CONTRARY TO POPULAR BELIEF…
Recessions are NOT the time to increase your marketing budget
There are two things brands can always count on when a recession hits: less consumer spending, and hungry agencies making the case for why this is the right time to increase their marketing budgets.
It’s a weak argument that’s been repackaged in any number of variations, all basically centering around the idea that brands need to advertise more to get a greater share of a smaller consumer pie. But that’s not reality. The reality is that when recession strikes, companies may be forced to go through severe cost-saving measures, and the marketing budget is the first place they’re going to look. Efforts that strictly work to increase brand exposure are especially vulnerable, as companies shift their focus from long term growth to short-term, measurable ROI.
The truth is, those companies are making the right decision. According to ChangeWave Research, 57% of US consumers plan to spend less through April, 2009 than they did a year ago, and despite a small uptick in January, 2009, future spending levels don’t appear ready to improve anytime soon.
So if brands shouldn’t spend more, what should they do? Clearly companies still need to market themselves to drive sales. But instead of spending more, brands need to spend smarter. There are two ways to do this:
1. Ditch the expensive NYC agency. We recently went on a pitch for a potential client who was interested in hiring us to run a promotion for them for the 4th quarter of 2009. As it turned out, one of the ideas we pitched was the exact same concept that their lead agency came up with, and is currently working on for the 3rd quarter of 2009. Well, not exactly the same – their lead agency (out of New York), charges over double what we charge. So look around – there are great agencies outside major cities that are every bit as creative and talented, definitely hungrier, and can stretch you budget farther, simply because we don’t carry the expense of marble floors and Madison Avenue addresses.
2. Seek out better avenues. Mass media advertising can bring significant exposure, but it’s expensive and the effects typically take longer (and can be harder to measure). During tighter times, brands need to seek out other ways of communication, including online messaging through social media, viral marketing and CPC advertising campaigns. If done correctly, these methods can not only increase brand exposure (even beyond what mass media can accomplish), but they can drive short-term sales and provide immediate ROI analysis – even with a greatly reduced marketing budget.
So as much as I hate to debunk the myth the industry has been fostering since agencies felt the wrath of the very first recession, a down economy is not the time to increase your marketing budget – it’s the time to spend your remaining budget more efficiently.
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Nor it it the time for companies to decimate their sales force. A good sales person is also a good, and already paid marketing avenue, especially when the marketing budget is tightened up. Who better to spread the word than the motivated and educated salesperson who is still visiting customers on a regular basis, keeping their company name and products on the forefront?
I’d like to site an example of a poor business decision spurred on by our current economy and see if you agree with me. Crazy as it seems when the market tightened up not only was one of three salespersons let go, the other two had their salaries slashed substantially (34%) with no commissions and loss of car expense. This would kill any incentive for the salesperson to make the heavy push needed to keep business flowing in these trying times. Since a motivated salesperson is a strong marketing tool for any company, an approach, such as illustrated above, may save money on the bottom line, but costs far more in loss of exposure and motivation to sell, which in the end costs the company far more than their supposed savings. As sales and marketing are “kissing cousins” either one that negatively affected costs the company in best of times, and in the worst of times can sink the ship.
Christine – I agree with you 100%. The economy might be down and money might be tight, but companies and consumers still need to buy things. They’ll just be making wiser choices and be far more careful with how they spend their money. So sales people have to do a better job and work that much harder to make the sale.
There’s no way that’s going to happen if a sales team is feeling unappreciated, demotivated or isn’t given the proper incentive. Company owners might not be in the position to spend freely, and they may need to cut costs, but they should other ways of doing so than by taking perks away from the people who are actively doing the selling.
Not too long ago, some of the big companies that got government bailout money (and I think AIG was singled out), got reamed in news because they had taken a bunch of their sales people to a spa, or were planning a big Vegas excursion – something like that. They were spending a pretty good amount of money on these things, and there was a huge outcry because it was seen as wasteful spending by companies who were using “our tax dollars” to stay afloat.
It was amazing to me that people can’t see the bigger picture. These aren’t cases of Roman emperors just screwing around, they’re active efforts to keep their best sales people happy so they’ll continue to do a good job. Management recognizes that strong sales people are their best hope for success, so they do what they need to do to keep them motivated. If they don’t, productivity will drop, sales will drop (even further), and the future will seem even more bleak (or even worse, the best sales people will leave the company completely and go work for one that will incentivize them better).
I do think, however, that company owners can find some creative ways of providing incentive to sales people over and above simply doling out cash. I know that in Perspectives on Managing Employees, Mike Fina talks a lot about the value of celebrating employees, and there have been numerous studies that show rewards or gift cards can actually be a better motivator than cash. But whatever the motivation is, management shouldn’t be too quick to save money by de-motivating their sales force.
Both Christine and the response to her are right on target. The need for a happy and at the same time hungry sales force is essential to the survival of any organization. My thoughts are that if a company must economize, it should be done by reducing the size of its infrastructure. A company should meet with all of its employees and keep them posted on the challenges we are all facing now and in the near future. All have got to be made to understand that in these times, there is a need for everyone to step up to the plate and contribute. If there is need to cut expenses through attrition or even layoff, those who remain should be made to recognize that the same amount of output might still be required, however produced by a lesser amount of people. I’m talking about increasing the productivity of each and every one of the members of the organization.
