Which Part Of Marketing Should You Cut First?
Tuesday, January 13th, 2009Its tough out there. When Best Buy gets 1/8th of HQ staff to take a voluntary layoff that tells you most people there expect it to get worse – and want the severance instead of an involuntary termination.
So as everyone hunkers down, where do you cut? If marketing expense as a percentage of revenue stays flat or goes down somewhat, those are real dollars that have to come out of the original plan.
Having lived through this on an 8 figure budget, its not a simple question. Its tempting to either a) cut 100% from a couple of line items to make the number (easy to execute) or b) cut a couple % from every line item (easy to explain). The real response has elements of both approaches, but what’s important is how they are applied.
Standard ROI Expenditures
These are marketing efforts where the return on investment is well described by classic economics, that is, an upside-down U. The initial investment has a high return, then it eventually drops to 0, then it turns negative when saturation occurs. Search engine marketing (SEM) and optimization (SEO), online marketing, CRM and direct marketing are all in this camp. Good companies are already at the most efficient point of ROI on these investments. Taking a few percent off these budgets leaves spending that is still very effective.
Discontinuously Effective Expenditures
This is the tricky part. Some types of spending look like an S curve combined with an upside down U. The initial investment has a low return, then it hits an inflection point and rises rapidly, then follows the classic upside down U. For example, a rule of thumb for TV or Radio is that 100 GRPs per week is the minimum to be effective. So if you are buying media right around this level, you need to trim markets or weeks, not points per week. Your choice of which markets to trim is influenced by your current awareness, maturity, other investments, and overall history. You might offset this 100% cut by maintaining the other types of spending to maintain some presence in that market. This is oversimplified, but hopefully you get the point. You can extend this approach to verticals, partnerships, channels, and other areas where a continual, sustained effort must be maintained or effectiveness drops off quickly.
