With difficult times in most of the world, marketers everywhere are revisiting their budgets. Marketers have opportunities to become more holistic, focus on better (rather than worse) metrics, improve how they manage for contingencies and set the stage for future growth.
With the apex of the spread of the coronavirus around the world still weeks away, marketers are facing highly uncertain times. Most countries are, therefore, now taking actions to mitigate the human and economic impact as much as possible. While there are some “green shoots” of economic activity in areas hit early on, such as China, decline is almost certain to occur in most parts of the world this year.
Industry practitioners generally recognize that any brand or company should avoid cutting their marketing budget. Brands that invest through a downturn should be better positioned to capitalize on an eventual economic rebound in the near-term, and brands that sustain their presence in consumers’ lives are maintaining relationships that should persist in commercial terms in the long run.
Unfortunately, the present reality is that marketers – meaning anyone who is responsible for sales of any given product or service – will often lack ultimate control of the current situation, as the current phase of the crisis will more likely see CEOs and CFOs looking for aggressive actions. At the same time, CEOs and CFOs may also be more open to new, and potentially radical, ways of managing their businesses, making them more open-minded than they might be under different circumstances. Subsequently, while marketers may feel as if they have less control over their budgets on one hand, they are potentially in a powerful position to advocate for change in pursuit of near-term efficiencies and longer-term growth. In some cases, marketing organizations may benefit from redesign. In many cases, the ways in which budgets are managed can be improved and, in other cases, there are opportunities to deepen relationships with customers by re-imagining supply chains, customer experiences and broader direct-to-consumer propositions in order to make the most of the current environment.
Four considerations related to such opportunities follow:
• Revisit the manner in which budgets are set in order to optimize “forests” rather than “trees”
• Focus on contribution margins and generally review financial metrics used to judge success
• Always have a best alternative to a negotiated agreement (BATNA)
• Prioritize resources towards growth opportunities
Optimize forests, not trees. As we have written previously, marketers often have hard lines around budgets to make sure individual components of budgets are managed as cost-efficiently as possible. However, if the marketer is optimizing costs of individual media choices and looking to reduce spending everywhere rather than optimizing an entire marketing budget, substantial sums of money may be wasted.
To draw an analogy with financial markets, it is as if most marketers allocate budgets with an eye to picking the cheapest stocks rather than determining whether they should be shifting resources across asset classes (fixed income, commodities, real estate, currencies, etc.). Better yet, whether they should be shifting resources toward decision-making tools, data and advisory services to better determine financial strategy, timing, asset allocation and individual security selection.
The greater the flexibility a marketer has with respect to how it allocates resources on all aspects of its marketing spending, the better it can direct those resources.
In more tangible terms: marketers may be better off not focusing on unit costs or spending with a given media owner if they can focus on a campaign’s media costs for a given level of unit quality. They should not focus on a campaign’s media costs if they can focus on its entire costs, including production costs, services and data for a campaign’s given level of media, production, services and data quality.
Focus on contribution margins, and more generally reassess whether financial metrics used to determine success are the right ones. In many businesses, companies “manage to the margin” and focus on the absolute profit margin that a brand and product might yield. However, in companies that are focused on margins, it may be better to focus on contribution margins, which refers to the incremental operating income/profit generated or lost from an incremental dollar of revenue gained or lost. Wherever possible, marketers should focus on products and countries that generate the highest contribution margins, either limiting the losses or investing against growth of high contribution margin products. Focusing marketing resources of products with high contribution margins will ensure that company-wide margins fare better than when marketers focus on products with higher and generally stable margins.
More generally, marketers need to ensure that the financial metrics they are judged on are consistent with the best ways to manage their businesses. For example, as brands look for new ways to establish direct-to-consumer relationships, they face the challenge of focusing internal stakeholders on new metrics, such as lifetime value of the customer rather than near-term profitability. In all cases, marketers can benefit from reviewing whether the metrics they use to drive their businesses produce optimal business choices.
Ensure BATNAs are in place. Lastly, marketers should generally work to ensure that there is a back-up plan for any plan or campaign idea because having a best alternative to a negotiated agreement will provide a marketer with a credible ability to walk away from a negotiation. This means that a marketer will be better positioned to secure favorable terms or pricing from a given media owner when they pursue their preferred plan. But at the same time, if circumstances change – as we have seen with the postponement of the Olympics and cancellation of many events – a marketer who has developed an alternative plan may be better positioned to execute on that alternative if circumstances evolve out of their control.
Prioritize growth, even in a downturn, and even if it requires new investments. Even in declining economies, new products and services emerge. Unfortunately, most companies retrench at exactly the time they can capitalize on consumers’ interests in considering new approaches to meeting their own needs. Every company with a product to sell or an idea under development should ask themselves where they would invest resources today if they could. If internal resources are not available, capital markets are generally available to provide companies with capital and liquidity where needed.
Companies are often concerned about a perceived short-term orientation among analysts and investors, but we might argue that they are only oriented around the short-term if they are not given a persuasive reason to focus on the long-term. Companies such as Amazon, Netflix and Salesforce.com are examples of companies whose CEOs essentially never waver from their long-term focus and have built businesses centered on that. Analysts and investors have generally taken similarly long-term views in assessing these companies. They are generally willing to do so for others, as long as the company’s focus is unwavering in its time horizon.
Each of these opportunities have pros and cons to consider. Inventing new approaches to managing budgets can be politically challenging and may require new working processes but doing so allows a brand owner to make more efficient choices in the near-term. Emphasizing new financial metrics – such as contribution margins – over others may also involve internal political issues, but the benefits can be very real. Establishing BATNAs can require additional work, but optionality can open up new and better ideas and provide helpful contingency plans. Focusing on growth requires a proverbial capacity to change the engines on a plane while it is still flying but doing so helps position a company favorably for the long-term. The best opportunities to pursue will always be company-specific.
While simpler times are unquestionably less stressful for marketers at an individual level, the complexity and uncertainty of the current era presents the opportunity for significant change. Much of this change will be negative, although around that change, marketers can always look for opportunities to make their situation as positive as possible.