It can be difficult to define a marketing budget, but it helps to look at how peers are allocating resources. We decided to start with ourselves.
Marketing in a Recession. Crazy…like a fox!
I think we've all got the memo: the economy is in the toilet. Yep, it's more than just housing and automakers. The current recession has reached into nearly every nook and cranny of our diverse economy.
Quick to React
Many businesses have a knee-jerk response to a downturn - cut the marketing budget. Or, more accurately, cut the marketing and advertising budget.
The reason this usually feels "right" is that business owners approach marketing from an instinctual level. They've never asked marketing to be quantified, and - unsurprisingly - see no immediate impact in reduction of effort.
Because business owners fail to understand the impact of their marketing, they also fail to understand the affect of its absence. Budgets are cut, yet few know if the cuts are trimming the fat or severing an artery. I've seen cases where businesses make significant reductions, see a tremendous "savings," only to have their sales crumble a year later.
I believe in marketing and design. I've seen it propel businesses forward, increase profitability, and help clients out-compete their competitors. So yes, I believe aggressive marketing pays dividends. But don't take my word for it...
By the Numbers
Many studies show that reducing marketing expenditures hurts firms in the long run. In fact, businesses that increase their spending do better both during and after the recession. Here are just a few highlights:
- PIMS Associates found that firms that invested in a down market enjoyed a 4.3% increase in their ROI compared to companies that maintained or cut spending.
- PIMS also found that companies that increased their marketing saw a 3-fold increase in marketshare vs. firms that cut their marketing.
- McGraw-Hill Research found that in a study of 600 B2B companies during the 1981-82 recession, those who maintained or increased their advertising expenditures averaged higher sales growth during the recession and in the subsequent 3 years. Furthermore, by 1985, sales of the aggressive-advertisers had increased 256% over those who had reduced spending.
There's some great research on this topic. In particular, I recommend this paper, by Andrew Rezeghi at the University of Chicago's Kellogg School of management. It goes into much greater depth and highlights some specific examples of companies that have leveraged marketing to propel their businesses to the forefront. In addition several management and consulting firms such as ARS Group and others have written extensively on these issues.