As inflation gathers pace and the cost of living begins to bite, the impact on consumer habits is becoming apparent. The bottom line is that we are simply going to have to spend more on the essentials, such as energy and food, and less on everything else. That increase brings the spectre of a recession into focus and the potential of businesses shrinking and potentially disappearing unless they are prepared. Being prepared naturally means scrutinising expenditures and budgets.
Marketing budgets are designed to drive sales, and when the consumer is in a batten-down-the-hatches mode of cutting down on discretionary spending and economising where possible on essentials, marketing can appear to be the obvious source of clawing back overheads. The problem is that even in times of consumer prudence, marketing serves the purpose of keeping a brand front of mind and – crucially – in a position to maximise the likelihood of being successful in competing for the reduced available spend. The challenge in this instance is that marketing is an expense, and unless it can fight its corner with tangible results, it is going to be in the firing line.
This set of circumstances highlights the necessity of having a structured strategic plan that includes detailed reporting and measurement against all the principal activities and a commitment to brand excellence despite budget pressures. A recent PwC survey revealed that 32% of consumers would leave a brand they loved after a single negative experience. That negative experience could be disappointment in the quality of a product or a perceived lack of communication. Losing customers is the absolute worst outcome from a lack of commitment to ensuring the customer experience remains a top priority throughout challenging trading conditions. Winning customers is a far more costly process than keeping them – and winning them back after a negative experience is more costly (and challenging) still. The most cost-effective way of winning back customers is not to lose them in the first place. And this means continuing to communicate – even when times are hard. Henry Ford seems to have a monopoly on insightful one-liners about business – and marketing in particular – but this one certainly rings true:
“Stopping advertising to save money is like stopping your watch to save time.”
Research following the last recession in 2008 showed that businesses which continued to invest in marketing during the downturn were stronger and better prepared for the upturn. It was a momentum thing – keeping the marketing wheels turning is preferable to having to start them from a standstill. This foresight allowed proactive businesses to profit from their less-prescient competitors – gaining clients, staff and brand equity.
So how does all this fit with cost reduction? Well, a flabby, unproductive marketing budget is much more likely to get the hatchet treatment than one that is lean, effective – and importantly – demonstrably effective. Marketing spend should be accountable – and if it isn’t – it is on dodgy ground. So going back to Mr Ford – in today’s world, he should definitely be able to tell which 50% of his advertising budget is being wasted.
Being prepared to fight internal battles will be essential to the long-term health of the business. Knowing the productivity of a marketing spend will identify areas that can be reviewed without affecting the overarching commercial objectives and help move the business towards a position of strength in challenging trading conditions.
Bearing in mind that it should be expected that sales cycles will be longer during times of recession, and consequently cost of sales are likely to increase, measuring return on marketing investment should be balanced accordingly. This is not to say that ROI should be less – but rather that the measurement criteria take the altered trading conditions into account. And keep an eye on the competition. If activity drops off, it could be an indication that the market is contracting as businesses cut back on spending. This can present a platform to negotiate advertising and lead generation activity as demand shrinks. Astute media buying in line with existing strategy provides an opportunity to increase a company’s share of voice, have greater visibility in the marketplace and present a robust image to new and existing customers alike.
At ERA we take a broad view to improving business performance with savings on indirect costs at the heart of our philosophy. Running a lean, accountable marketing budget during challenging times is just one way of future-proofing your business with ERA.