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This piece was originally published in Mandarin in Forbes China. Below is an English-language version of the same article, with a link to Forbes China's Mandarin website.
The famous Olympic torch is scheduled to make its way to Beijing on August 8th after being carried through no fewer than seventy China cities. When it does, the bright red logo for Coca-Cola will not be far away. In 2005, almost three years to the day before that moment, Coca-Cola executives and International Olympic Committee officials gathered at the Great Wall to announce a deal that extends Coca-Cola as the official nonalcoholic beverage sponsor of Olympics through the year 2020. Regardless of which nations' athletes take home the gold, Coca Cola is relying on the strength of its advertising muscle to continue its winning streak in China.
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After entering the Chinese market in the early 1980s, Coca-Cola spent twice as much as Pepsi on advertising and promotional activities over a ten-year period. While its Sprite brand is China's top-selling carbonated beverage, the company's flagship brand Coca-Cola is in head-to-head competition with Pepsi. Coca-Cola is hoping its Olympics sponsorship will give its brands a caffeine-style boost.
Plans have included a special ad team focused solely on the Olympics, leveraging Coke's relationship with top sports celebrities; building brand awareness with such stunts as a nationwide road show for a massive, 20-meter tall bottle, the world's largest. A major payoff occurred months before the first Olympic game, the marketing consulting firm, R3, found that 38 percent of those interviewed could name Coke as a sponsor without prompting—and an overwhelming 86 percent with prompting.
It's not surprising that such an aggressive marketing push has paid off so well for the soft-drink leader. Six years ago, Bain & Company studied more than 800 brands and found that 90 had consistently outperformed their categories for five years from 1997-2001. Our research found that any brand can win—regardless of size, market position or category—but a differential investment in advertising is one of two factors that can increase the odds. The second factor is the ability to successfully use innovation as a platform for new products and long-term growth. When we looked again in early 2008, we found that only 13 of the 90 brand winners from 2001 continued to outpace their categories through 2007. So the bigger question became—Why did once-top brands fall behind?
One major lesson is that it's difficult to sustain commitment to advertisement as Coca-Cola clearly has done in China. To dig deeper to find out why these behaviors are so hard, we analyzed the experiences of the 13 two-time brand winners, as well as winning brands that fell away, and drew on our own work with consumer products clients. Ultimately, we identified the major advertising misstep that endangers even the most winning brand: lack of ongoing commitment to a product post-launch.
We found that companies may hurt their product's chances by taking a common route to short-term budget relief: slashing advertising when revenues fall versus investing to increase awareness. Such temptation is particularly strong in recessionary times. But our research shows that brands that consistently outgrow their categories are 67 percent more likely to spend more on advertising than the category average, committing a good two years to marketing campaigns post product launch, and maintaining investments in older brands, Coca-Cola style. We've found a surprising number of companies curtail their efforts after the first year, seeing advertising as the fastest and easiest place to cut costs amid inflationary pressures on raw material costs or slowing profit growth.
Winners understand the importance of not pulling the plug on advertising before a product has a chance to prove itself in the marketplace. It has taken Mars, the chocolate snack producer, ten years to build up its Snickers brand in China. First imported in the early 1990s, Mars co-branded the chocolate bar using a phonetically similar Chinese name, 士力架. In 2000, Mars started testing different marketing approaches in northeast China, advertising in four cities. By 2003, Snickers was the second chocolate brand in northeast China with 12 percent marketshare (behind Dove, another Mars brand). Based on Snickers' growing success, Mars expanded its rollout to other Chinese regions in 2004, and advertising spend increased nine-fold from 2000 levels. The following year Mars built a dedicated Snickers production line to support the chocolate bar's growing popularity. Today, the company is using advertising and promotional activities tied to its Olympic sponsorship to accelerate the arrival of Snickers in more Chinese markets. Sponsorships and advertising spend have increased another five fold since 2004, and results have been impressive. In the first quarter of 2008, Snickers sales shot up 75% over the same period last year. Snickers now is the clear #2 national brand in core chocolate market, even though its advertising coverage is not yet national .
For its part, Coca-Cola is known for marketing strategies that extend beyond advertising campaigns—and the Olympics is a prime example. As far back as the 1928 Olympic Games in Amsterdam, the company understood the pay-off of investing in a high-profile promotional sponsorship. It's now the longest continuous Olympic sponsor in the world. Coca-Cola never has disclosed how much it is paying for its worldwide rights as an Olympic partner, but the sums invested by other companies testify to the value of Olympics sponsorship. General Electric is expected to be paying fees approaching $200 million for its eight-year deal through 2012. Chinese sponsors include Tsingtao beer, Yili milk and Lenovo Group, which has agreed to pay as much as $80 million to become Olympic partner for the personal computer category for the years 2005-2008. Beyond the Olympics, it will be important for these companies to sustain the rate of their advertising spending in future years to gain the full impact of their investments.
As spectators at the Beijing games soon will see, Coke has parlayed its association with the Olympic brand into innovative ways to market its own brand. The soft-drink maker created pin trading centers as a gathering place for Olympic Games spectators. It hosted a Games-specific fan experience center that drew thousands during the Atlanta Games. And it launched Coca-Cola Radio, which broadcasts from host cities where US-based radio personalities dispatch live reports. Coke has sponsored the two most recent Olympic torch relays (2002 and 2004) and operates one of the largest corporate hospitality programs among Games sponsors.
Not all partner companies deploy a long-term affiliation with the Games. Lenovo chose to become an Olympic partner with the expectation that Olympics advertising would be more effective than traditional marketing efforts. In line with this strategy, the company will end its Olympics partnership arrangement after the 2008 Beijing games—executives have reported that by the time the games wind down, Lenovo will have reached its goal of building global brand awareness.
How do winners afford to promote so heavily? Brand leaders rigorously and constantly cut costs across the organization. By saving money in the right places, they don't have to curtail the very investments that power their market leadership over the long term. That means, even in times of slower growth they can afford to support the consistent levels of advertising—or Olympics sponsorship—that's needed to bring home the gold.
Bruno Lannes is a partner in Bain & Company's Shanghai office and leads the Consumer Products Practice for Greater China. John Blasberg is a Bain partner in Boston and leads the Consumer Products Practice for North America.