“For every pound spent on marketing, Next aims to make 1.5 pounds. If the budget doesn’t move over that target, they cut back on the budget.”

Next CEO, Lord Wolfson, says the company uses the “hurdle” marketing technique to determine its marketing budget. Instead of  the company using X amount on marketing to generate a certain number of sales, the company uses a “hurdle rate.”

Understanding The Hurdle Marketing Strategy

The Hurdle marketing method sets a specific return on investment target for their marketing initiative. The company should achieve this for its marketing campaigns to be approved. 

According to Wolfson, in the first year of marketing a product, Next aims to make £1.5 in profit for every pound spent. If the product doesn’t overcome this hurdle, the store cuts its marketing budget. This means that their marketing budget is solely driven by the effectiveness of their campaign.

Why The Hurdle Marketing Strategy Is Important

For a long time, chief marketing officers(CMOs) have struggled to quantify the returns on each marketing pound or dollar spent. According to a 2013 CMO survey conducted by Duke University and McKinsey, only around 36% of CMOs can prove the impact of their short-term spending. The study also indicated that 75%  of CEOs suggest that marketers are always requesting money even though they can’t show the increased sales the added budget will bring.

By systematically analyzing the performance of each marketing communication and strategy, the company can allocate funds to the most successful strategies, maximizing their return on investment. This targeted approach ensures both short-term and long-term growth, meeting the constantly evolving needs of the market. 

Next Overseas Marketing Budget

Wolfson says that, as of now, they aren’t sure of their marketing budget for the last quarter of 2023. However, in the second half of 2023, the company increased its overseas marketing budget by 55%. 

For some years, they have been cutting back on their overseas budget when they noted that the returns weren’t within their expectations. Going forward, the company will turn its  overseas marketing into a “money-making” marketing rather than a “profitable marketing.”

Impact Of Hurdle Marketing Method On Sales and Profit

The recent financial performance of Next shows that their business promotion strategy is paying off. Industry experts have praised their creative promotion strategy as it attracts a broader consumer base, boosts sales, and helps with brand positioning.

In the first half of the year, the company is also pleased with the returns on marketing. In the half year ending July 2023, sales increased by 3.2%. This resulted in the whole group sales increasing by 5.4%. The overseas sales also contributed to its bottom line as the company saw an increase in pretax profitability by 4.8% to £420. 

The company’s sales exceeded expectations while keeping its costs lower than the previous year. The increase in profitability has been attributed to a shift in consumer behavior where more and more buyers are willing to pay the price of a product in full. The economic recovery and customer confidence also helped to improve the bottom line as businesses reopened. The increase in profit was attributed to favorable weather where customers were buying summer clothing.

Next Acquisition Strategy

In the last few years, Next has undertaken several acquisitions. In November 2022, it acquired Joules, a brand that didn’t take off. After this, it purchased Made.com in December 2022 and its intellectual property.

In March 2023, the Cath Cidson brand was also acquired by Next. On top of that, in July 2023, it received a 21% stake in the Reiss clothing retailer. This brought their share of the company to 72%.

Wolfson says that despite the acquisition, Next will remain a monogamous entity. Its focus now is on getting a network of brands. He adds that they are only focusing on making strategic investments to add value. When there are such opportunities, this could turn them into a conglomerate. But if there are no such opportunities, the company will not move in that direction.

Conclusion

The hurdle rate method employed by Next has proven effective in improving its overall financial performance and sustaining growth. Since the company has been setting a higher ROI, it has positioned itself to be more successful in competitive retail marketing.

With its laser-focused marketing strategy and ability to provide exceptional customer experience, Next will undoubtedly retain its position as a market leader for several years.