Planning a marketing budget cut? Here’s everything you need to know.
During the ongoing Covid-19 situation, it is not a knee jerk reaction if you are planning to introduce marketing budget cuts. You’re not the only one. Many businesses are either considering this option or have already scaled down their marketing budgets.
While the apparent need & urgency to resort to such a strict measure is clear, the effectiveness of the act remains debatable.
So if you’re planning to roll down your budget, here’s everything you need to know.
There are possibly two main reasons why you would want to introduce a budget cut –
Low incoming revenue
The obligation to settle fixed costs.
Most retail shops, restaurants, showrooms, etc. are closed (or partially open with various restrictions) right now which does not exactly contribute to an environment conducive for business. This, in turn, adversely affects your revenue with not much cash flow.
While you continue to struggle with your incoming revenue (rather a lack of it), you still have to pay the bills, salaries, rents, and other fixed costs. This conundrum between income & expenses forces you to rethink the planned budgets, and marketing costs become the most comfortable option to cut.
But, for a moment, let’s think that you do not cut your budgets. Did you know various brands in history made good use of marketing during adverse situations and contributed to their business growth? For example:
General Motors, the Great Depression:
Spearheading the use of outdoor billboards and radio, GM advertised its budget brand Chevrolet during the Great Depression. Despite being the automotive industry leader for years, by 1931, Chevy outsold Ford.
The 1974-75 recession:
A study of the 1974-75 recession from American Business Press and Meldrum and Fewsmith points out that the companies which did not cut marketing expenditures experienced higher sales and net income during those two years and the two years following than those companies which cut in either or both recession years.”
The 1985 recession:
Companies that either maintained or increased their ad budgets during the 1985 recession experienced a whopping 256% increase in sales versus companies that cut their ad budgets! – McGraw-Hill’s Research1985 recession.
The primary reason why brands still advertise is to stay in people’s memory. People may not have the buying power right now. Or rather abstain from making unnecessary purchases during such a situation. However, sooner than later things are bound to change, and when they do, the brands would want to ensure that the customers and new potential audiences remember them.
So, if you were to cut your marketing budget, while it may be a temporary shot in the arm, its effects will eventually wear off. And this can affect your position adversely. Here’s how:
The potential loss of market share:
Lower marketing budget will imply a smaller reach and visibility for your brand. This is the perfect opportunity for your competitors to seep in and take away your share. And also what could have been potential customers. True, transactions across specific sectors have gone down, but they haven’t come to zilch. It is in this space that your competition operates, and your absence is handing them over an edge against you.
Lose out on the chance of attracting a new customer:
While your loyal & regular customers may continue doing business with you, eventually to keep your business growing, you’ll need some new customers. But with lower marketing budgets and reduced reach, you’ll limit your brand’s exposure to the new potential customers.
So the budget cut doesn’t sound like the most obvious advice right now, does it? What must you do then do rein in control over the costs?
Optimise the expenses:
This is something that can never be stressed enough. Even during usual times, it is always advisable to keep your marketing expenses in by continually optimising them. Instead of slashing, say, a flat 50% across your social media budget, it is advised to audit all social media channels and ongoing & past campaigns. Identify the best & poor performing channels. Drive funds from the lower performing platforms towards a channel that constantly delivers.
Leverage customer database:
Now is a great time for some homework & data activity. Dive into the pool of current customer database, perform necessary audits & checks, and leverage to drive relevant communication. With custom audiences & lookalikes, you can ensure that you spend your budget exclusively on the people you want to reach out to, and this way you can avoid budget wastes. Similarly, nurtured email campaigns (carefully timed, and with the right content) can do wonders for you driven by your current database.
Take advantage of lower costs:
CPM, CPC has drastically come during the past few days. In simple words, you can reach more people with the same budget. Many brands have blindly introduced budget cuts or stopped their promotions altogether. This makes an excellent time to make the most of lower advertising costs.
The crux is, a budget cut is only a temporary solution, while the situation we are in will surely have long term repercussions. Let’s get ready for it, and do better. Reach out to us on info@jacobsonsdirect.com for any marketing related queries.