Between 2021 to 2023, the cost of living rose sharply, with an annual rate of inflation at a 41-year high (1). The economic downturn poses risks and challenges for individuals and businesses alike, with reduced profits, redundancies, budget cuts and recruitment freezes.
During periods of financial instability, marketing departments tend to be the first to be trimmed, but could this reactive and shortsighted approach have damaging effects on the organisation's long-term sustainability? For instance, according to a survey conducted in December 2022 among thirty-two chief marketing officers, decisions made by the company's board resulted in an average 8% reduction in marketing expenses; some even implemented budget cuts ranging from 10% to 20% (2). Similarly, according to Gartner's annual report for 2023, the average enterprise marketing spend was 12.1% of total company revenue, which has significantly decreased since 2018, when budgets peaked at 29.2% (3).
These financial decisions can have profound implications for the success and longevity of businesses. In this blog, we will explore the importance of marketing and why it plays a pivotal role in achieving sustainable business success.
The Two Sides of Marketing
Marketing is multifaceted. Most only see the right-brained creative force: the outward advertising, the storytelling that provokes feelings and emotions, and the visual creative campaigns. This is how the brand, company or business is portrayed and how it attracts and retains its target audience.
On the other side is the science, encapsulating the hard data and analytics behind the creative aspects. This involves testing campaigns, messaging, design, colours, and fonts to interpret consumer behaviour, improve campaigns and quantify success. (4,5). The latter ‘side’ is used to conduct regular optimisations and data-driven decisions around marketing campaigns and strategies, with an aim to drive ROI and contribute towards topline business objectives.
The creative and data-led marketing elements go hand-in-hand; one will only be effective with the other, but this comes at the cost of multiple salaries, tech stack subscriptions and much longer lead times for results. Could a lack of understanding or visibility be the main contributor towards why marketing is the first to be cut? And is this shortsighted approach likely to create longer-term challenges in building business resilience in a highly competitive market?
Why Is Marketing Almost Always the First to be Trimmed?
Marketing’s contribution to an organisation's overall success is often not outwardly seen. Marketing budgets tend to be significant; however, due to the lack of perceived relevance towards sales and operations, and the challenges tracking and justifying a significant portion of a company’s overall budget, it is often viewed as a discretionary expense and the first department to receive cuts.
Cutting marketing expenditures can contribute to an organisation's short-term cost savings and can have an immediate positive effect. However, there can be long-term consequences to neglecting a brand's marketing, such as loss of competitive edge, decreased visibility, negative brand perception, and loss of brand loyalty through reduced customer engagement. Due to customer brand loyalty and repeat business, large organisations may be less affected by marketing budget cuts. In contrast, smaller businesses or those facing additional challenges may suffer as a result (6).
In times of economic downturn, organisations should consider following a longer-term strategic approach. Whilst it might be business critical for an organisation to reduce their marketing investment in immediacy, there should still be consideration for mitigating the inevitable consequences, which could be detrimental to a brand over time.
The Impact of Marketing on Business Long-Term Growth
When executed correctly, marketing can be the driving force behind sales, customer experience, and repeat business. It can help build a competitive edge and position a brand in the intended light. However, it requires a significant investment in time and resources as results are driven by regular and consistent messages across multiple channels to help drive awareness and engagement with the intended audiences. Marketing can, and should, contribute towards topline business objectives by expanding the reach and generating inbound leads to fuel sales. Alternatively, personalised and targeted marketing efforts can elevate the overall customer experience, thereby fostering brand loyalty. However, achieving these goals requires consistency, a longer-term perspective, and adaptability and flexibility to respond to evolving marketing trends and shifts in consumer behaviour (7).
There is a clear difference between the business trajectories of organisations that strategically engage in marketing and those that cut expenses. For instance, Red Bull has invested in their involvement with extreme and high-energy sports, promoting their energy drink to the relevant target audience (8). In doing so, they have heavily associated themselves with that target and are now perceived as being intertwined. An example of the longer-term impact of cutting marketing efforts in a competitive market is the brand Kodak. The brand significantly reduced its marketing budget in a time of economic downturn in the early 2000s, and this combined with a slow adaptation to new technology, resulted in the organisation filing for bankruptcy in 2012 (9).
The common misconception that marketing has no impact on sales can be detrimental to a company. Kodak exemplified this as they decreased their consumer outreach instead of promoting their brand to enhance the value of their product. It can be challenging to quantify a marketing campaign's effectiveness against the company's sales due to the other externalities that influence an organisation's sales rate and overall business success.
In summary, marketing is almost always the first to be reduced during an economic downturn or financial instability, primarily because its contribution to ROI and organisational growth may not be immediately apparent. Despite the use of data and analytics, the challenge lies in pinpointing and quantifying the impact of creative elements such as storytelling, visual campaigns, and even intricate details such as messaging, design, and colours.
While reducing marketing budgets may yield short-term cost savings, it can have long-term consequences such as diminished visibility, brand perception, and loyalty, which can be detrimental to the business. Acknowledging the inevitability of marketing budget reductions, it is essential for organisations to remain resilient and adaptable to changing circumstances, trends, and customer behaviours.