Finance

Issue 6:

Are you cutting your marketing budget? It seems like a lot of people are. But it’s not a good idea.

Recent research by Gartner identified that the average spend on marketing, as a percentage of total revenue has fallen to 7.7%. Pre-Pandemic it was 11%. With profits being squeezed, cuts to the marketing budget can seem like an easy win.

But there’s research - lots of research, with over a century of data - that indicates that, although cuts may have a short-term benefit, they can have a negative impact on sales that lasts for years.

In 1927, Richard Vaile published research in the Harvard Business Review that highlighted the long-term impact of cutting advertising budget. During the Great Depression in 1920/21 firms that cut their marketing budget saw sales fall. No surprise there. But three years later, even when their marketing spend was increased, sales were still below their pre-Depression level. The short-term benefit had a long-term (negative) impact.

Similar research in 2018, by the Ehrenberg-Bass Institute of Marketing Science, found a similar result. Cutting your marketing budget has a long-term (negative) impact. Sales will continue to fall, even when you start spending again.

It’s important to recognise that the recent Gartner research was conducted with large firms, not SMEs. But I think it’s fair to anticipate a similar outcome: a short-term saving that triggers a long-term fall in sales.

So if you’re having conversations in your boardroom about cuts to your marketing activity, take a look at the evidence and learn from the mistakes of others.

If you want to learn more:

You can see highlights from the survey here >

Watch the Gartner team discuss the survey here >

 

 

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For more insight about how brand can drive financial performance, particularly increasing your margin, take a look at page 134 of Brand in the Boardroom. You can find a copy here.

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If you would like to have a chat about what we have discussed in this post, please do get in touch.