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Sat August 08 2020

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Think Hard Before You Make Cuts!

14 Oct 08 “ Companies that maintained the marketing spend through recession outperformed those who didn’t”

Are we in a recession? And does it matter? Recession is often defined as a decline in GDP for two consecutive financial quarters. If the same measure is applied to UK construction, using National Statistics, then we’re skating just north of recession. Output growth has been positive (by less than a percentage point) for the industry as a whole throughout the last troubled four quarters. But there are other recessionary indicators used by people who feel the GDP decline rule is too simplistic – one is four successive months of job losses. Have we had that? Too true.

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So, maybe we are in recession, and maybe we’re not. All the same, many companies are acting as if we are. This means that there’s significant pressure on costs. The pressure is usually greatest on those areas of expenditure which, when cut, will not impact the current year’s trading largely because incentives are expressed in terms of this year’s profit.

There are often restrictions on which costs might be cut – any saving in property costs, for example, could take six months to kick in, and when rapid cost – saving is required the only costs it’s possible to cut mid – year are people, “discretionary” costs such as travel and marketing.

Bad move
So the typical outcome of a money – saving exercise is that the marketing budgets get chopped. And faced with logic like this, it’s hard to argue against. But it is, definitively, a bad idea.

There have been a couple of American studies of marketing in recessionary periods. Melden & Fewsmith produced a series of case studies on every recession since 1949. They showed that companies that continued to invest in marketing through a downturn outperformed their competitors during and after.

The effect was particularly noticeable in highly competitive markets, where those who maintained activity won share from those that didn’t.

The most comprehensive study was by McGraw Hill Research, which studied 600 companies from 1980 to 1985, and found that companies which maintained the marketing spend through that particular American recession outperformed those who didn’t by 256 per cent.

Why is this? Keeping a high profile when other are keeping their heads down means customers will be more aware of you. Working hard at the fundamentals of good marketing – planning, market audits, positioning – will leave you ahead of the game when the money tap is turned on again.

Marketing hard in tough times will leave your business in better shape for the good times. Cutting marketing costs will affect next year’s numbers.

Companies where management incentive schemes reflect longer - term goals, and shareholders prefer long – term capital growth tend to come out of recessions with bigger market share than they had going in. Shouldn’t you be one of those?

“ Companies that maintained the marketing spend through recession outperformed those who didn’t”

Article By Ross Sturley.
Chair of the Construction Special Interest Group for the Chartered Institute of Marketing.

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