Article Summary: Don’t Cut Your Brand – Marketing Budget. Rethink It.

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The world has turned strange, the future is uncertain, the way is unclear. The C-suite is rumbling with threats of budget cuts, and no department is safe. But will cutting the marketing budget do more long-term harm than good? That was the subject of research from the Boston Consulting Group. Spoiler alert: The data suggests that marketing shouldn’t take a hit, especially in uncertain times.

Take-Aways

• It’s tempting to cut your marketing budget in times of economic uncertainty, but marketing cuts result in losses across almost all pertinent metrics.
• Instead of cuts, optimize how you spend your marketing dollars with precision branding.
• Digital tools allow for precision targeting, precision activation and precision measurement, with widespread reach among internet users.

Summary

It’s tempting to cut your marketing budget in times of economic uncertainty, but marketing cuts result in losses across almost all pertinent metrics.

Budget cuts are a common response to an uncertain future, but think twice before cutting your marketing budget. When you reduce marketing investments, you can also expect a reduction in TSR (total shareholder return), CAGR (compound annual growth rate) and market share. After marketing budget cuts, brand health is likely to flounder, and awareness-to-purchase conversions will also take a dip.

“Regaining lost market share requires a future investment of $1.85 for every $1.00 saved from near-term reductions in brand spending.”

There’s a marketing truism that maintaining customers is always cheaper than capturing new customers or regaining those you’ve lost. The data backs that sentiment up. Companies that increased brand spending between 2017 and 2019 boasted a TSR 6% higher than those that decreased marketing investments over the same period. Companies in the upper quartile for brand spending had sales CAGRs 13 percentage points higher than those in the lowest quartile, and companies that decreased brand spending could expect to lose 0.8% market share when compared to those that chose to increase spending.

Instead of cuts, optimize how you spend your marketing dollars with precision branding.

Marketers used to rely on generic channels with wide reach and broad demographic categories to make their marketing strategies. They were then stuck with vague measurements like brand awareness to divine the success of their campaigns. Maintaining your marketing budget doesn’t mean adhering to the traditional approach. Instead, make each dollar count with the kind of precision marketing that’s only possible with digital tools.

“Precision branding offers CMOs and CFOs a holistic way to drive success during periods of uncertainty, using modern-day advances in consumer insights,…marketing technology, lower-cost creative and analytics.”

CMOs and CFOs can take advantage of precision marketing to build future resilience, as long as they:

• Keep in mind that marketing decisions have multi-year consequences; view investments – and cuts – through a long-term lens. This is because “it costs twice as much to gain market share as to maintain share.”
• Remember that the effects of brand marketing are far-reaching and will affect diverse stakeholders. Take a cross-functional approach to marketing decisions.
• Prioritize high lifetime value customers and consider targeting the customers your competitors are surrendering.
• Know that due to its digital nature, precision branding scales well and comes with a healthy ROI.

Digital tools allow for precision targeting, precision activation and precision measurement, with widespread reach among internet users.

Consider a meal delivery service targeting young professionals. Where a traditional campaign might use a channel with wide reach – television – its message wouldn’t change according to the customer’s current needs, and performance metrics are delayed and hazy. Precision targeting helps marketers decide which customers they can capitulate, which they must maintain (probably those with the highest lifetime value) and which new customers they might target due to a competitor’s capitulation.

Precision activation differentiates between the young professional who’s most interested in convenience, and the one who wants to start a new diet plan at the beginning of the year, targeting each with the right message in the right moment. The beginning-of-the-year-dieter might respond best to a message about self-care while viewing a cooking tutorial online, for example. Each campaign is activated according to the specific occasions and needs of the consumer, taking site visits, page views and purchase history into consideration.

“Digital channels are especially well suited to precision targeting and activation at scale because they enable a level of reach and precision that is virtually impossible with traditional mass media.”

Finally, precision measurement means keeping tabs on long-term metrics like brand awareness and performance, while also considering short-term KPIs like Boston Consulting Group’s First-Fast Response, which evaluates unconscious consumer associations within the demand space, as well as sales, market share, brand buzz, search and engagement. Short-term KPIs can drive an agile, test-and-learn approach that champions successful campaigns and abandons less successful campaigns before there’s too much waste.

About the Author

David Ratajczak, Mario Simon, Leonardo Fascione, Emily Kruger, Chris Murphy and Alex Almeida are professionals with the Boston Consulting Group.