This was an interesting article, primarily since it was very focused on a specific task – generating a second sale.  While repeat visits often happen naturally, nudging customers to return is often necessary.  The second purchase is incredibly important, since it identifies the customer as someone with the potential for a long term relationship.  Additional investment in the relationship will have a far higher likelihood of paying off with these customers.

This is one of those times when the tide is going out.  (The reference is attributed to Warren Buffet and goes something like “When the tide goes out, we find out who’s been swimming without a bathing suit.”)

You need to inspect every dollar and challenge your assumptions.  Am I generating visits with my radio?  Am I buying too much TV?  Can I get a better deal on my direct mail by bidding out projects?  Because surely your budget has been cut.  And the first reaction is to cut new spending, instead of asking yourself, “Is this proposal a better expenditure than something I’m already doing?”

Nothing should be sacred.  Sports tickets, luxury boxes, or sponsorships – gone (very limited reach, especially geographically).  Television can pause for a while with minimal erosion of awareness.  Radio can probably get lighter for a while with minimal impact.  Newspapers will be extinct in a few years anyway, so might as well learn to live without them now.  Interactive campaigns are fun, but if they aren’t part of a long term engagement program, don’t bother.  Outdoor…uh, I hope not.  [And I won't get into Operations in general - I guarantee you have lots of dead wood.]

What’s on the flip side?  Email, SEM, SEO, Facebook, iPhone, basic customer segmentation, versioning, response modeling (i.e. don’t mail everybody!), PR, retention marketing (pretty much of any kind), etc.

In fact, it might make more sense to do zero-based budgeting where you fund these initiatives first, then see what’s left for the rest.

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.

A good first lesson in retention ROI is to understand that the first chunk of investment will have a high ROI, pretty much no matter what you do.  After that, channeling investment into the right interactions with the right customers is the key.  And unlike most marketing expense, you can figure out the right way to manage this second chunk of investment pretty quickly.