Cut marketing at your peril
When times are difficult, firms want to conserve cash, and are often tempted to reduce or even abandon promotional activities. Like governments throughout the world, many businesses choose a policy of austerity over growth. This is a false debate: companies need both an austerity and a growth approach to marketing investment. There is no situation that would require one and not the other.
Promotional spend is the investment needed to reach new customers — and to maintain an existing customer base. Customers are at the core of any business, so don’t think of your marketing as a non-essential overhead; that could be a costly mistake.
When looking at marketing budgets, management sometimes considers only the numbers, ignoring the specific nature of marketing. Some executives assume that their company will maintain its position in the marketplace and keep a stable level of sales and revenue over time. Not so.
Without marketing investment, companies cannot hang on to their market position for long. They will keep losing existing customers, and increasingly struggle to win new ones. It’s a bit like turning off the engines of an aeroplane and expecting it to stay aloft indefinitely. That same principle of gravity applies in the boardroom. The value of marketing must be assessed against the likely decline in revenue as a result of inaction.
Austerity is of a different order. To follow the metaphor, the baggage hold should not be so loaded that the plane can no longer fly. So businesses must assess each element of their marketing budget, and determine whether it is part of the solution or an unnecessary cost. Economic pressures mean most marketing teams now have to operate with a reduced budget. Good management requires traceability of the marketing spend and a reliable measurement of the return on investment (ROI).
Many marketers cannot calculate ROI, or don’t do it for fear of getting poor results that are interpreted as underperformance. But ignoring marketing ROI is not sensible for businesses under financial pressure. Measuring ROI gives you the facts to determine which activities should be dropped and which are worth pursuing. It will enable companies to optimise and ultimately reduce their marketing spend without damaging results.
Businesses live and die by cash flow. Conserving cash is necessary, but investing in customer demand drives sales and brings in money. The bottom line? Marketing is about investment, not accounting.
Article by Jonathan Collings, originally published on Recharge News