By Joana Neves Dias Carluccio, Partner, McKinsey & Co
The macroeconomic environment is putting marketing budgets and bottom lines under pressure. Consumers report changing their shopping behaviour to seek out greater value, chasing lower costs and cheaper brands. Companies globally are asking marketing departments to make cuts in the face of pressures on sales and cost. And at the same time, CMOs tell us the average cost-per-click increased by 20% between 2021 and 2022.
When costs go up and customers get skittish, marketing is often the first to be cut. When we surveyed almost three dozen CMOs from major North American consumer brands, they reported their boards had demanded average cuts of 8% to marketing spend over the previous 12 months. In the worst cases, that rose to 10% or even 20%.
But this kind of rapid cutback can be short-sighted. Investment in marketing can be a key to long-term growth, enabling companies to pull ahead of the competition amidst downturns.
A competitive edge in tough times
In essence, investing in marketing during downturns can help build a strong foundation for growth through that period, and stronger lift-off after the storm has passed.
We found that during the 2008 recession, companies that decided to push for growth during the lean years achieved above-average total shareholder returns (TSR) in the following ten years. On average, the cumulative TSR of these companies grew 150% more than that of their peers, and about 70% of them became and remained top-quintile performers in their sector.
Consumer spending may waver during recessions, but it will return – and brand recognition and trust established during tough times can pay dividends down the line. Indeed, even now, consumer savings have increased by $4 trillion since 2019, so there is strong potential in the market.
Deep insight drives wise investment
With that said, an intelligent investor mindset needs more than confidence: it needs data. A full-funnel view is important in evaluating marketing success and areas for improvement, allowing organisations to eliminate inefficient spend and re-invest in high-growth areas.
There may be areas of the marketing workflow that are underperforming or draining too much spend; these may be good candidates for budget cuts. At the same time, investment can be made where there is strong potential for growth in ROI – such as commerce media. Our latest Retail Media Networks Buyers Survey showed that RMNs are attracting an increasing share of marketing budgets as manufacturers and brands shift spend to target consumers closer to the point of purchase. To the extent that approximately 60% of CPG and household brands expect to increase spend in this area in the next year.
The outperforming companies could find savings of 10 –20% by eliminating inefficient spend. And, could drive 5 –10% growth by reinvesting those savings in more efficient efforts – all of which can create distance from competitors. Identifying where to cut and where to spend in this manner requires strong data gathering and analysis. CMOs can consider taking a leaf out of the CFO’s playbook, looking into budget details and performance for both product marketing and consumer marketing. This will help identify pockets of inefficient spend that drive ‘bad revenue’ with insufficient margin to merit the investment – which can then be reassigned.
There is also potential value in analysing working spend (reaching consumers) vs nonworking spend (creating marketing assets). One telecom company achieved $65 million in annual savings by retaining larger agencies for creative ideation, bringing campaign management in-house, and outsourcing low-value tasks like image resizing and translation to lower-cost providers.
Backed by the right data, marketers can position their functions as enablers of growth, optimising allocations aligned with overall company strategy, and preventing budget cuts that can lead to bigger problems down the road. For example, prioritising speed and agility may feel counterintuitive in a downturn, but it can enable companies to get more from their marketing dollars. Likewise, only investing in marketing technology with a clear, existing use case, rather than future-gazing, can help ensure software budgets aren’t maxed out.
Finally, amidst the challenges of an economic crisis, CMOs can serve their organisations well by quickly diagnosing the best opportunities for growth and savings, setting clear goals, crafting a clear plan, and acting decisively. Growth is possible – it’s up to marketers to identify the right way forward for their business and take the next steps.