Managing in a downturn : Mistakes CEOs make - Marketing Budgets

The other area that CEOs seem to find convenient to axe in difficult times is the marketing budget. I find this a bit of a paradox. Why, you may ask?

The answer is simple. Everyone knows and agrees that marketing is essential to build brands, establish positioning, create differentiation, influence perceptions and preferences and build consumer loyalty. But aren't these the very things that are critical to focus on in a downturn?

When the environment goes downhill and consumers become selective about the products and brands they purchase, it becomes even more important to ensure that the brand is visible and the consumer's purchasing behaviour is influenced in its favour. Surely no one believes that in such a situation, cutting marketing expenses will help in increasing brand visibility and brand preferences?

Then why slash marketing budgets in a downturn?

Perhaps, because it is an easy way out. Operating costs cannot be slashed without serious implications for productivity, quality and revenue. Payroll costs can be reduced and I've dwelt on that already. Real estate and administration costs cannot be reduced quickly in the short term without a negative impact on the business. So it is marketing which is the only significant cost that can be reduced without a perceptible short term impact.

Which gives rise to the question: if there is no significant or tangible short term impact, what's wrong with slashing the marketing budget?

The answer lies in the objective of marketing as I have defined it earlier. Marketing shows results over a period of time. Mid term to long term. The only situation where marketing shows results in the short term is when there is a tactical promotion like a limited period discount. Brand building, positioning, creating differentiation, influencing consumer behaviour and preferences and building brand loyalty are all results of marketing that are perceptible over a period of time.

Which means that cutting marketing budgets can have serious mid term to long term implications.

Another factor to consider is the lead time for marketing to have an impact. The results of marketing always show up over a period of time after the money is spent (this is also one of the reasons why the effects of marketing are only felt over a prolonged period of time). The best effect of marketing is felt in a consistent marketing campaign. Breaks in a campaign may be strategic, when they are used to reinforce the campaign and strengthen the brand. But this applies by exception.

What this means is that a break in marketing, especially in a downturn, sets the product and brand back a bit. When the marketing budgets are restored, it will take time to re-establish the results that had been achieved at the point of the break.

So, what's the answer?

One way an organisation may tackle this conundrum is by being highly selective about the deployment of marketing funds. Marketing strategy has to be highly focused on the most effective means of achieving results without a break. Metrics to assess the ROI on marketing campaigns must be stringently enforced. A good marketing department should, in any case, be tracking the ROIs on different marketing options, even in good times. So, when it is time to reassess the marketing strategy, it becomes a fairly straightforward exercise to look at the various options, analyse the metrics and then zero in on those marketing actions that are most successful with the least expenditure.

This process of weeding out the least effective options will help organisations in a downturn to optimise their marketing expenditures without compromising on results. Also remember that while everyone else is cutting their marketing budgets, there is much less clutter in a downturn. Which means that if you are sensible about how to optimise your marketing spend, you automatically become more visible.

Now, isn't that a great situation to be in?