Companies now being forced to consider drastic cuts to their marketing budgets would do well to use the search for greater efficiencies as an opportunity to find new ways of improving the effectiveness of their marketing spending.
A decade has passed since Canada last teetered on the verge of recession, and a whole new generation of marketers has emerged without knowing what it is like to contemplate significant cuts in their marketing budgets. The lesson of history is clear: In an economic downturn, companies that don’t consider budget cuts very carefully put their competitive position at risk as the economy starts to rebound. Research done during the last three recessions suggests that companies that cut their marketing spending trailed the top-line growth of their peers by more than 20 per cent in the years following each downturn. This is not to suggest that savings cannot be found, but rather that the focus should be on improving the effectiveness of marketing spending. Greater efficiency will be a happy—and likely—by-product of these efforts.
While countless articles and academic dissertations have been written on how to optimize marketing spending, we will focus here on a single principle and a simple yet powerful tool you can use to support it: Focus marketing spending only on the “critical bottlenecks” that your company is facing in deepening its relationship with target consumers. McKinsey & Company has found that companies that apply this principle as part of a rigorous approach can identify 15 to 25 per cent of their marketing spending that can either be deployed more effectively or accrues directly to the bottom line.
FOCUS ON THE BOTTLENECKS
Too often, marketing spending objectives do not serve the cause of improved efficiency and effectiveness. Objectives that are too vague frequently result in spending that is inappropriate and ineffective. Furthermore, when the time comes to reduce spending, little cause-and-effect justification, that can be used to avoid cutting critical programs, has been established between spending and performance.
One valuable tool for setting marketing spending objectives is the consumer decision funnel. We are all familiar with the consumer decision funnel framework that tracks a brand’s performance from “awareness” through “consideration,” “experience” and “loyalty.” However, few companies harness the real power of this simple framework to focus their marketing spending.
Bottlenecks may develop at any stage in the funnel. Understanding where these bottlenecks are can help you determine where to target your marketing spending. For example, at the awareness stage, media clutter is often a major bottleneck for brands, particularly new entries. Insufficient intensity or creative appeal from marketing communications can limit growth in awareness. Bottlenecks to consideration—inclusion among the two or three brands consumers will consider when they are ready to purchase—may be the brand’s lack of distinctiveness or relevance for the target audience. This may be caused by gaps in real or perceived brand positioning. The lack of a clear call to action will often block movement from the consideration to the experience stage. Intermediaries such as retail distributors or brokers can also slow the movement. Finally, the flow from brand experience to brand loyalty may be impeded by a poor customer experience, failure to reinforce the reason why a purchase is made, or a repurchase cycle that is not consumer-friendly.
Bottlenecks will result from each brand’s unique situation—its position in the marketplace, its life-stage or its economic model. If a brand is dominant in a category, it may be more meaningful to look for differences in relative funnel performance across key customer segments than to focus on differences in performance versus competitors. Other companies may be more interested in improving absolute rather than relative performance scores.
THE CONSUMER DECISION FUNNEL
The real power of the consumer decision funnel to improve the efficiency and effectiveness of marketing spending emerges only when you understand the very specific bottlenecks that your brand is facing and the marketing spending actions that they imply. Applying the following simple rules will help you unlock this power.
1. Uncover segment bottlenecks and drivers versus averages for the brand.
All insight about bottlenecks is lost when consumer perceptions about a brand are viewed in aggregate. For example, if a retailer is targeting both teenage girls and their mothers, very different bottlenecks may be the cause of each group not shopping more frequently. By aligning marketing spending objectives with issues related to aggregate consumer perceptions rather than the unique perceptions of each specific consumer segment, companies risk targeting a bottleneck that doesn’t actually exist.
Uncovering the bottleneck for a particular segment will help you understand where you are losing consumers, but not why you are losing them. To get to the “why,” you must understand the consumer perceptions that are “statistically” most correlated with creating the bottleneck. In the retail example, both the teenagers and their mothers may share a consideration bottleneck, but it may be traced to very different “drivers.” Teenage girls may believe that the retailer lacks relevance and is not “cool,” whereas their mothers may believe the retailer has raised prices too sharply in stocking merchandise that is more fashionable to teens.
Apart from setting sharper spending objectives by segment, this approach will also allow you to decide which segments present the biggest challenge or opportunity in the near term, allowing you to reduce current-year spending on other segments.
2. Prioritize the bottlenecks with the biggest near-term earnings “prize.”
How many bottlenecks should you tackle at any given time? The answer is probably fewer than you are addressing today. While reducing the number of bottlenecks you are tackling may be motivated by economic pressure, it is probably the right thing to do at any time. Consumers are bombarded by hundreds of branding messages every day, and if your communications are not highly focused, you are more likely to create confusion than impact.
Set focused priorities by quantifying the earnings “prize” that could be achieved by addressing each bottleneck in the current year. For example, an insurance company may find that the current-year payoff from improving loyalty by one per cent is much greater than the payoff from improving consideration by 10 per cent; the former is more likely to make immediate progress in reducing the attrition of current customers than in converting new ones. Going after a narrower set of objectives also pays off in better execution and evaluation of programs. Even if the brand manager has the capacity to create several compelling promotions each quarter, the sales force cannot sell all of them effectively. Furthermore, inefficient marketing programs are too often continued because their real impact cannot be determined amid all the “noise” created by the brand’s other activities.
3. Employ a more creative toolkit to remove your bottleneck.
The old adage “When all you have is a hammer everything looks like a nail” could reasonably be applied to marketers who use a very narrow set of tools to solve all of their brand’s marketing issues. Marketers who think creatively about all the possible marketing actions that can be used to overcome bottlenecks can often build their brand’s equity more quickly and cost effectively than their more traditional competitors. One such creative and cost-effective technique to build your brand is leveraging the power of word of mouth. An apparel retailer was able to quickly position itself as “the” cool brand among teenagers by using its employees to create viral “buzz.” By making a conscious effort to hire the popular kids from local schools and giving them attractive discounts to purchase their wardrobe, the retailer effectively created powerful walking billboards for its brand. When you consider the expense of traditional marketing activities such as broadcast advertising, creative alternatives such as this begin to look very attractive.
If you haven’t been applying these rules to focus your marketing spending and now find yourself needing to make quick cuts to your marketing budget, there is no reason to panic. Very often the information that you will need to use these techniques already exists in the organization; it just has not been brought together in the right way. If an audit of available information fails to provide the desired insights, you should consider some new, focused consumer research which can be completed in as little as a few weeks—or even less if some creative alternatives to more formal research are considered. For example, one baking ingredient company was able to diagnose an issue with consumer loyalty by posting a survey on its web site. Over the course of a single weekend, the company was able to generate over 2,500 responses.
Employing the bottleneck principle and the funnel framework will yield immediate opportunities for savings. But their true power will only be realized through consistent use over the long term. As the economy improves, this approach will give your company a decided advantage over competitors in capturing growth opportunities and creating a virtuous cycle of brand-building. Whatever your motivation is for getting started, the time is right to apply principles of certainty to the “art” of marketing spending.