Times are tough. Sales are flat or lagging, margins are tight, and competitors are steadily eating into you marketshare. So you cut back on your marketing budget.
Now think about that — competitors are stealing business, and you desperately need to boost your sales. Why in the world would you downsize your advertising? When this scenario is put down on paper, it seems ludicrous, doesn’t it?
However, that’s usually the default answer that CEOs, business owners or big-shot decision makers choose when faced with a downturn in business. Advertising budgets are the first thing slashed. This column will explain why that is the worst decision that can be made.
OK, here is where I have to make of point of disclosure. I work at an advertising agency. I pay my mortgage, buy groceries, and keep the lights on because businesses spend money on advertising. You would expect that I would write this column. However, contrary to popular belief, most advertising professionals are not jaded, brooding, insincere individuals. The vast majority of my colleagues do believe in the work we do and believe in the power of branding/marketing/advertising to build a world class business. We have seen it happen, and we have also witnessed what happens when companies make drastic cuts in their ad budgets.
First, let’s review why ad budgets are usually the first to go. Since the 1960s, the trend in corporate America has been to draw top-brass from the financial side of business. CEOs and CFOs often began life as accountants. The mindset of these usually right-brain individuals is very rational, linear and conservative. This is not a criticism, just an observation; naturally there are exceptions. This type of individual looks for evidence of value in terms of real numbers — production, sales, cost savings, etc. As we all know, the value of branding and advertising can be especially difficult to quantify in terms of real numbers. If you can’t tie an actual ROI to your marketing, corporate decision makers are inclined to think of it has an expense.
Now, what are the reasons that ad budgets shouldn’t be cut? For one, in times when you are not getting as much natural business and you need to boost sales, advertising is a natural answer. Assuming that there is a general downturn in sales for your industry, it is a safe bet that other advertisers are cutting their budgets, as well. This scenario presents a big opportunity for the company with enough gumption to forge ahead with an aggressive marketing budget. If your competitors cut their advertising expenditures, that means consumers are seeing less and less of their brand. If you increase your expenditures, your brand steps in to fill the gap. All of a sudden, you are gaining marketshare in a down market.
As a case study, let’s take a look at two companies — Apple Computer, and Apple Computer. I say these are two companies, because the Apple of the late 1990s and the Apple of today are basically night and day.
In the 1990s, Gil Amelio became CEO of Apple. Mr. Amelio is a very technical person. His degree is in physics, and he tends to be mainly concerned with corporate process, cost cutting and such. Mr. Amelio made a positive impact at several companies before heading Apple and hoped to turn things around at the then struggling computer company. Focusing on corporate streamlining and acquisitions, Mr. Amelio allowed aggressive marketing to fall by the wayside, ultimately costing Apple market share and an incalculable amount of brand equity. Industry watchers predicted the sale of the company and the steady phase out of the Apple brand.
Enter Steve Jobs.
Through an acquisition, the legendary founder of the company was back with Apple, and eventually took the role as CEO. Jobs returned to the company’s roots as an innovator, launched a revamped line of Macintosh computers and developed products such as the iPod. Jobs also threw weight behind aggressive marketing campaigns including the “Think Different” effort and the now famous iPod commercials.
Following the resignation of Mr. Amelio in 1997, Apple’s stock was near record lows at sub-$10 levels. As of writing this column, Apple trades above $75 per share.
The lesson? Cutting down your communications with consumers (which is what advertising really is) means you are cutting down any loyalty they have for your products and any affinity they have for your brand. Apply this logic to a personal level — are you better friends with the high school classmate you see once every couple of years or the one that you speak to once a week? Keeping your brand in front of consumers is absolutely imperative.
The other day someone asked me why Wal-Mart has to advertise. They are the number one retailer in the world. A behemoth. A true juggernaut of consumerism. So why does a company that wields such consumer power have to advertising? My answer — Target, Kmart, Sears, etc. The moment Wal-Mart pulls back from communicating with consumers, a competitor will jump in. That is why companies such as Coke, Budweiser, Wal-Mart seldom lose their place at the top.
Wal-Mart, like so many other leading brands, understands that good, strategically sound, properly executed advertising is not an expense. It is an investment and a tool. CEOs and owners of smaller businesses who understand this fact will see their endeavors thrive.
Tim Mask is vice president of brand planning and development at Maris, West & Baker advertising in Jackson. He can be reached at firstname.lastname@example.org.