"Marketing is a long-term discipline that requires an investor’s mentality and fortitude. Fight for your resources" says El-Akkad as she shares her thoughts on panic budget-cutting
Let us remember the time when you received a communication post devaluation saying “CUT THE MARKETING BUDGET!” and since this moment you have entered thousands of meetings to optimize your investment, maneuver around the cut impact and rework your plans.
A Deja-Vu for all marketing/business fellows?!
We witnessed a big economic downturn back in 2008, the “global one,” then another one in 2016 the “Egyptian one,” and now in 2022 what we are encountering now is a blend of economic decisions from the cabinet of Egypt and banking regulatory bodies.
- February, dictating that Egypt will only accept letters of credit (LCs)in the execution of import operations
- March, the monetary policy committee (MPC) of the central bank of Egypt (CBE) raised key interest rates by 1% (100 basis points)
In the times of high ambiguity, companies and people behave differently. Some companies see recession as opportunities to invest aggressively, establish advantage over weaker organizations and strengthen their businesses. Some other firms will take a different approach to an economic downturn. They cut back on their marketing spending and wait for recession to pass.
Is it an effective way? Maybe yes on the short term this will support company EBIT (Earnings before interest and taxes), but you need to look at future implications.
Binet (2009) in his marketing in recession – 10 things to remember - talks about cutting the right costs.
In his words, “an analysis by PIMS (profit impact of marketing strategy) of how over 1000 firms have reacted to previous downturns shows that some cost- cutting strategies are more profitable than others”. Firms that cut budget from marketing tend to underperform.
A recession is both a threat and an opportunity; a recession can be a marvelous opportunity to outshine competition.
Keep this picture in mind, you need to walk on a fine line maintaining a balance of lowering investment to save short term profitability vs. maintaining “or even increasing” investments for brand health attributes.
Will you invest?
- Look into your pricing tactics, You might be taking a price increase to diminish the P&L bleeding, investigate portfolio optimization, promotions depth, bundle sales, etc.
- Maintaining your consumers loyalty “in other words brand preference” is not an easy game, you need to keep reminding them with the value of your product/ brand “to easier justify price increase by reminding them of its value”.
- On the other hand, some of your competition financial structure will not be able to survive or absorb the economical hit, accordingly they will retrench their investments, trying to fix their houses first before going out possibly leading to market share loss to the ones who maintain their consumer communication alive, this will lead to a better consumer share of mind, ideally speaking shielding both current and future sales from jeopardization.
Moreover, gives a steady image of corporate stability, that it is stronger than being shaken by a downturn
- Do not forget your business partners, you operate in an ecosystem and not in silo, looks at the impact on the whole chain and try to find synergy, your distributers are key deriver for success, also banking payment facilitation is worth
The American Business Media (ABM) has conducted several studies and has listed some points based on research findings in a document titled “The values of advertising during an economic downturn.”
The benefit of increasing marketing spend during an economic downturn is very well manifested in the profit level during the recovery period and afterwards. During recovery, businesses that had cut their market spend during the economic downturn averaged a fall in profits of 0.8%, firms which maintained their market spend had a 0.6% increase in profit while those businesses that increased their marketing spend during recession enjoyed an average increase of 4.3% in profit.
The same trend was observed in the market share in the first two years of recovery. The businesses which cut their marketing spend during economic downturn gained an average of 0.6 percentage points of market share and those that maintained their marketing spend gained 0.9 percentage points while those that increased their marketing spend gained 1.7 percentage points of market share in the first two years of recovery.
Thus unless you are having an unusual out of stock situation, financial liquidity crisis or you were suffering from successive crappy financial years and the economic downturn made it harder now to sustain your business, go and cut this marketing budget, training budget, freeze hiring, sell some assets and hopefully this will be enough without touching people jobs and start layoffs “and please be respectable and transparent - don’t play with employee security - and don’t overwhelm them with irrational requests while saying we could have done this and you should be thankful that you have a job - this is just NOT right!”
Marketing is a long-term discipline that requires an investor’s mentality and fortitude. Fight for your resources.
If the leadership team is not deeply involved in marketing/ brand strategies, they will take the easier call to safeguard EBIT by cutting the marketing budget short term and the result can be a brand that suffers on long term. It is marketing’s responsibility to fight for its resources, clarify the consequences of the aggressive cuts on long term to all stakeholders.
In nutshell, do not abandon your brand and your strategies in tough times, and remember no matter what; this is too shall pass.
A self-driven, and visionary leader with more than 15 years of outstanding experience and accomplishments, Sally El-Akkad possess a range of knowledge and experience across different fields of consumer marketing, retail, trade and shopper marketing, digital marketing, e-commerce and sales management. A strong omnichannel marketing strategist who believe in the exquisite importance of Phygital approach and omnichannel related adaptations.