Measure twice, cut what? | Marketing Dive

Linda J. Dodson

The following is a guest post from Nancy Smith​, president and CEO of Analytic Partners​. Opinions are the author’s own.

It’s growing clear that the current health crisis will have serious and long-lasting economic implications. While many predicted a recession was around the corner, no one imagined it would come on the back of a pandemic.

Recessions bring with them increased scrutiny on spending in general. When a CFO’s first inclination is to cut and continue cutting until cash flow is maximized, the marketing budget will often find itself quickly in the crosshairs. But is cutting the right thing to do? Studies that look into the optimal approach to marketing budget, spend efficiency and recessions come up with an interesting conclusion: Companies that adapt while protecting marketing budgets during recessions — while their competitors don’t — tend to do better in the ensuing years of recovery.

There’s nuance to this, of course, but the principles are well covered by several articles such as this one in Harvard Business Review. Looking at almost 5,000 public companies across three global recessions, 17% went bankrupt or were acquired while only 9% of companies actually flourished after a recession.

What were these companies that adapted and flourished? They weren’t the cost-cutters nor the aggressive investors. Those that thrived found ways to balance the need for short-term efficiencies with their longer-term vision by finding operational efficiencies while continuing to invest in marketing, R&D and new assets. These companies were twice as likely as the others to advance ahead of competitors as the economy began to look up again.

Cutting marketing and advertising during a downturn may hurt a company:

  1. Recessions or downturns don’t always mean lower ROI: In more than 100 cases, over half saw ROI improvements during the last economic recession.
  2. Investing in media can contribute short-term growth and longer-term brand building, even during a recession: On average, brands that increased media investment during the recession saw about a 17% lift in incremental sales, and more than half realized subsequent ROI improvements year over year.

While it’s easy to make the case to advertise, particularly with the goal of boosting longer-term brand health, the reality is that many brands will require disciplined budget cuts to weather this storm. But how do you know where to cut? Below are some things to consider if you find your budgets facing the chopping block:

  • Measure twice, cut once: Having a holistic measurement discipline will put your company ahead of competitors. By understanding where your strengths lie in terms of business impact and ROI and other metrics, you can adapt and be selective regarding what to cut and what remains. Many brands will cut across the board or base decisions on judgment or ease. This approach will only end up strengthening hidden weaknesses while hindering strengths, kicking off a vicious cycle of cutting to temporarily slow the bleeding.
  • Look beyond the short term: There’s a tendency in crises to cut long-term initiatives, such as branding and innovation, and retain things that bring short-term benefits. As mentioned above, companies that thrive during and beyond a downturn are those that continue to invest for the long term. Look closely at long-term projects and evaluate the net present value (NPV) of the expected payback on each area of investment and continue to invest in those with the most attractive returns. With a standardized business case process, your business can portfolio-manage investments regardless of the time horizon. Continue investing despite slight dips in efficiencies due to circumstances — it will pay off in the long run.
  • Not all customers or channels are equal: You’re not alone in this downturn. Competitors are also working to stay afloat and snag greater market share. Consider the relative value of customer segments, product groups, channels and regions. Leverage solutions like customer franchise value to understand the long-term value of customer segments to your bottom line. Identify expected returns from investments in each and rank them. Where to cut may crystalize.
  • War game: The impact of cutting decisions also depends on competitors’ actions. If they cut and run, you may be able to keep steady while spending less. But what if they don’t cut or increase spending? Leveraging war gaming tools and scenario building capabilities can illuminate which types of cuts are smarter, and which leave you open to substantial competitive risks.
  • Measure again: Customers and their needs change in response to current situations, so you must listen to and capture their evolving behavior. As you make changes to investments, continue measuring. The current economic climate will likely influence how consumers react to ads and interact with brands, so it’s important to monitor and measure how these changes affect your business so you can adapt accordingly. By continually refreshing results through always-on approaches, you can more quickly understand whether you need to course correct.

A downturn doesn’t automatically doom your company’s bottom line. By building a disciplined, robust marketing measurement capability to promote clarity and transparency, you can base decisions on data and confidently cut in the right places to the right degree, while preserving the company’s ability to adapt and thrive in the future.

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