Since the beginning of the COVID “crisis” (or whatever we’re calling this), I’ve heard prospective clients say to me, “We can’t afford marketing.”
You can’t afford not to market your business.
That’s what this post is about.
The worse that the economy gets, the more you will need to cut elsewhere and pour money into marketing.
I realize that’s a controversial statement for many of you. I hear all the time “well COVID, things are messed up, we are cutting back on marketing.” I just say to those people, “well that’s fine – I guess I’ll see you again when you file for bankruptcy.”
It always draws a negative response.
I’m sorry – it’s true. If you cut back on your marketing during this time (and I don’t care if you do it with an agency, or with me, or whatever) – you won’t be around in a year. If anything, every business should be cutting something else to put more and more money into marketing and advertising.
Yet predictably, every time there is an economic hiccup or downturn, companies pull the plug on marketing first. I’ve seen it with Fortune 50, 100, 500, smaller, all the way down to startups.
It’s an absolute nightmare of a scenario. It’s like saying, “well we’re going to double our intake of chocolate cake to lose weight.” It’s absolutely the wrong formula. It’s always destructive. It’s always the wrong call. It’s like hitting on 18 with the dealer showing a 6; yeah, in those 2% of cases you might draw a 3, but 98% of the time, you just screw yourself over.
Let me explain why this tactic will hurt so many of you over the next three years and drive many of you out of business.
Marketing is not a cost center
The primary reason why marketing is cut is because it is viewed by top level management as a cost center. When times get bad, the first thing all companies try to do is reduce costs. It makes some sense because the primary problem is cash flow: more money leaving the company than is coming in. Business leaders doubt their ability to sell in a complicated and scarce environment. The only thing they believe they can control is their cost structure, so predictably, they look for things to cut. Marketing is nearly always one of those things cut.
There are two problems with this: one, not a single company ever rose to dominance through cost containment; two, marketing is not a cost center when done properly.
First, let’s talk about cutting costs as a strategy. In theory it makes sense right? We need to reduce expenses below revenues. So we start laying people off, we start reducing capacity, we start cutting costs (nobody can have extra paperclips anymore, the good times are over). Problem is, that’s not how you grow business, which is the fundamental problem during down times.
While I have no doubt that there is some “waste” in any company, especially the larger that company gets, rarely is “waste” such a problem that cost containment alone makes a company profitable. Most companies cannot afford to spend large amounts of money on non-productive activities. Thus, even when all the “waste” is cut, rarely does it amount to more than 10-15%. This includes cutting employee benefits, cutting costs in space and resource acquisitions, and eliminating discretionary spending. After this money is “cut,” typically business leaders start looking at the largest line item activities. That’s when marketing usually winds up on the block.
There are a couple of problems (organizational and structural) that lead to marketing being viewed largely as a cost center. The first problem is that marketers tend to evaluate their activity instead of evaluating whether their activities produce business results. Marketing typically cannot control whether or not sales can close a lead. They typically cannot control pricing. They typically cannot control the products of inventory.
What they can control is how many Facebook posts they put up. They can control how many trade shows attended. They can control how many ads were placed and how much money was spent. Whether or not any of those activities result in business is largely something most marketing directors can’t point to in any detail.
I would say marketing is one of the least well defined areas of business. On the one hand, it is the most critical element as thinking about customers and what they want is crucial to success. But often you get very fluffy people talking about marketing in a way that makes no sense and it causes culture clashes within businesses.
Analysts don’t ask lots of questions about advertising at results briefings because there’s almost no tangible information on it. Companies are cagey and it’s a shame. Every other department can quantify success or failure more easily. For example, if you’re in charge of stock, you just need to look at what’s on the shelves or if you’re in finance, then the accounts will tell the story. Marketing remains a bit of a mystery.
A good marketer should be well integrated throughout the business. They must go beyond the data and build real relationships with customers and staff. They should know people in every division of the business and, most importantly, want to get involved in decision-making within every operational department. Unfortunately, most marketing people are not serious people, they’re not trained in business operations, they’re not inclined to get “down in the trenches” and understand the basic supply and operational chains of their companies.
As a consequence, marketing is seen as a cost center. It gets cut. It’s a disaster.
