Marketing Cost Cutting in Downturn

Marketing budgets have been severely cut during the economic downturn. A recent study by the Finance Marketing Association in Vienna found that up to 60% of financial marketing departments have responded to the crises by cutting costs. Is this wrong? Not necessarily.

Looking at the dire situation from the point of view of the agencies, they should shoulder some of the blame for this reduction of marketing budgets. Why? Because in economically strong times the agencies sold anything and everything to image-obsessed CMOs and CEOs.

The main consideration seemed to be that the client manager was "happy" at the moment of campaign launch. Concerns about the Return of Investment (ROI) of such campaigns were an afterthought, if at all. Maybe they were eager to win one of the prestigious prizes, but it was not cash they were after.

Insightful is the fact that the only category getting more budget in the crisis is direct marketing. This makes sense, because direct marketing is much more performance oriented and supports the hypothesis that performance was lacking until now.

Also, the explanation that companies cannot "afford" the marketing budgets seems odd. This sounds like marketing is something like luxury, reserved for good times. In fact, marketing needs to be an investment. And like every investment it needs to return the cash plus a profit margin.

Taken it from this angle, the solution is quite simple: rigorous marketing controlling with pre-testing and performance measurement, based on hard data.

However, this is not an entirely new thought and many agencies would offer it to their clients. The only question then is why it was not marketed before?

Marketing Needs to Deliver Cash Flow

As my teacher, Prof. Philip Kotler, once remarked, “There are two types of CEOs—those who know that they don’t understand marketing and those who don’t know that they don’t understand marketing.”

As he would have known quite a many CEOs, this tells me that marketing needs to explain itself better to CEOs.

One consequence of this lack of understanding results in the across-the-board cut of marketing budgets. In an effort to secure survival, CEOs cut expenses, quite correctly.


However, to cut marketing investments is like unscrewing the engine from the car, because it "weighs so much", in order to gain speed. This works until the downhill momentum stops, then the car really stops in its tracks. We do not want that to happen to our companies, do we?


Because marketing is the driving motor of the company we must not "unscrew it". Done right, marketing has two tasks, nicely defined in "Marketing Champions":

1. identifying new sources of cash flow
   
2. realizing this cash flow.
   

This quite common sensical understanding of marketing gets often lost in the everyday hassle. Marketing then is reduced to communication, advertising or sales support.

In order to be a serious driver of company success, Marketing - as a function and a team - must not get lost in the creative, "soft" advertising stuff. Quite the contrary: the role of marketing is to safeguard the one and only reason for the existence of the company: to profitably win and keep customers.

It is to hope that even CEOs will understand that. And, that they will ask their marketing managers to deliver the cash flow or to find such marketers that do.

Thus, marketing is the engine of the company.