Consumers can only recall a certain amount of Branding, Advertising and Public Relations (PR) messages they see. So a given amount of advertising spend, for example, becomes less effective as the total amount of advertising viewed by consumers increases.
Imagine you are the only competitor in the market and you spend $5 million on Advertising or PR. You will probably get excellent coverage, a high proportion of consumers will remember your production, and you will have high advertising or PR indexes.
Now, imagine you are one of the five competitors in the market, each of whom is spending $5 million on Advertising. Although you might reach the same number of consumers as before, they are now being bombarded with five times the amount of advertising. This is confusing, so fewer consumers will remember your products and your indexes may fall (i.e. your advertising spend is now less effective due to the large amount of “noise” that consumers have to put up with.)
The same effect applies if your competitors start spending more. Say there are five products in a segment and you are spending $4 million, and your competitors are spending $1 million each. You will probably have relatively high indexes as you are providing $4 million out of the total $8 million advertising spend.
Now imagine you keep your spend at $4 million, but your competitors increase their spend to $5 million each. You are now providing only $4 million out of a total $24 million spend and consumers are receiving three times as much advertising in total as they were previously. So again, a lower proportion of consumers will remember your products and your indexes may fall from their earlier levels.