Credit Squeeze on Marketing Management

There is little doubt that the western economy has entered the downward trend of the economic cycle. Whether the economy goes into recession or simply remains in an indeterminate period of very low growth cannot be known. What is certain is that the change in the economic climate will affect all those involved in marketing. How marketers react to these changed conditions will be important both to the individuals concerned and to their companies.

As the economy slows down, especially resulting from the “Credit Squeeze,” so customer demand is likely to fall, affecting the ability to achieve revenue targets. At the same time, the increase in the cost of overheads in the form of power, fuel and commodities, is reducing profits. The result of these effects means that businesses start to look for economies in their budgets and to reducing costs wherever possible. Unfortunately, in many businesses, one of the first areas to come under scrutiny with a view to cost reduction is that of marketing.

When revenue and profits are threatened, chief executive officers (CEOs) and chief financial officers (CFOs) will naturally consider all the various budgets to seek ways of reducing costs and unnecessary expenditure. Unfortunately, many see the marketing budget as an easy target, and an opportunity to make savings. However this attitude in generally born out of ignorance of the purpose of marketing, and it is up to marketers themselves to dispel myths and to demonstrate their essential contribution to the business as a whole.

Regardless of the various interpretations of the term “marketing”, the sole purpose of marketing is to produce sustainable profitable revenue by anticipating and satisfying customer demand. Therefore all those various activities involved marketing are collectively essential in the production of revenue and the long term sustainability of a business.

What should the chief marketing officer (CMO) do in this situation? Ideally, the CMO should act pro-actively rather than reactively to a situation. The effective management of the marketing function requires a continuous awareness of the market and economic environment, as well as the comparison of actual performance with the current marketing plan. The CMO is tasked with maximizing sustainable profitable revenue, while minimizing the costs and the use of assets. If the CMO is managing the marketing function effectively, then they need to be continually aware of the overall marketing contribution, as well as the efficiency of the use of assets and investment required to produce the revenue.

Marketers need to have a clear understanding of the budgets for which they are responsible.
A detailed knowledge of all the elements of the marketing budget is essential, because the effectiveness of the marketing function must be measured over the whole organization. The elements of the marketing budget may not always be measured effectively in terms of their individual contribution, but when measured collectively have a significant effect on continuous business development.

Because the effects of advertising campaigns are generally difficult to quantify, the advertising budget is one which is frequently targeted for economies. Knowing the size of the advertising budget and the amount spent is not sufficient. All costs and investments should normally be broken down into detail, because it is only then that the value of investment can be seen.

However, if marketers wish to avoid cuts to their advertising and promotional spend, they will have to refine their programmes so that there are measurable results. Using response advertising is one way of providing positive evidence of performance to justify advertising investment.

Actions that the CMO or marketer should undertake:

* Be pro-active rather than reactive in reporting the performance and efficiency of the marketing function.
* Ensure that the achievement in relation to the current marketing plan is analysed and reported,
* Ensure that if the marketing results are “off track”
o Analysis is undertaken to understand the reasons
o Reasons for over performance as well as under performance are understood.
o Prompt remedial action is taken when necessary.
* Be prepared to move to a contingency plan if the situation requires it.
* Understand the extent and detail of what is actually included in the marketing budget, i.e. all those elements involved in generating revenue by satisfying customer demand, some of which may lie outside the official marketing budget.
* Continually analyse and assess the value of all marketing expenditure in terms of its contribution individually of collectively to the generation of sustainable revenue.
* Use quantifiable analysis wherever possible and avoid qualitative data.

Marketers need to explain to CEOs and CFOs exactly what the marketing function does and what it produces. To do that, marketers have to provide measurements of marketing performance in terms of the financial contribution that all the business getting activities that comprise “marketing”, make to the business, as well as the investment and costs involved. These are numbers which will relate to other costs and investments in the business and so helps the CFO and the CEO to have a full and accurate picture of the overall business performance.

The challenge for marketers is to present marketing performance measurements to the CEO and the management team in financial terms that they understand, such as contribution and Return on Investment (ROI).

By defining marketing performance in a manner that relates to the generation of profitable revenue, “marketing” will be seen and valued by the CEO, CFO and senior management, as the generator of profitable revenue on which the company depends, and not as purely as a number of costly individual activities of indeterminate worth which can easily be cut. Being able to analyse and quantify the marketing performance can also provide reasons and direction for increased investment, even in a period of lower demand and economic slowdown.

© N.C.Watkis, Contract Marketing Service 15 Jul 08
Contract Marketing Service, (Marketing Performance Measurement Consultants)

July 15, 2008   Posted in: marketing management

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