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When Cutting Marketing Budgets, Don’t Throw Out the Marketing Baby with the Bath Water!

Marketing plays a critical role in helping organizations take advantage of opportunities. And as marketing becomes an important element in organizations, it then becomes critical to ensure that the Big M — marketing — is as healthy, effective and efficient as possible

It becomes even more critical to ensure the health and effectiveness of your Big M in light of the current economic downturn. Consumer buying drives more than two-thirds of our economic activity. And if consumers pull back, most businesses feel the pinch, which in turn slows down the economy further. In just the first quarter of 2008, more than 200,000 jobs were slashed by companies reacting to the declining economy.

Legendary financier George Soros mentions in his book, The Credit Crisis of 2008, “The US is facing both a recession and a flight from the dollar. The decline in housing prices, the weight of accumulated household debt, and the losses and uncertainties in the banking system threaten to push the economy into a self-reinforcing decline. Measures to combat this threat increase the supply of the dollar. At the same time, the flight from the dollar has set up inflationary pressures through higher energy, commodity and food prices.”

The economic outlook doesn’t get any prettier. The Conference Board’s latest CEO confidence tracker showed a decline for the first quarter of 2008, making it the lowest level of CEO confidence since 2000. And the National Federation of Independent Business, which tracks small business sentiment, said optimism fell in March 2008 to its lowest level since 1980.

With the economic woes and the lack of confidence in sight, organizations that need to reduce costs inevitably seem to fall back on one seemingly natural response: budget cuts.

When the days of economic growth provided some stability in the workplace, it was less important to take the right marketing direction on the first turn. However, taking many marketing wrong turns is not practical or affordable in today’s volatile marketplace.

Most times marketing is perceived to be a cost center. Financial and senior executives are eager to define the ROI from marketing. During economic downturns, marketing is under great pressure to deliver more from less funding. Then, marketing budgets and staff are often the first to get slashed in a downturn economy. As a leader who may need to cut your marketing budget, it’s important to make sure that you don’t throw out the marketing baby with the bath water.

First things first – Marketing use or misuse!

Before cutting your marketing budget, ask yourself if you truly understand what marketing is to your organization. The word marketing has to be one of the most misused terms in business. Too many confuse it with “little m” marketing and think it is sales or an appendage of sales. For some, it means sales promotion, and others confuse it with advertising. Go ahead and ask a hundred people in your organization what marketing is, and you most likely will get a million different answers. So what is it that you really are slashing from the marketing budget?

First, you must get a clear and succinct picture of what the marketing baby is or isn’t in your organization. Marketing and management guru Peter Drucker defines the purpose of Big M marketing as motivating purchasers to want to enter into an exchange of goods and services with your organization. He adds, “Marketing is so basic that it cannot be considered a separate function. It is the whole business seen from the point of view of its final results, that is, from the customer’s point of view…Business success is not determined by the producer but by the customer.”

In other words, your marketing baby is everything you do in business that affects your customers’ perceptions of your organization — and those perceptions affect their motivation to buy your goods or service.

You can’t afford to react to a slowing economy by simply cutting the marketing budget. Marketing has become too important of a contributor to most organizations to simply slash it. Marketing should integrate all the functions of your business and speak directly to your customers through the marketing mix. If anything, Big M marketing has evolved into a holistic presence within most organizations and must be integrated appropriately to capture target customers effectively.

With current recessionary pressures, customers will tend to become value maximizers. They will form an expectation of your company and act on it. Buyers will buy from the firm that they perceive to offer the highest customer value. Ultimately, marketing can become your best friend in attracting and retaining profitable customers during an economic downturn.

The term strategy is another misused term in business. By its definition, it refers to gaining competitive advantage and should be an essential part of Big M marketing. Unfortunately, and especially with economic pressures, it has become little more than a tool used by management to forecast and budget for short-term profit maximization. As a result, strategy becomes an internally focused drill dealing with tactical issues — and will never help you leverage your organization beyond its current existing conditions.

Unless your organizational structure supports a total customer-centric strategy, a good product or an adept sales team just isn’t enough. Within today’s marketplace, organizations now must place emphasis on growing and retaining valuable existing customers as much as on acquiring new ones. If your organization doesn’t have a strategic plan that reflects today’s economic woes and laser focuses on total customer satisfaction, now is the time to formulate one — before you decide to cut the marketing budget.

Before cutting the marketing budget, consider the following questions:

  • Do you fully understand the needs of your customers?
  • Do you conduct customer-centric evaluations on your products and services?
  • Are your marketing goals SMART (specific, measurable, attainable, realistic and timely)?
  • Has your strategy incorporated the shift in economic pressure while considering both your customers and competitors?
  • Have you reviewed the structure of your marketing operations including processes, people and infrastructure to allow your organization to accomplish its goals?
  • Are you using technology enabled CRM to build a learning relationship with your customers?
  • Have you conducted a thorough and objective marketing audit of all your marketing functions and processes?
  • Do you understand the brand implications of marketing cuts?

Before cutting, consider your marketing metrics:

Obviously the best way to view a budget is to show its economic worth. Although a difficult task, this process is important in order to show a clear connection between marketing spending and resulting profits. It is difficult to always connect the spending with the profits because marketing is such an integrative function throughout an organization; many of the measures have time delays along with intervening variables. So consider both the short-term and long-term effects when using metrics to assess the value of your marketing expenditure.

Critical measures that can be used include:

  • Return on Investment (ROI); Economic Value Added (EVA); Internal Rate of Return (IRR); Return on Sales (ROS); and Net Profit
  • Customer Life Time Value (CLV) and average acquisition cost or retention costs
  • Measuring at a micro-level the value of specific products or programs

Before cutting, consider a Big M marketing audit:

Shifts in the economy and consumer behavior have a serious impact on your organization. As the economy seems frail, organizations should consider taking the pulse of their Big M marketing baby. A comprehensive, independent and objective marketing audit can be the first step to ensuring marketing health, effectiveness and efficiency. A thorough marketing audit will result in a healthier, more customer-centric organization with increased sales and profitability.

So throw out the bath water if you must, but hold on to that marketing baby. And take a Big M marketing view within your organization as a long-term sustainable investment, which, over time, will deliver a steady and ever improving return.

Allen Banoub is Chief Marketing Surgeon with Marketingmri, Inc.