Partner and Co-Founder, in4mation insights
As inflationary signals rise, layoffs continue, and news spreads of reductions in advertising spend, many industry voices are cautioning brands not to reduce their marketing spend in the face of recessionary circumstances at their peril! “DON’T DO IT!,” they exclaim. But isn’t the real issue getting optimal return on whatever you CAN spend?
We would not be so bold to tell you not to reduce your marketing spend if the senior most management of your company points to that as a painful but necessary path. So why are these other voices simply making the inevitable more difficult?
There is a fair amount of chatter in the industry that brave (or simply more risk tolerant) brands who continued to spend during previous market downturns fared better than their competitors who reduced spend, at least in advertising intended to build brand fame, rather than just achieve more short term, tactical activation.
Over the years esteemed practitioners, such as Les Binet and Peter Field in the UK, have done research to defend the benefits of long-term fame building. Even ANA CEO Bob Liodice’s presentation at this year’s Master of Marketing event encouraged marketers to “stay the course” in their 2023 marketing plans. Less well-known experts, like Dr. Grace Kite in the UK, have shared a POV that marketing can help maintain brand awareness while we all hunker down waiting to see what a downturn in the economy is going to deliver.
Fair enough. We share the opinion that disciplined marketing investment yields huge benefits when executed from a well-constructed view of the path towards ROAS.
The reasons behind the current inclination to reduce marketing spend are just not as simple as “we need to cut expenses to stay profitable.”
An example of a marketing spend reduction prompted by a more holistic inclination is Campbell’s Soup Company. Their annual regulatory filing revealed that worldwide advertising and consumer promotion expense was cut by 21% in its fiscal year ended July 31. Digging deeper into the filing the company explained: “The reduction in advertising and consumer promotion expense was primarily due to supply constraints.”
That makes perfect sense: promoting with advertising what you can’t deliver to the market will inevitably result in out-of-stocks that engender negative customer sentiment and erode brand loyalty.
Not all decisions around reducing marketing spend in 2023 will be as nuanced as Campbell’s and for sure some retrenchment in spending across the board in the face of recessionary conditions is going to happen even if it may have a long-term impact on brand building.
But let’s face it. The complex calculus of rising energy and ingredient costs, supply chain woes, increased labor costs, the Great Resignation followed by layoffs, and decreased consumer spending is what is worrying the C-Suite (and me too). And if they respond to this by demanding a reduction of expenses across the board, that is precisely what you are going to do. The C-Suite and shareholders still want growth. And raising the chances of getting it as efficiently as possible in the face of cost and revenue pressures is the smart thing to do.
Therefore, suggesting that you defy the directive to reduce marketing spend seems to us to be missing the more important point.
Rather, the key objective-- more than ever – should be to optimize the most effective allocation of whatever marketing budget you CAN spend, so as to ensure that you are going to reap the highest return on your investments -- however reduced they may be. And now more than ever these efforts are delivered by timely, cost-effective decision support for media spend, at the most granular level possible, particularly in an increasingly fragmented media landscape. Advanced marketing mix modeling solutions can do just that. While many hype the supposed gains of machine learning and artificial intelligence, the application of flexible and robust Hierarchical Bayesian statistics -- that we have been developing, enhancing, and refining for over twenty years – robustly meets the needs of today’s multi-level marketing, media, pricing, forecasting, and operations challenges.
So while our colleagues and competitors may be urging you to resist reducing your marketing spend, we are urging companies to be sure that whatever you do spend works as hard as it can. When you need to know at a granular level which channels are outperforming others, where you are outperforming, and when, you must engage partners who can help you build and adjust your plans quickly and robustly. You have to quickly simulate performance in “what if?” scenarios, optimize spend at the incremental channel level even as you adjust investments, and even work backwards from a growth objective to determine how media can help you achieve your goals.
Particularly in an environment of volatility and uncertainty, we should all be championing “disciplined” investment in brands and media spend, based on fast, reliable, and accurate analytics built to help you understand and optimize the drivers of return. In short, make sure that every dollar you can spend works as hard as you do to drive sales -- and the long-term health of your brand.
Contact Steve Cohen at firstname.lastname@example.org to find out more about how to optimize your media investments wisely.
Steve Cohen is a Partner and co-Founder of in4mation insights, www.in4ins.com, a leading marketing analytics and marketing research consultancy. With advanced degrees in mathematics and communications and a PHD in mathematical sociology, Steve has won lifetime achievement awards in analytics, marketing and market research from Quirk’s and the American Marketing Association.