If you are like me, then you have to justify the purpose of marketing and your budget from time to time.
Management falls into the trap of seeing marketing and branding as just an outflow of money rather than an investment resulting in increased profitability and/or revenue.
With a bit of math, bear with me, we can show just what marketing is achieving (there’s a plain English version at the end).
Equation for a Demand Curve
This may be a throwback to the past, but here’s the equation:
P = a - bQ , where:
a = The point where the quantity demanded is zero
or where the line intersects the Y-Axis
b = The slope or how steep the line is
Q = A given quantity
P = A given price
[break]Pictured below is a generic demand curve. The dotted lines point to a specific price and quantity pairing or combination (e.g. a demand for 500 units at $15).
As you change the price, the quantity demanded inversely changes. If you increase the price, then the quantity demanded decreases.
However,if you can shift the demand curve upwards, then you will see one of two scenarios:
- The price increases without a change in quantity
- The quantity demanded increases without a change in the price
Let’s look at what’s happening graphically first. The image below highlights an increase in price where the quantity is the same (e.g. a demand for 500 units at $20).
I could have alternatively used some dotted lines to show an increase in quantity at the same price, but hopefully you get the point.
Algebraically, here is what’s happening.
P = (a + M) - bQ , where:
M = Some non-price factor that causes the point
where the curve intersects with the Y-Axis
to increase or move up
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Alright enough economics and algebra. Here’s the plain English translation.
Any company would love to have customers pay more for the same product or sell more products for the same price. To make that happen, there has to be a catalyst.
A force that moves the demand for the product up.
Marketing, good marketing that is, provides that force. The big M in the equation can be things such as:
- A change in perceptions or expectations about the product
- A change in tastes or preferences
- An increase in awareness
Good marketers make those changes happen. The Old Spice campaign is a great example. Ad agency Wieden + Kennedy and Isaiah Mustafa changed how consumers perceived the brand. It went from my dad’s deodorant to the hip, cool body wash.
Marketing isn’t about fluff and feel good advertising. Rather, it’s based in simple economics and math. The next time your boss complains about marketing, explain that you are actively moving the demand for your product.
The result is increased revenue and/or profitability.
P.S. With some good data, you can actually calculate your demand curve and watch it move as you apply different stimuli.