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10 July 2013

Should we reduce marketing budgets to survive this bloody crisis?

We are all confronted with this bloody crisis. Recent studies and figures prove that signs of recession are all around us. According to Unizo the number of starters decreased by 12% during Q1 2013 compared to the same period last year. Moreover Graydon estimates that the number of bankruptcies increased by more than 16% during Q1 2013 compared to Q1 2012, which of course leads to more unemployment. We are still facing tough times. That’s clear.

In times of crisis companies tend to question themselves as a result of decreasing sales, declining margin and pressure from shareholders to present short term results. Reducing costs is then a reality and the marketing budget is often one of the first victims. The Yearly Marketing Survey from The House of Marketing also indicates that the Marketing Confidence Index went down again in 2013 as most marketers expect a decline in the marketing budget. Marketers tend to adjust budgets as a result of the financial crisis. Unfortunately a big mistake.

I’m still looking for a company which started growing by reducing marketing budgets. Marketing becomes even more crucial in these turbulent economic years. More than ever companies need a strong positioning, an innovative product to boost sales, an intelligent channel strategy and a clear understanding of the consumer decision journey. Marketing should be seen as a crucial investment for the future of the company.

Marketers actually have different arguments to defend their budgets and to prove that cutting budgets is a wrong decision:

  • Several players on the market tend to panic when confronted with a crisis and lack consistency. Focus is key to differentiate during turbulent times. Focus also means consistency in some marketing spending.
  • Stay present in the media to defend your market share. A study from IPA (Institute of Practitioners in Advertising, UK) measured the impact of reducing the communication budget with 50%. If competitors aren’t decreasing their communication budgets the company needs 3 years to recover to a normal level of sales. How will your consumers find you or get to know you if you reduce your communication budget? The objective should of course be to have a solid business in the post-crisis period.
  • Benefit of more negotiation power towards media. It is therefore less expensive to increase your awareness and that way increase your market share. This implies a higher ROI on your marketing / communication campaigns.
  • More than ever innovation is key to success. Creativity should be stimulated to boost idea generation and companies need a clear and efficient product development process. The economic downturn opens doors and brings new opportunities. Marketing budgets are needed to support innovation and to have a good go-to-market. As competitors probably reduce their marketing & communication investments, it is aninteresting moment to launch new products & services.

Although you might think it is easy to say that budgets shouldn’t decrease, I’m strongly convinced it is wrong. In some circumstances companies are forced to make savings. I believe it is then very important to take time and analyze the impact of the different cost cutting actions. Try to find ways to counterbalance the cost-cutting, for example with increased sales efficiency. Lead generation and sales processes can be analyzed and improved. Improving processes leads to quick wins in terms of budget. This way marketers win on 2 fronts: avoid to reduce the marketing budget and create a more efficient & customer centric organization.

Increasing the efficiency of the marketing budget is of course something else than cutting the marketing budget. This is in fact the key issue. When the ROI isn’t measured, marketing is often seen as a cost. A flexible cost which can easily be reduced in times of crisis, and therefore an easy target. Marketing should however be seen as a necessary investment. Calculating the ROI of the marketing actions clearly helps to demonstrate the added value of these investments and helps marketers to convince management that reducing marketing budget isn’t a good idea. I would even dare to say that marketers should request a higher budget in times of crisis as marketing is a crucial ingredient to surpass the crisis.

We are facing tough times. That’s clear. Nevertheless I strongly advise all marketers to defend or increase their marketing budgets by convincing management on ROI. We need marketing to survive that bloody crisis.