In times of economic uncertainty, the knee-jerk reaction for many businesses is to slash budgets, and marketing is often the first to go. But history has proven that companies that double down on their brand, customer engagement and market presence during these troubling times don’t just survive – they thrive.
Cutting your marketing budget may provide short-term relief, but it risks long-term and hard-to-overcome damage to your brand, competitive edge, and customer loyalty. In a world where visibility is everything, disappearing from your audience’s radar isn’t just a pause, it’s an invitation for your competitors to take your place.
In addition to a rough economy, there are a number of reasons why marketing expenses often find themselves on the chopping block. Let’s take a look at what those are and get into why maintaining (or even increasing) your marketing investment is the smarter, more strategic move for sustainable growth for the future.
Common Reasons for Reducing the Marketing Operations Budget
The desire to slim down marketing expenses comes from a number of factors:
- Economic uncertainty: During times of instability among new policies, inflation, high interest rates and more, companies search for anything to offset either what they’re currently facing or could potentially face in the future. This approach is counterintuitive to long-term growth, however. Experienced executives don’t see the risk, but rather the opportunity. They take the time to reassess operations, which often includes increasing investment in customer retention programs and building stronger cross-functional alignment, using data to make informed decisions.
McKinsey conducted a study of nearly 1,000 U.S. companies over a time of 18 years, including a recessionary period. They found that the companies that performed best continued to invest in marketing, that they took the hit on their short-term profits in order to achieve higher profitability in the long-term. Those companies actually achieved a higher compounded growth rate during the downturn.
- Short-term financial gains: When profits don’t meet targets, stakeholders are more likely to cut marketing expenses than to try to grow revenue. It may be a desperate effort to boost short-term earnings, satisfy investor pressure, or meet immediate financial goals.
- Lack of visibility into its value: A lot of leadership and board members still view marketing as a cost center rather than an investment into the future growth of the company. You typically don’t see immediate ROI with marketing campaigns, as it takes time to build brand awareness and customer trust and translate that into sales or conversions.
Many stakeholders also think marketing is just a way to create flashy advertisements or generate new customers. And while generating new customers is one of its aims, marketing encompasses a much broader role including understanding customer needs, making a name for yourself, positioning your products or services strategically, and aligning with sales to drive overall business growth. Marketing is about creating a meaningful connection with your target audience beyond simply selling a product or service. This isn’t always understood by higher-ups.
- Rise in AI: After inputting a few prompts on your computer, you can have some social media copy, analyze customer segments, and perform market research. This has led business leaders to wonder how much they can replace humans with machines. A recent World Economic Forum survey found that 41% of companies worldwide expect to reduce their workforces over the next five years due to AI. While it is smart to leverage AI to improve productivity, savvy marketers know that the secret to real results is in balancing the efficiency of AI with the brain power and creativity of human beings.
No matter the exact reason, these directives from leadership or the board are based on either false assumptions or a disregard for long-term results.
Cutting Your Marketing Strategy Budget and the Impact to Your Business
Marketing is an investment in growth, brand strength, and customer relationships. Slashing it can create a ripple effect that negatively impacts sales and competitive standing, both of which decrease the business’s overall value.
Here are key areas of impact:
Brand visibility and awareness: Marketing is the cornerstone of brand visibility. As mentioned, it takes time, but once you achieve brand visibility, you’ll see higher sales and profit margins, even against competing brands of equal quality. Reducing or eliminating demand gen strategies that build brand awareness triggers a message to the market that you’re disengaged. Existing customers will lose interest, new customers won’t find you, and potential buyers or investors won’t be attracted to your business.
It’s also important to note that marketing goes beyond just advertising products or services to really staying in tune with evolving consumer preferences and market trends. Customer loyalty will greatly suffer if they no longer feel seen and heard from a lack of touchpoints. The ultimate price you’ll pay is your revenue.
Competitive edge: In reducing your marketing budget while your competitors are increasing theirs, you’re essentially handing over your market share. Competitors who stay active build credibility and earn trust. This is particularly important when trying to establish thought leadership for either executives or companies as a whole. Cutting back on content creation, events, or social media engagement lowers your voice in important industry conversations.
It costs approximately $1.85 for every $1 saved to regain lost market share that occurred from cutting brand advertising, according to research by BCG Global.
Innovation: Marketing isn’t just about promotion, it’s also about understanding the evolving market, experimenting with new ideas, and continuously pushing boundaries to stand out. Reduced investment stifles your access to resources to do so. This means less money for emerging platforms and AI tools, less money for research, and less money for experienced thinkers and doers. Plus, limited funds can force marketers to play it safe, sticking to outdated strategies that no longer work.
Failing to innovate cost former powerhouse Blockbuster its business. As the market changed, consumers became able to watch movies online, and cable companies began offering streaming on-demand. Blockbuster was unable to adapt, which led to their ultimate demise, being forced to file for bankruptcy in 2010.
Attention of buyers and investors: Potential buyers and investors will scrutinize the financial health and wellbeing of a company they’re interested in. They’ll look at growth potential and the competition. They’ll also analyze the brand and reputation, looking for a strong customer base. As outlined above, a healthy marketing investment directly contributes to all of these. It maximizes your business value, making it much more appealing.
Rethinking Marketing Cuts to Invest in the Future of Your Business
When it comes time for the CFO to analyze the P&L to identify areas to cut, hopefully they’re making smart decisions with the future of the company in mind. Even though marketing is an easy target for cutting expenses, this is misguided. The role it plays in a company’s sustainability and future revenue proves defunding it in the short term will actually end up costing you in the long term. Instead, find ways to reduce costs while building capabilities.
If you’re questioning whether your marketing efforts are providing value to the business, the immediate need may be for a refresh rather than a cut. If you need help examining your marketing campaign and making sure it’s set up for success, reach out to one of the experts at our full-service marketing agency.