To cut or not to cut your advertising budget! Does this sound or even look familiar to you? Cubicles aside…chances are this debate is going on at your company right now.
I want to talk about why this is NOT a good idea in any state of the economy but especially in this one.
Advertising is the lifeblood of customer acquisition, especially if you are in the DR business like we are. Right? Well sometimes the obvious is right in front of us, kicking us in the face with size 12 feet like Adam Sandler did in "Don't Mess With The Zohan" Ouch.
The reason why corporate executives cut the ad budget is because (drum roll please) IT’S EASY!
Let's say you have $500k/month budgeted on internet advertising. The company has since fallen on tough times and everyone needs to cut their budget. Doesn't it make perfect sense given the amount of that line item to cut it to 350k or 400k? This money is unspent and uncommitted, it's just budgeted. Therefore by cutting our advertising budget we are saving the company money right? The answer is...yes and no.
Cutting your advertising budget does solve your problem temporarily. If you are not spending then obviously you are saving right? Temporarily is the key word here. If you had a minor cold that you decided not to go to the doctor for because you where on a budget and couldn’t afford to go, what would happen when that cold turned into walking pneumonia? How much money would you really have saved?
If you bid farewell to your online marketing budget in the short term to cut costs, rest assured you will pay for it later. The time and effort you put forth putting these deals into place, building your affiliate networks, forging great relationships with major publishers...some of that traction, if not most of it will be lost if you downsize your budget drastically.
If you cut your budget does that mean instead of being a well balanced internet marketing machine with lots of different channels for production (SEO, SEM, Display, Affiliates and Email oh my) you are now a one trick pony - paid search for example? Sorry search team, I had to have an example and this is what I hear daily from customers. Does anyone remember when the US Air Flight slowly glided into the Hudson River? Of course you do...airplanes don't just fall out of the sky when they run into some mechanical problems (fortunately for all of us). It's the same deal with your advertising budget and your customer acquisition engine. If you cut the fuel source or shut down the engines, you aren’t going to simply fall out of the sky like a giant rock. You will lose your ability for "lift" and eventually you too will glide into your own emergency landing. Let's hope Sully is at the helm and there is a runway present. If not, prepare yourself and your team for a hard landing because there are usually only a couple of parachutes in these situations and I think we all know who gets those.
Were you aware that over 65% of consumer purchases are NOT based on price alone? Think about the things you buy everyday that you would never know about unless you saw an ad and tried the product. In fact, if I split consumer purchase behavior into 3 groups: purchased on price, purchased on price & brand, or simply purchased for other reasons. What do you think the ratio would look like? This isn't a quiz so I'll give you the answer…10% goes to both purchased on price and purchased for other reasons, which leave us with a whopping 80% of consumers purchase on the combination of price & brand. Wow. Still want to cut that online ad budget?
Price driven purchases fall under things like utilities, gas and some foods, you get the drift. Brand driven purchases fall under things like insurance, vehicles, shoes and banking institutions (although maybe not so much anymore).
Which category are you in? What consumers are buying your stuff and why? Are they price driven or are they brand driven? Either way, if you stop showing them your products and services how are they supposed to know what to buy and when?
My point to this whole article, and I know you have heard this before is, “when there is blood in the streets it’s time to buy!” O.k. that didn’t work so well for me in the stock market but you know that this economic slowdown will not last. You also know that those who are investing those online marketing dollars now are forging HUGE relationships with vendors and building a whole new segment of customers that you don’t have a prayer at ever getting back.
Let’s touch on the term self fulfilling prophecy for one minute. Get this: when you spend money on advertising you grow your business, (unless you’re incompetent but that’s another story) and when you grow your business you spend more money on advertising. Amazing isn’t it? I should adjunct at Harvard. No seriously, and the inverse happens when you do the opposite. No spendy, no growthy. Harvard wouldn’t allow that last sentence so I’m probably doomed. No growth leads to stagnation, loss of talent, loss of will, loss of ideas, and eventually you just become a bunch of zombies. You know the type, show up at 9:30am, get their coffee, chit-chat, start work at 10am, and go to lunch at 11:45 come back at 1pm. Take a coffee break around 2 because of boredom. Shutt-er-down for the day around 5:30pm. Come on, you see the zombies. We have all been there.
Please realize that successful GROWTH and SPENDING are co-dependant.
Who is leading the charge for spending at your company? Who are the idea people that are enthusiastically looking to continue to spend but in a way that is ROI driven and productive? Just because you are not making $2 dollars on every media dollar you invest doesn’t mean that the program needs to go. Heck, if your cost structure can support it, you should be willing to keep that alive at break even. Given the enormous rewards you will receive when these tough times are over, this seems like a gimme.
How equipped is your company to react to changing market conditions? Are you able to move dollars around at a moment’s notice? Do you at least know how to spell the word F-L-E-X-I-B-L-E? I’m no yoga master but working for start-ups, playing the stock market, and hacking on the golf course has taught me one thing…BE FLEXIBLE and adapt to your surroundings. The market doesn’t always do what you think it will do. That little white golf ball doesn’t always go where you want it to, and sometimes it seems as though this marketing campaign is not what you initially anticipated from an ROI standpoint. Weird, nothing goes as planned. Didn’t they make a law just for this reason? So what are you going to do? Be flexible, that’s what has to be done.
Did you know that it is actually cheaper to steal market share in a recession than it is in an up market? Sure it is. Wanna know why? Sure you do…because stuff costs less. Stuff costs less because demand is down and supply is up. You might say, “Great, I’m making less money now too!” If this is going to be your excuse then you should re-read the top section. Innovation and flexibility will drive you towards new ways of making it work.
What about Share of Voice…does that matter? Sure it does. If I stacked you up against your top 3 competitors and all of you owned 25% SOV in 2008, and in 2009 one of you decided to increase your budget (or even stay flat for the love of…) and the other 3 decided to decrease their budget, how BIG does that gap get between you and your competitors? Well if I add an incremental 10% pts to my budget and my competitors take away an incremental 10% where does that leave me? I can tell you right now, its way cheaper and more productive to do this in a down economy. Do you still want to cut that ad budget? If you still do, then you are stubborn and I will keep writing just for you.
Not all companies and not all segments are equal in a downturn. Some companies will do better some will do worse and depending what business you are in, some might just go away. Good. That’s how free market capitalism is supposed to work. How’s Apple doing these days…apart from Steve Jobs health, they are rocking relative to their peers. How about Microsoft? I have seen newer and better ads out of them recently. What about Google? Once again relative to their space they are cranking. These companies get the principles we are discussing here.
In a down market you absolutely need to pay attention. You absolutely need to make sure that when the market shifts you are shifting with it.
The spend that is inherently best in these types of markets is YOUR ONLINE ADVERTISING SPEND! It’s transparent, ROI focused and completely trackable. It’s also fast and efficient. It allows for lots of flexibility and adaptability.
In conclusion, if you are an executive reading this article, PLEASE don’t take the easy way out and slash your online marketing budget. The effects it will have on you, the board, and your immediate team will be devastating. If you are a marketing manager reading this article…guess what? You are just as accountable as your boss for taking the easy way out. Be that person that gives the ideas and the work-arounds. Seek out the affiliates that you trust and can help you grow. Pick up a book and read a blog to get some energy going. These are things that we all should be doing on a daily basis to help make our companies the absolute best they can be.
I’m not here to just survive this thing…I’m here to change the game. I’m figuring out how to do it and if you like, you can come along for the ride.
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