Should You Cut Marketing Expenses During the Recession?

If you read marketing journals and blogs these days, you likely have come across the advice that you should spend more on marketing in a recession. The typical logic is that your competitors are spending less and so it's a good time to pick up market share. Note that most of these recommendations come from people who have a vested interest in you spending more on marketing (e.g., advertising agencies).

I dislike basing marketing expenditures on what competitors are spending. It's not relevant for budget decisions during "normal" economic conditions and it shouldn't matter in a recession. You should increase or decrease your marketing budget solely on the basis of what maximizes operating income - based on your own measurement systems.

Certainly, if your competitors are dramatically reducing spending and therefore giving up sales opportunities that you can exploit, then you should go after those sales, provided you maintain your required level of profitability. However, it is more likely the case that your competitors are cutting back on their marketing right now because there is less total demand in the marketplace - not only for them but also for you.

The purpose of marketing is to maximize the long-term profitability of the enterprise. If you are managing marketing effectively, you have measurement systems in place both to determine the return of past marketing programs as well as to help you predict the return of future programs. Economic trends are inputs into your models and will help you determine how much to invest in marketing. Most of the time, an economy that is slowing rapidly will result in your analytical models advising you to spend less on demand generation. Besides, how much do you know about your competitors' spending on marketing?

While some types of expenditures like advertising are highly visible, you have no way of knowing what competitors are spending on most types of communications, like database marketing, SEO, direct sales, etc. You could waste a lot of resources trying to figure out what your competitors are spending and still be way off.

To make your marketing efforts profitable, you need sophisticated analytical systems, and a comprehensive understanding of integrated marketing communications. You don't need to know what your competitors are spending, regardless of the state of the economy. So don't listen to the advice of experts who tell you when you should increase or decrease your marketing expenditures. Constantly improve your modeling capabilities, find the best data you can and spend marketing dollars in ways that maximize your bottom line. Any other approach is likely to waste your money - and will waste your time for sure.

Author: Ian Heller
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