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Marketing budgets: to cut or not to cut is not the only question

September 12, 2022


It’s not surprising that up to a third of companies and brands are considering cutting marketing budgets in the back half of 2022. We’re hearing this across industries including retail, food and beverage, finance, technology and healthcare, with budget cuts being discussed ranging from 5% to 50%, or from $5 million to $30 million, or more.

 

But before making any budget decisions, we’d caution companies about looking at marketing purely as a cost and not a business driver. Detailed scenario planning will provide insight into the actual sales and business impact of making cuts, keeping budgets level or even increasing budgets into 2023 and beyond and will ensure that whatever the decision, a better, more effective mix of marketing strategies can be developed.

 

Marketing is a business driver

The best way to shift the perception around marketing as a cost is to showcase the value that marketing brings to the organization. With the help of comprehensive data, it is possible to demonstrate that in most cases cuts will do more harm than good.

 

Our recently released ROI Genome Report: Rules of Recession Proofing, shows that the number one driver of successful marketing strategies and campaigns is the amount of spend dedicated to marketing – better described as marketing investment. Reducing marketing investments will lead to sales losses that could be avoided and that brands will find very difficult – in many cases impossible – to make up through factors such as creative, targeting or marketing optimization.  Scenario planning can demonstrate this to management.

 

Further, the 2008 recession showed that maintaining or increasing marketing investment during times of economic downturn helps build stronger brands. Not only did marketing ROI and business impact increase for brands that spent more on marketing, but these outcomes lasted well past the recession.

 

Competitors

Businesses do not operate in a vacuum, and decisions around your marketing budget could be compounded by what your competitors choose to do. Our research shows that if a single, similarly sized competitor were to double its marketing spend, you could lose up to 15% of your business.

 

Brand vs performance marketing

Something else we see brands gravitate towards during uncertain times is cutting brand marketing budgets and focusing investment on performance marketing. But brand marketing is a key driver of business performance and sales, and typically outperforms performance marketing, even during economic downturns.

 

That’s not to say that performance marketing is disposable, but rather that you need to be clear on which activities are driving which outcomes – and performance marketing often relies on brand marketing for it to work well. For instance, 30% of paid search clicks are actually driven by other forms of marketing! This is one of the many reasons we recommend brands avoid using simplistic measurements such as last-click to make budgeting decisions. These siloed data and ROAS views overlook the compounding impact of brand marketing on performance marketing.

 

A healthy dose of both performance and brand marketing is undoubtedly going to be best, but you can only arrive at the right mix with a clear view of which effects – direct and indirect – are driving successful outcomes.

 

Marketing scenario planning

What is the way forward for brands wrestling with whether they should maintain, reduce or increase budgets this year and next, and facing increased scrutiny over their spend? A comprehensive measurement program can answer these questions, providing recommendations on where to redirect funds if necessary, and quantify the impact of reducing vs maintaining, or even increasing, budgets.

 

It is unsurprising, then, that business performance and marketing measurement is even more important in times of uncertainty. Indeed, we’ve seen that brands that adopt measurement programs and lean into analytic decisioning drive five times the growth versus those that don’t.

 

We’ve that scenario planning is on the rise, and has doubled this year as brands set out to make data-driven decisions. Simulating the outcome of multiple decisions and external factors is an important way to showcase the implications of budget decisions, and what is required to meet certain sales goals.

 

In one case, we worked with a client who wanted to cut marketing budgets and needed to explore whether they should cut equally across the board and the impact that would have versus focusing only on reducing the lower-performing marketing channels. Scenario planning using GPS Enterprise, our proprietary technology platform, was able to create a comprehensive, credible picture, including external factors such as media inflation and consumer price inflation, across each . The results showed the client’s leadership that taking the foot off the gas would be more harmful than imagined, and they ended up restoring their budget in full.

 

Conversely, in another instance our solutions enabled a client to demonstrate that even with a major marketing budget cut over three years, they could put together a plan that optimized the remaining marketing spend so that they still hit their revenue goals every year. They have yet to make a final call on their budget but will do so armed with a proper understanding of the business value that marketing brings to the table.

 

In both cases, because the factors considered during the scenario planning went beyond marketing drivers and included non-marketing factors such as macroeconomic trends, the outcomes were seen as more comprehensive and so more credible as a basis for decision making.

 

Clearly, scenario planning based on sound, comprehensive analytics is a crucial step toward achieving growth goals, making performance and marketing measurement even more important in times of uncertainty.

 

- Mike Menkes, SVP, Analytic Partners