by Jim Lenskold
As many global economies become tighter and revenue streams shrink, marketing executives must strategically assess their opportunities to profitably win their share of that smaller revenue pie. Marketing pundits have advocated throughout this year that tough economic times are the right time to build brands and grow share of voice. But this will not work for every company. If you can’t make a smart strategic case for how your spending is going to add value to the company, you won’t convince CEOs and CFOs to fund marketing budgets when revenues are down. I’m going to outline the six approaches available and share the key criteria around financial dynamics, competitive environment, and customer behavior patterns that can help you determine whether spending more or less is right for your business.
These approaches are based on the fact that you need to have some expectation for how and when your marketing will generate a positive return on investment (ROI) for the company. While measuring and managing ROI is always a good discipline for marketing organizations, there has never been a more critical time than during a threat of significantly contracting markets. Executives are not going to buy into a theoretical discussion on brand building as easily as a quantified projection using your best assumptions. A good ROI analysis takes into account long-term brand building and purchasing behaviors. It’s a critical planning exercise to not only show that you can generate more profits than you spend, but also guide the strategies to make it happen.
Presented below are the six strategic approaches that a company can pursue in tough times to generate the best long term financial outcome. To help you identify which approaches you should consider, I have also included a series of assessment questions following the descriptions of each approach.
So here is some general guidance on which of these approaches may fit best for your company. The assessment criteria below should help eliminate certain approaches and surface several that are most viable. Keep in mind that there are other factors to consider and the combinations of responses to the questions will provide even greater insight than each individual response noted below. This quick assessment should be followed by a deeper analysis and quantification of your approach to make the right decision.
Is the company under significant pressure to meet short term financial performance at the sacrifice of long term financial performance?
Are competitors increasing or maintaining previous spending levels? (assuming additional budget is an option)
Do you have measurements, analyses, and/or marketing ROI insights that can guide smarter spending to reach more profitable customer segments or higher impact marketing?
Does your market demonstrate a high degree of loyalty, long-term agreements, or purchasing inertia that suggests purchasing preference in the near term is likely to remain as markets recover?
Are your sales levels highly correlated to advertising and marketing activity, indicating a high short-term impact and an ease in brand switching?
What customer behavior changes are most likely occurring as overall sales levels are declining?
Don’t jump to the conclusion that more marketing is absolutely the right decision. Pull together enough information to make an informed decision. For example, if your current strategy is to spend $1 million for the next four quarters and generate $2 million in profits during a time when purchase activity declines (a net loss of $2 million), consider the alternative of cutting that spend back to $.5 million for three quarters followed by a $2.5 million in 4th quarter to earn a much higher share of a growing market (assuming that consumer spending returns in just 4 quarters). You may see that good alternatives exist within the context of the approach you choose.
Your conclusions and recommendations have to be relevant to the priorities of senior executives. It is not a time when executives will go on faith that good branding or share of voice is critical to maintain. A solid ROI analysis that shows short term and long term returns from current investments will guide the discussion to the appropriate decision. If you do not get the decision you feel is right, create test market scenarios in the market place to make your case. That approach provides you with the insight to make the right recommendations and it provides the company with the confidence to re-prioritize limited resources to achieve the right balance between short term and long term profitability. If marketing does not step up to participate in these critical business decisions, it is very likely that growth opportunities will be missed.