Marketing’s purpose is to generate desire for goods and services. In an environment of scarcity and fear, that function is not just “something nice to have,” but it’s absolutely essential. Sales is about closing deals. Marketing is about creating the opportunity for those deals to develop into possibility and present the “leads” for sales to close. Sales cannot operate without marketing. Marketing without sales is largely a fruitless endeavor, what’s the point of generating leads with no opportunity to close? Thus, marketing and sales are the lifelines of business – the heart and the brain of the company. Without the heart, the body dies. Without the brain, the body dies. Other parts of the body can be lost (although those traumas are indeed painful), but without the heart and the brain, the body dies. Every company that cuts marketing is cutting the heart of its revenue generation. It is hamstringing its ability to survive the harsh climate.
A reactionary decrease in marketing/advertising activities may look good in the books at first, but it does not bode well for the longevity of your company. Marketing is your lifeline to your consumer. It connects your value to the people and without it you’re bound to fall out of relevance.
Instead of slashing your budget, economic turmoil (like now) offers a chance to reassess your strategy and reallocate your spend. It’s a time to tap into how your consumers are absorbing information during a downturn and then appeal to that mode of communication.
Marketing determines who wins and loses in bad economic times
The reality of the situation is this – most of the economy is still functional. If we assume there are 25% of people out of work, that means 75% of people still are working. If we assume GDP is down 7-10%, that still means the US has a 14 trillion dollar economy that is functioning. Are you going to cede that ground to someone else?
That’s the question for you in deciding to pull the plug on marketing. This question has been answered repeatedly by businesses in economic times as bad, if not worse, than what we’re facing right now.
This is the single greatest economic truism of the Great Depression: The companies that survived and grew weren’t representative of any one market category. Rather, were those that continued to act as though there was nothing wrong and that the public had money to spend on their services or products. They continued pressing for market share and growth.
They advertised. They innovated. They kept working confident the crisis would end. This is the arithmetic of risk versus uncertainty. Successful Depression-area businesses didn’t know how or when the Depression would end (uncertainty) but they knew it would end and that efforts and expenses made in the interim would pay off when it did (risk).
Building a legend: Procter & Gamble
The Great Depression was trying for most consumer product companies, but Procter & Gamble came out of the whole ordeal smelling better than it had in 1929. How did the soap giant beat the Depression? Things were tough at first when mainstay grocery customers started cutting their orders and inventories piled up. P&G realized that even in a depression people would need soap so they might as well buy it from Procter & Gamble.
Thus, instead of throttling down its advertising efforts to cut costs, the company actively pursued new marketing avenues, including commercial radio broadcasts. One of these tactics involved sponsoring daily radio serials aimed at homemakers, the company’s core market. In 1933, P&G debuted its first serial, Oxydol’s Own Ma Perkins, and women around the country quickly fell in love with the tales of the kind widow. The program was so successful that P&G started cranking out similar programs to support its other brands, and by 1939, the company was producing 21 radio shows—and pioneering the “soap opera.” In 1950, P&G made the first ongoing television soap opera, The First Hundred Years.
Surpassing Rivals: How GM drove past Ford
Prior to the Great Depression, the automobile market had been split three ways. GM and Ford Motor Company each enjoyed a one-third market share. Several smaller companies shared the final third. GM and Chrysler grew their market shares by a staggering 15 and 19 percentage points, respectively. In contrast, inaction combined with some poor choices significantly hurt Ford’s position and permanently damaged the smaller competitors.
General Motors saw an opportunity in Ford’s inertia. In the mid-1920s, GM CEO Alfred P. Sloan had an idea: His company would release new models, new colors, and faster engines every year. They would fabricate demand.
GM acted decisively to cut costs: mothballing plants, laying off workers, rapidly scaling back production in its middle-market and high-end brands, and reducing the break even point on its lower-end Chevrolet brand by a third. To reduce inventories, GM aggressively cut prices by as much as 70 percent on its expensive cars—a move that would have been unthinkable under any other circumstances. Because GM had limited backward integration (ownership of suppliers), it was able to keep fixed costs low and transfer some volume risk to suppliers, enabling GM to scale down production quickly when demand collapsed. The company used the same engine and parts across different brands to further reduce inventories and create flexible capacity. And it merged its sales forces across middle market brands to make the sales force more effective and better use sales capacity.
At the heart of GM’s success during the Great Depression was its decision to realign its product offering to fit the needs of a consumer base with less money to spend—creating “a car for every purse and purpose,” as Sloan put it. GM expanded aggressively into the low priced car market by shifting production from high-end brands to Chevrolet, its high-volume discount brand. GM spent more on advertising for Chevrolet and offered financing as a way to create an attractive package for customers at a time when banks were not lending. As a result, GM gained share and commanded a higher price than Ford could for comparable products.