Economizing by taking away from a sales person seems to be the worst possible action a company should take. The requirements for the products they represent have shrunk as a result of this poor economy which means the same amount of companies are competing for less business. And those with the strongest sales force will be the ones to survive this downturn. Cut salesman’s incentives? Take them off the road? Create an atmosphere that threatens rather than rewards? Someone’s really got to think this out.
Marketing costs vs. economic conditions isn’t always the right question. Like R&D spending, marketing costs often do not lead directly to increased sales. This can be a very subjective issue. Marketing costs should be rationalized in terms of the organization’s long term strategy. Does a dollar spent today tie back into or or aupport a particular strategic goal? Does it also need to be spent now vs. tomorrow? Much research has been done to question the relevance of marketing ROI vs. market share or dominance. See the Harvard Biz School “PIMS” study for some interesting trends. In this study, a market leader tended to earn a positive return on investment (“ROI”) on each additional incremental marketing dollar spent. This positive effect is diminished, the futher down the market share curve one fits, with even second and third ranked market share competitors seeing negative returns. One contradictory finding did also indicate that some smaller, possibly “niche” players, showing a positive ROI, although not as much as for market leaders. So what’s the answer? Think it through.
ROI, ROI, ROI – yes, it is a tricky issue, but if played correctly (and with a bit of luck) especially in a smaller “niche” market, can be a boon for a company, the trick is what is the “niche” market, and how can you find it?
In these time of dwindling customers, even well before the current economic contitions, any one will attest to the massive migration of manufacturers out of the tri-state area (NY, NJ, CT) as well as pretty much every market in the US. For the distributor that means that the manufacturing companies that are left are besieged with eager salespeople clammoring for their precious time. Most often the competition is fierce and the end result in securing business is a very low PM. You are glad to get the business, but often the cost in doing so is at best a break-even with the profit.
To supplement these conditions, because by no means do you want to turn your back on these customers, other avenues need to be explored. Larger companies may well have a full-fledged marketing department that can spot trends by purchasing marketing reports and spending untold dollars looking for a better opportunity for a higher ROI. But what about the little guy, a small business without a marketing department? Can someone spot a trend that may have the makings of a new, and profitable business for them. I believe the answer is yes!
Though more of a “chick flick” the 1988 movie “The Working Girl” starring Melanie Griffith and Harrison Ford has stuck with me for over 20 years. The concept was simple once you peel back the fluff. The lead character, a secretary always read the celebrity section of the newspaper and in doing so she spotted a “trend”, and the long and short of it was that she was on to something big. Something the executives of the company never would have noticed as they were looking at the “big picture” not the “nitty-gritty” details. She was spot-on in her “discovery” and it resulted in a big merger for the company.
The newspaper to me remains a great source for trending, no matter how big or small you are. I read it daily and several years ago I noticed a trend building that fit neatly into the products we were selling. It wasn’t OEM business, the lifeblood of a distributor, but MRO and largley looked at as “other” business, nice to have, but don’t go crazy getting it. Still it caught my eye and I began paying a lot more attention to the players in this arena with frequent visits and business began to grow, slow at first, but as the trust factor was established, and they recognized the value we could bring to them, business began to flourish. Mind you, many, many hours of research and time went into this (mostly at night on my own time), but the ROI to the company is tremendous. Here was a largely ignored “niche” market in need of some good old-fashioned TLC. We have virtually no competition and are able to sell at very profitable levels, yet not taking advantage of the situation. We are paid for our knowledge and resourcefulness, which is fair on both ends. Soon thereafter contact names (the ones a salesperson dies to get) were offered and the business is building. As it so happens the changes in the economy and the resulting stimulus package will be a boon to this avenue, and I am hopeful that the ROI will continue to grow and will work all the harder to secure our position and our value to this market.
It is still tricky as to whether the investment of time and money can lead to a positive and profitable ROI, but the opportunities are out there and surely it is worth at least exploring them, especially in a climate such as this.
There are many ways of measuring ROI – net revenue is only one component. The stated goal of any marketing effort needs to reflect the purpose of the campaign, and net revenue might not be the most realistic benchmark. After all, there are many situations in which marketing can’t be expected to perform past a certain point. For example, a strong marketing campaign for a retail store might succeed in bringing more consumers through the door, but if the sales person is obnoxious, the store is dirty or the selection is out of date, those consumers probably won’t spend any money. So the ROI measurement in this example (for the marketing efforts alone) has to be whether or not those efforts succeeded in driving the desired amount of people to the store. The rest falls on the shoulders of store managers, sales staff and others outside the marketing realm.
In the original post, my goal was to make a case against increasing marketing budgets in tough economic times, but rather to spend existing budgets more wisely. Not every creative thought needs to come out of an expensive glass building with marble floors, and big ticket mass media campaigns aren’t the only way to reach wide markets. A little ingenuity can go a long way – and spend smaller budgets more effectively.
All that being said, I do realize that when times are tight, marketers and company owners are going to be less concerned with long term residuals than they are with immediate returns. No matter how illogical the argument might be, financial stress can easily cloud judgment, and the only ROI measurement that many business owners will care about is net revenue. Budgets can be adjusted so that short term spend keeps immediate returns in mind…but the long terms residuals of brand building shouldn’t be ignored. This is just as true in the B2B environment as it is in the B2C world. Although it’s not filled with hard core stats, John Quelch summed up some thoughts on the necessity of B2B branding in his article, B2B Branding: Does it Work?
Recessions will end. The need for marketing won’t.