Why do big companies need so much of advertising/sponsorship of events

Regarding the percentage of revenue that goes into advertising: For the famous Austrian energy drink Red Bull, in 2008, they invested 1.5 billion EUR into marketing; their 2007 revenue was 3.1 billion EUR.

Why do you think they're household brands?

Everyone knows about Coca-Cola and McDonalds because they're everywhere. Household brands have to spend a lot of money or they'll "fade out". I've heard that McDonalds -- or, more specifically, their reduction in advertising in the 1990's recession -- helped TacoBell build its brand tremendously.

The most simple answer: It works for them. Never change a running system. ;)

Seriously, it's just one sort of competition. Some companies engage in price competition (usually retailers, think Wal-Mart or Aldi), some in product competition (often B2B or technical products), and some in brand competition, usually the premium segment. Sometimes, it's a mix with no clear emphasis on one possibility.

Thus, they can't simple cut some advertisements here and there. Loss of mind share results in loss of market share, and you happen to end with about the same profits as before.

Concerning your question about profit/advertising percentage: That's seldom used, since profit depends on so many other factors. I do recall a study of the effects of the advertising ban in the cigarettes industry, though. Unfortunately, I don't have it handy or can recall the authors. But if I remember correctly, profits increased by about 6% after the ban; indicating that these companies were caught in an advertising arms race.

More common, however, are studies about the revenue advertising percentage: According to studies by Go-To-Market Strategies (GTMS), most companies spend 3-10% of revenue for promotion.

It seems a save guess that household brands spend even more.

Hope this helps.

The ads are also a way for these large companies to rebrand to appeal to a different market. So, you will see different types of commercials that are targeted to different markets, so the young adults/teens will see the energy drinks, which will be different than how they advertise to older families, or people that will be more influenced by the cute polar bears.

Also, as JoshSamBob stated, they have to appeal to the newer people that are no so set in their brand loyalty yet.

I have watched Mountain Dew, for example, change their mottos, just as the Army has done, as they try to find new ways to appeal to people, it is a constant balancing act. If you stay with the same motto, the same message, you will be tuned out eventually, and just die away.

So, these companies have to keep being fresh, so that they can be in the mind of their market.

Other than the reasons already posted:

• Build brand equity: There is a hidden but VERY large value to the brand recognition a company like Coca-Cola generates. The simple fact that they are household names is very valuable, and should they ever be acquired, sell the company, or seek financing, they can leverage the value of their brand to get a better position. Even though the brand is not tangible (you can't hold it or eat it), it has real value on paper because a person buying that company would have an instant base of loyal customers and brand recognition that would normally take a start-up countless millions of dollars to achieve.

• Maintain trademark status: In simple terms, if you don't use it, you lose it. To maintain a strong position of trademark, your name or logo has to be clearly associated with your product or service offerings in your target market. And in the case of global companies, their target market is often world-wide, requiring them to advertise heavily to maintain that brand association.

• Prevent trademark from becoming a generic word - Related to the above, brand names that are this large are at risk of becoming generic words which can also jeapordize their trademark status. Kleenex is a good example, everybody calls a facial tissue a Kleenex when that is really a brand name. You might also recall that the Band-Aid song was recently changed to include the word 'Brand' in the song - this is them fighting for their trademark. A lesser know term is 'fridge' - that was actually a brand name until it became so common that they lost trademark status and the word became generic.

A former salesman for Schlitz (They use to be a household name in beer.) who was chastised by "old man Schlitz" for not spending all of the money in his budget. They ran the numbers on what they made when sales people spent their marketing dollars on local bars and restaurants. I think Coke knows as well.

Schlitz thought they could make more money by creating a cheaper beer. That and the beer industry went to the distributor model which makes it tough to get into the industry (Don't be confused by some so called micro brews; they're owned by Bud.)

They've recently found their old recipe which is so much better than Bud or Miller. Better late than never, but can you imagine the marketing dollars they'll have to spend to get back to the top? Obviously taste doesn't count.