15 Cent SWM share price = 3 times current earnings - Momentum is beginning!, page-177

If you want to figure out why SWM will deliver multi-bagger returns by September 2025 from circa 15 cents a share, one of the most useful things to learn is why ad dollars are right now shifting back to brand marketing from performance marketing and how this is driving a profit resurgence for SWM.

In the marketing world there is a very important rule which underpins marketing budget allocations called the Binet and Field’s 60/40 Marketing Rule. https://www.razorsharppr.com/blog/binet-and-fields-6040-marketing-rule-what-it-is-and-what-it-means-for-your-company . Basically it states that for optimal effectiveness 60% of a companies marketing budget should be invested toward long-term brand building (think OOH , Linear Tv and BVOD which are all mediums that are particularly good at brand building) while 40% of that budget should go toward short-term activation (think digital search (Google) and Facebook ads which are both mediums which are particularly good at performance marketing.).

Now typically when a business goes through an economic downturn its marketing team reallocates ad spend from Brand marketing towards Performance marketing in an effort to
1) cut overall marketing spend
2) focus on driving immediate sales results

This is a marketing trend that has been happening even before Linear TV had the internet to compete with. The recorded Ad spend figures for the 1990’s recession showed a circa 4% annual drop in linear tv ad spend which was caused by ad budgets being trimmed and directed towards performance marketing instead of brand building via linear tv.

The problem with re-weighting heavily towards performance marketing at the expense of brand marketing is the detrimental effects on brand health which leads to a diminished market position over time.

Businesses such as Nike, Apple, Coca Cola etc spend massive amounts annually on brand marketing because they understand that unless the consumer continues to hold the brand in high esteem they will lose their ‘competitive moat’ as Buffett describes it. The only reason many people know about and have an emotional connection with these brands is because of brand building marketing campaigns that regularly feature on linear tv and BVOD.

Now the fact is that Australia is finally through the worst of its 2+ year long economic downturn. Australian GDP growth per capita has finally turned positive as of Q4 2024, consumer confidence is strongly rebounding, retail spending is booming and businesses are now making the shift to re-balance their marketing budgets back to brand building spend. You can see this in Telecommunications, Automotive and Insurance - with these sectors increasing their brand building marketing spend quite rapidly in recent weeks.

If you want to understand why SWM is already sitting on an earnings upgrade (my opinion is that this will be unveiled at the Macquarie Conference in Early May) it pays to understand the shift that is taking place in which ad dollars are coming back to brand building marketing of which SWM is a major beneficiary thanks to its leadership in the Total TV sector.

If you want to understand more about this , have a read of this MI3 article https://www.mi-3.com.au/11-03-2025/search-performance-price-inflation-draft
Here are some great quotes from it

"But locally firms like Temple and Webster have recently starting ramping up brand spend while pointing out declining ROI and rising customer acquisition costs for performance channels, which have more than doubled in five years.’’

‘’...One Australian consultant who works with multiple brands on re-orientation and re-organising sees a swing back to brand and performance pullback already in play, particularly in categories where search costs are soaring but where the channel is increasingly yielding higher cost, poor quality acquisitions, increasing churn, and eroding margin.’’

''Either way, will Australia see a drop off in performance investment this year due to spiralling price inflation and a flip to brand?
'' I think so, because it becomes a very simple economics … it's just not paying the dividends that it's promised … and I think there's some really good examples in market,” he said. “Look at the work that Telstra is doing. Insurance, financial services – automotive is really swinging back into brand. When the carmakers are skewing to brand, you know that's the canary in the coal mine. So the short answer is yes, I'm already seeing it.”