Cutting marketing in a downturn is short-sighted – investment can be the key to growth

By Aurélia Bettati

With the global economy sending mixed signals, it’s no surprise that companies are implementing cost-saving measures.  Confidence remains lower than average, and that’s translating to lower spending. Consumers report altering their shopping habits to find better value, seeking lower costs and cheaper brands. Companies globally are asking marketing departments to make cuts in the face of pressures on sales and cost. At the same time, the cost of attracting those customers is going up: CMOs tell us that the average cost per click on a digital ad went up 20% between 2021 and 2022.

When this kind of perfect storm hits, it can be tempting to simply slash marketing budgets to address the drop in consumer confidence and rise in costs. In a downturn, belt-tightening can seem like a wise choice. And indeed, if it’s difficult to draw a direct line between some elements of marketing spend and specific ROI, then the case for cutbacks may make itself. 

That’s certainly reflected in the data: we surveyed nearly three dozen CMOs from major North American consumer brands, who reported their boards had requested average cuts of 8% to marketing spend over the previous year, rising to more than 20% in more some cases.

Although business leaders have a responsibility to protect the longevity of their business in a downturn, this kind of rapid cutback may impact future growth potential. With the right priorities in place, investment in marketing can be a key to long-term growth, enabling companies to pull ahead of the competition. By finding and removing inefficient spend on the one hand and applying an investor mindset to encourage high-growth activities on the other, redoubling marketing efforts can in fact give businesses the edge in uncertain times.

Investing through the challenge

Put simply, continuing to pursue marketing success during a downturn can help establish a firm foundation for growth in the moment, and help organisations get off the blocks faster than rivals when confidence begins to flow back.

The data bears this out. During the 2008 recession, the organisations that continued to invest during the tough years saw above-average total shareholder returns (TSR) over the following decade. On average, the total TSR of these companies grew 150% more than that of their peers, and about 70% of those companies entered (and stayed in) the top quintile for performers in their industry.

Granular data for intelligent investment

Spending may dip during recessions, but it will return – and the brand loyalty you grow during tough times can pay dividends later down the line. Despite the cost-of-living crisis, consumer savings have increased by $4 trillion since 2019, so there is strong potential in the market.

Still, intelligent investment requires more than confidence: it requires good, granular data. It’s important to be able to evaluate marketing success and areas for improvement across your whole funnel if you’re to get rid of inefficient spend and re-invest in high-growth areas. It’s likely there’ll be areas of activity that are underperforming; it may be wise to cut these. At the same time, investment can be made where there is strong potential for growth in ROI – such as commerce media, which is predicted to deliver more than $100 billion to US companies by the end of 2026.

Our latest Retail Media Networks Buyers Survey showed that retail media networks 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.

This detailed approach can enable more resilient growth than simply implementing ‘blunt instrument’ cuts across the board. Reviewing your investments on a case-by-case basis can allow for improved cashflow without removing the opportunity to prepare for growth. Outperforming companies may be able to find savings of 10–20% by reducing inefficient spend, all while driving 5–10% growth by reinvesting those savings in more efficient efforts. This kind of prudent reinvestment can make the difference in the race against competitors.

Strong data gathering and analysis are key to accurately deciding where to cut and where to invest. CMOs can take a leaf out of the CFO’s playbook, examining budget details and performance metrics for both product marketing and consumer marketing to identify areas of inefficient spend that drive low ROI. That investment can then be reassigned elsewhere.

It may also be valuable to analyse working spend (budget put towards reaching consumers) against non-working spend (budget put towards the creation of marketing assets). When one telecom company did this, it saved $65 million annually 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.

Decisive steps

Leaders can also improve growth by encouraging the marketing function to maximise existing budget, rather than cutting back. For example, prioritising speed and agility over a test-and-retest approach may feel risky in a rough economy, but it can help businesses to get more from their marketing dollars. Likewise, ensuring new marketing technology has a clear, existing use case, rather than purchasing software on the chance it could be useful can help ensure software budgets aren’t maxed out.

In turbulent times, the marketing leaders and CMOs who double down on data-led insights to pull the right growth levers will set the agenda for years to come. Growth is possible – it’s up to marketers to make strategic choices and take action.

About the Author

aureliaAurelia Bettati is an Associate Director at McKinsey’s Paris office, where she co-leads the European Growth, Marketing and Sales Practice. With 20 years of experience in strategy consulting, she has in-depth expertise in marketing transformation, growth strategies and innovative commercial offers. She supports key players in the distribution, consumer goods, hospitality and tourism sectors.


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