The Risks of Cutting Marketing Spend: How Slashing Budget Will Affect Market Share
Conversations around where to trim spend are in vogue for consumer brands right now. Discretionary cuts, particularly within marketing, are popular ones due to the perception that their impact on the core business is negligible. It’s also a hell of a lot easier than cutting headcount. At the end of the day, the financial pressures facing the C-suite are extremely acute and real. So what’s the play?
I’m not here to make the case for cutting people over marketing spend, but I am going to highlight the fact that cutting marketing spend is high risk and can have substantial, lasting consequences for brands.
Cutting Marketing Budgets: A Risky Move for Market Share
According to Advertiser Perceptions, one in three marketers saw their budgets cut last year (2022). No surprise there. More interesting is a stat highlighted by Peter Adams in Marketing Dive: One in four advertisers claimed they gained market share in their category in ‘22, and most that lost share were the ones who experienced budget cuts.
That last sentence highlights a risk that isn’t talked about enough – Cutting marketing budgets can and often does coincide with losing market share. Remember that perception that discretionary cuts don’t impact the core business? Is there anything more “core” to a business than its market share?
Maintaining Marketing Spend During Recessions: An Investment, Not an Expense
As noted by the Harvard Business Review, “Companies that have bounced back most strongly from previous recessions usually did not cut their marketing spend, and in many cases actually increased it.” During recessions, when most brands make moves to cut back on their brand advertising, a firm’s share of voice increases if it can maintain or increase its advertising budget. Why’s that? There are fewer new entrants into the market, there’s less competitive chatter, and digital ad costs generally become less expensive because there’s less competition for eyeballs.
That same article points to the case of the British consumer goods conglomerate Reckitt Benckiser’s approach to advertising as a case study:
“In the recession following the 2008 financial crash, the company launched a marketing campaign aimed at persuading its consumers to continue purchasing its more expensive and better performing brands, despite the harsh economic climate. Increasing its advertising outlays by 25% in the face of reduced marketing by competitors, Reckitt Benckiser actually grew revenues by 8% and profits by 14%, when most of its rivals were reporting profit declines of 10% or more. They viewed advertising as an investment rather than an expense.”
Investing in Loyalty Programs: A Cost-Effective Strategy for Retaining Customers
On the subject of marketing spend, there’s also a strong argument for investing more heavily into loyalty programs. Depending on which study you believe (and what industry you’re in), acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one. In a recent survey, 38% of marketers said that they’ll put a bigger focus on building loyalty with existing customers over acquiring new ones.
So can we say definitively that you shouldn’t cut marketing spend, regardless of your economic circumstances? Not at all, sometimes there’s simply no other option.
But it’s critical to understand the risks of cutting marketing budget, which can be catastrophic. Keeping marketing budgets flat or increasing it presents an opportunity – brands who are willing to be what their customers need in a recession can create big gains in market share and lifelong, loyal customers.
Written by Tom Logan
Our CEO and Co-Founder Tom is no stranger to the Cohley blog! With seven years under his Cohley belt, Tom is our go-to on all company updates, new tech initiatives, and data focused trends. Tom helps to dictate our direction, monitor and emphasize our culture and put colleagues in the best possible positions to succeed. Tom is a self proclaimed Tech guy, Sports Writer and Lover of Rom-Com's.