum.
2010 $2,917
2011 $3,256
Here is the advertising expense for Hewlett Packard from their latest 10K.
Advertising
HP expenses advertising costs as incurred or when the advertising is first run. Such costs totaled approximately $1.2 billion in fiscal 2011, $1.0 billion in fiscal 2010 and $0.7 billion in fiscal 2009.Not in my wildest dreams would I have guessed that HP would spend a third of a Coca Cola company on advertising.
I do not disbelieve the number - but I am stunned.
John
20 comments:
Is that too high or too low?
Too high. Coca Cola is a defining brand of Western civilization. It is ubiquitous and mind-share is enormous.
They have other brands too (Diet Coke, Fanta, Dasani, whatever).
Their main real expense is promotion - their job is to embed this stuff deep into the psyche of the populace.
The Coca Cola company is the success of its advertising. If their advertising fails the brand equity will slowly evaporate.
Hewlett Packard makes enterprise computers, ink and runs EDS. There are a few consumer products around the edge.
Hewlett Packard is NOT the success of its advertising, it is the success or otherwise of its products. It is fundamentally a PRODUCT company. Hewlett Packard will be driven by the success of its products - not its advertising.
I am simply stunned at how much they spend on advertising.
J
coke's 2011 revenue is around US$47B while HP's revenue is US$120B, ergo I don't see the point of your argument.
Chalk and cheese product-wise. Technology is constantly evolving, soft drinks aren't.
Coke has also been around a lot longer and thus have had a more dominant share of its respective market.
Maybe they're relatively more effective at advertising?
Intel:
"Advertising costs, including direct marketing costs, recorded within marketing, general and administrative expenses were $2.1 billion in 2011 ($1.8 billion in 2010 and $1.4 billion in 2009)."
So HP is spending only half of what Intel spends. And Intel spends that on a product not usually bought directly by consumers, unlike HP.
Computer brands use the firehose approach when it comes to advertising, especially online. They're so ubiquitous that most people ignore them. And online ads they provide easily measurable KPIs giving a false sense of effectiveness.
"Hewlett Packard is NOT the success of its advertising." But it is. In a commodity business you have to be sure to be in front of the consumer when they start to purchase. Sure, some people will research intently for days. But most make the decision of which computer quite quickly. So you need to be sure that you're at the front of their mind when they are in the final steps.
You may be right - but the consumer product part of this is a minority (this is still an enterprise hardware company).
And as a percentage of product it is large.
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Also the right way to measure advertising is against margin.
HP probably spends more of its pre-advertising profits on advertising than Coke - though I have not worked it out.
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I can see - instinctively - what Coke gets.
HP just surprises me. Stuns me.
Maybe other people see it differently.
John
Conversely, the bang for the buck they get on advertising is really poor. They must fire their marketing dept.
HP also claims higher field selling costs which could be mainly on service side rather than product side. But HP also claims higher field selling in IPG segment which reflects poorly on their advertising.
I would expect product business to be primarily driven by advertising and service business by field sales. Guess I am wrong!
I also thought may be HP included other promotional expenses but doesn't seem so the total co. selling, gen and admin expenses is 13.5billion vs revenue of 127 billion.
Looks like consultants may have field day out here.
I'm not sure I understand your point, John. Coke and Pepsi are fighting for basis points in case volumes every quarter, which can only change due to advertising and promotions. Cost of goods sold--leave aside what else is allocated there for accounting--is virtually zero for carbonated water and syrup. They have lots more room for advertising expense.
Also, these companies are truly worldwide businesses, not just Europe. Also, the advertising has to support Coke and other non-cola beverage products, including waters and juice products.
Looking at HP, advertising is probably relatively unimportant for corporate IT purchasers of servers, consulting services, BPO and the like. Where it is important is in the consumer market, for PC's, printers, and ink.
I guess I'm struggling to understand your stunnedness.
Eapen Chacko = that is PRECISELY my point.
The Coke Company IS advertising.
Hewlett Packard is not.
I would have thought HP was 10% not 30% of Coke.
I am stunned how large HP is ...
J
And Apple spent slightly less than a billion last year. Talk about bang for the buck.
Source: http://www.forbes.com/sites/ycharts/2012/08/02/who-spends-more-on-ads-apple-or-microsoft-another-lesson-in-quality-vs-quantity/
John
i dont know HP but i am an ad executive and can offer a guess: it's co-advertising: HP pitches in towards advertising done by their distributors who in turn pitch in to the advertising run by their retailers: every flier form your local electronics shop featuring 17 different computers INCLUDING an HP will be partly paid for by HP: it's the electronics industry's equivalent of slotting fees in food trade
it's coadvertising - eletronics industry's equivalent of "slotting fees"
John and all,
Coca Cola operates a franchise worldwide, except in few key markets. Therefore their international marketing costs are hidden. I expect the true Coca cola marketing costs to be significantly higher (twice?).
As for HP, ask yourself this: when you buy wour next camera or printer, will it be a Canon or an HP? why?
For most people, it will be the name they remember, combined with a short look at Cnet comparison charts. So while product quality is important, brand recognition is more.
Question: do Coca Cola bottlers also spend on advertising? That would push the total Coke marketing budget higher.
Observation: Samsung's trailing 12m marketing budget (not just advertising) is $9.5bn. Q2 2012 budget was $2.75bn - larger than handset revenue at LG, Moto, RIM or SOny.
Bottlers advertise brands they own (like Mt Franklin water in Australia).
KO is responsible for promotion of brands they own - which are the core brands.
J
I can see where you are going with this...
It makes sense if what HP is doing is trying to making their margins look better.
They funnel money via their ad budget to their distributors while at the same time the distributor pays HP more for the hardware.
@ Mr. Hempton,
Enough on HP, what do you think of Olam? Do you think that Muddy Waters has got some real substantive claims a la your favorite, Sino Forest?
I was unaware that H.P. did much advertising.
I do notice Apple and Coca Cola. H.P. needs to rethink their strategy. Any company that spends that much on advertising and the ads don't register needs to revisit things.
Agree that Coke and to a lesser extent Apple are investing in the brand, however if one were to ask me what the H.P. brand represents, I couldn't really tell you. I know they make printers , and Lap Tops but that's about it Oh and theirs Unix work stations, but that barely registers.
My guess -- much of HP's advertising is B2B style that you as a consumer don't witness. Hence you're stunned.
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