The plan was provocative amidst the Great Depression, when many people struggled to afford food much less buy new cars. But soon, car owners no longer waited until their cars quit running. Thanks to GM and Sloan’s genius marketing ploy, they waited until a new model caught their eye — even if they didn’t need it.
Thus you really have no choice
If you do not use your dollars to create demand and create desire – you just won’t be around for long. The COVID crisis is more likely to last for years not weeks or months, even if there was suddenly a vaccine created tomorrow. The logistics of deploying a vaccine to literally five billion people will take some time – and that would be the number most likely to eradicate COVID from our planet and eliminate it’s ability to cause havoc.
While I am hopeful for a vaccine, I’m not confident of it. I believe the more likely scenario will be that over time, COVID-19 will attenuate and become about as serious as influenza. I think that will take several years to happen. Even if I’m wrong, the reality is that the damage to the US economy is both severe and likely to be long lasting. While the economic news is better, it took nearly 8 years to truly recover from the 2007 credit crunch (putting aside what the economic data says and I am an economist), and I sincerely doubt that the situation this time is somehow less severe than 2007.
So for the foreseeable future, we will be in an environment of fear and scarcity and people worried about economic catastrophe. This is not a thunderstorm where things “will pass,” and everything will be fine again. I realize that’s controversial as well. If I’m wrong, then what I’m recommending will work even better because you will have used this time to seize market share and thus be poised to skyrocket like a slingshot out of the turn. If I’m right, then what I’m recommending may be the one thing that keeps you in business over the next decade.
Now, you can decide not to market. You can cut costs, and fire staff, and hope the phone rings.
I know many of you have done that – and it hasn’t worked out.
Or, for many of you, the risk is actually on the OTHER side of the coin. Business has bounced back. We know that business aviation in particular has bounced back, and thus, many of you are confused thinking there’s no need to advertise because it’s all good – even better than before.
Both perceptions are wrong. For the next decade, all of us are going to be in it for the fight of our lives. We’re going to be forced to develop greater value, create demand, innovate, and cut through the noise. We’re going to be forced to find customers who need us and to prove our worth to them.
For those that are struggling, marketing and advertising will be your lifeline to get new “at bats” and to grow. For those of you who feel you can do no wrong, trust me, sales and marketing are lag variables. If you fail to do now, then in three months, others will be eating your lunch and you’ll be asking “how did this happen.” Just like you can’t stop your heart beating and expect to survive, you can’t stop marketing because it’s good. There is a saying in our business, “in good times you should advertise, in bad times you must.”
(And for those wondering – your business acumen and operational excellence are the lungs of your “corporate body.” Without being able to deliver a fantastic product or service – you won’t survive either. Thus, marketing – pumping blood, and sales commanding the body, works with the “lungs,” your operational excellence, to keep everything in ship shape and “Bristol Fashion.”)
These are the bad times – if you’re confused – even if your planes are booked. Everyone is going to scramble for the business and no market share is going to be won easily.
I meet with about five new prospective clients a week. They book discovery calls with us. They all have the same question, “how do I grow?”
It’s the right question to ask. How do you grow?
We have answers for that. We completely retooled our business like GM did. We have packages and ideas specifically to deal with the aviation community that is hamstrung by COVID and other factors. What’s more – we advertise.
And believe it or not – an ad agency advertising – is exceptionally rare. But we are advertising. We’re going on TV. We’re going on radio. We’re doing print. We’re doing it all. We’re not just recommending these things – we’re doing these things. We’re doing these things because we asked the same question “how do I grow?”
We think we have answers to those questions.
Those who ask “how do I survive,” are going to be asking the wrong question. The companies that tell me they don’t have money to market are effectively telling me they don’t have the money to survive.
In my own industry (advertising) I expect half of the firms to go under and an endless consolidation of people and businesses. Those clients that are tossed aside as those businesses fold and crumble are going to need servicing. In this niche, we expect to be the firm that picks up that business.
Similarly for you, there will be businesses that will implode – guided by the silliness I’ve described in this article. Are you going to pick up that business? And if you don’t advertise and market – how will they ever know you’re there?
You really have no other choice. I hate to be blunt about it.
But you really have… no… other… choice.
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