Since the last recession, cost containment has become a priority for companies. They look to rein in marketing expenditures, marketing services, production and market research. Companies unleashed an obsession with efficiency and short-termism, hurting brand building, business growth, and profits.
With the transition from growth to savings, CMOs were increasingly viewed as a cost center. They had come under increased scrutiny by CEOs as performance expectations increased. A global survey by the Fournaise Marketing Group revealed that the majority of CEOs said they were unimpressed with their CMOs. (In comparison, just 10% of the same CEOs felt that way about their CFOs and CIOs.) Predictably for CMOs, their tenure became the shortest in the C-Suite.
The contagion has quickly spread to Madison Avenue. A number of factors have made agencies, the traditional creators of brand value, weaker. The assault on agencies’ financial health was carried out through budget cuts, in-sourcing, fee busting, long payment terms, new competition from the consultancies, and, repeated pitches.
However, you can’t cost-cut your way to growth. According to an analysis of the 2017 Fortune 500, 53% of companies experience after-tax profit decline while only 47% saw profit growth. We were provided with another stark warning about cost-cutting recently. Kraft Heinz hasn’t invested sufficiently in its brands, and has lost half its share value. It has also written down $15 billion on Kraft and Oscar Meyer and cut its dividend by 36%. This was a result of cutting its advertising budget by 39% since 2014.
A marketing cost cutting strategy can be devastating for brands. It coaxes consumers to look at shopping solely through the lens of low price. It undermines the emotional link to brands, and it undercuts brand loyalty. For brands, this means eroding margins, and destruction of shareholder value. This is a race to the bottom, literally.
The impact of cost cutting on brand reminds me of the “boiling frog” fable which describes a frog being slowly boiled alive. The premise of the tale is that, if a frog is put suddenly into boiling water, it will jump out very quickly; but if the frog is put in tepid water, which is then brought to a boil slowly, it will be slow to understand the danger and die a slow death.
Cost cutting is very appealing, and easy to execute, when it comes to advertising and marketing. But, however alluring on the surface it might be, it is ultimately deceptive, dangerous and destructive. At a time when all brands have access to the same technology platforms, which can be designed to solve the same user or category need, and is programmed in the same way, the only logical way to differentiate brands and experiences is through brand creativity.
Unfortunately, just when creativity is needed the most, business leaders are investing in it the least. Forrester has forecasted that investment in Adtech, Martech, data, and analytics will grow more than 5 times faster than investing in agencies, which will grow only 2% in the next couple of years.
Creativity matters. McKinsey has shown the importance of brand-value. They found that,in almost 90% of categories that they measured recently, consumers are not loyal to their chosen brands, and almost 60% will switch when considering a new purchase. This means that the moment of initial consideration can be decisive in a consumer’s engagement journey – and a strong brand is the key to winning the battle for that initial consideration.
To survive and differentiate themselves, companies must overcome short-term thinking and efficiency drives alone. Budget cuts are not infinite. There’s a limit to how much a company can cut, but top-line growth is infinite, at least, mathematically speaking, until a brand reaches 100% share of market…
The author is CEO of Avidan Strategies, consulting marketers on agency practices. They help marketers improve agency relationships and manage RFPs.
