Marketers need to defend against threatened or actual cuts in budgets and better explain the case for expenditure in austere times. Here's how to strengthen your negotiation hand.
Most studies confirm that promotion expenditures in recessions produce ROI, contributing most to earnings in the year of expenditure, but also up to three years following it. Returns are most pronounced if the brand enjoys money-saving points of superiority; has a balance-sheet advantage over rivals, which means the competition is less able to respond to aggressive marketing increases; can demonstrate the value of quality; and has a big market share.
These returns are achieved because firms can win a greater share of voice as most companies cut back marketing spend during a recession. Advertising increases both the salience of the product to consumers and the perceived brand quality; counter-cyclical promotion boosts consumer confidence, helps overcome inertia and sends reassuring signals to concerned consumers to justify premium prices. It attracts greater numbers of "brand switchers" who are less loyal and more opportunistic in a recession; and more promotional spend is put into call-to-actionand point-of-sale-oriented activities. Market share is therefore easier to get as competitors are too hard-pressed to defend their positions vigorously.
Unfortunately, chief financial officers do not always listen to these reasons and have their own arguments for reducing marketing spend, including:
"Consumers have less disposable income and will not be spending anyway." While this is true, research shows that for a 1% change in GDP, there is a 1.4% change in advertising expenditure, so often the marketing spend is cut disproportionately."
"We need to appease shareholders through continued dividends disbursements." Here the evidence shows that investor confidence declines for firms that discontinue corporate advertising campaigns, and that annual growth in shareholder value for companies that do not tie their adspend to the business cycle is 1.3% greater."
"Resources could be better allocated to product development or R&D." To rebut this, we can show that increases in R&D led to lower profits for B2B and B2C firms, while increased advertising improved profits."
"If everyone is cutting back, we won't be hurt." This argument is valid only if the assumption is true, and even so, firms could capitalise on the opportunity to seize market share as competitors cut back."
Whatever the outcome of the budget battle, let's not miss any piece of evidence that helps us to do a better job of defending - or growing - marketing's share of it.
Full references to all the studies are available on request by email: v.mitchell@city.ac.uk