Budget cuts now will only profit in the short-term

May 14 2008 by Iain Laing, The Journal

THERE’S little doubt that it’s a tough time for businesses right now. I don’t want to talk us into a recession, but it is timely to remind readers that it is important to maintain advertising and marketing communications expenditure in a business downturn.

Cutting budgets now, as I am sure many an accountant is advising, will only be profitable in the short term and ultimately the brand or company will emerge much weaker when the business cycle takes an upturn, as it surely will do.

Why do I say this now?

Well there has been considerable research into this subject over the past 30 years, each time, in fact, that there has been a business downturn, or stand still. The difference at this point, in 2008, is that many businesses, which have started and grown in the new entrepreneurial climate of the last few years, have known nothing but growth and prosperity. They have not yet faced adversity.

Our politicians are fond of reminding us that the country has seen an unprecedented fifteen years of growth. The bust and boom of the ’70s and ’80s being a thing of the past. The result is that we now have many business bosses and leaders who have never had to deal with a downturn in markets.

It has long been the accepted wisdom of the big consumer brands that it is better to maintain SOV (share of voice). That means, maintain your level of investment in marketing communications as a percentage of the total spent in the sector, at or above SOM (share of market) during a downturn, and if other brands are cutting budgets then the longer-term benefit of maintaining SOV at or above SOM will be even greater.

That principal may sound like it only applies to the big brands. Not true. It is just as true for smaller regional brands and all businesses, whether in retailing, manufacturing or the services sectors. Although it may look tempting in the short-term for companies to cut their marketing spend, this can be dangerously misleading.

The mid-to-longer term business harm will not at first be noticed but, believe me, it will have considerable long-term effects. Those that cut their budgets relative to competitors are at greater risk of a higher share loss.

It’s all too easy to make a snap judgment about a discretionary budget like advertising, but the reality is that short term gain leads to long term damage to the brand, and the cost of recovery is three to four times greater than the saving made.

That’s not to say that you should not at all times scrutinise how you spend the marketing budgets. Changing markets need changing solutions. Consumers often change their behaviour in a slower or tighter market. It’s vital that you keep close to monitoring what is happening and how customer behaviour is changing. You must also stay up-to-date on the latest digital and electronic marketing techniques. It’s not enough to “have a website” you must “have an effective website”.

Marketing, whether in good times or not so good times, is all about making sure you give the consumer/customer what they want, when and how they want it. And all at the right price. Stick to those principals and your business is more likely to weather the current downturn and come out stronger.

Joanna Berry, Chairman, North East Branch, Chartered Institute of Marketing