Most marketers know that when the economy turns, their budget at risk. So with today’s economic uncertainty, volatile markets, inflation, and more, what should marketers be doing now? Based on her experience in media and marketing through different economic cycles, the author offers six actions for CMOs to consider as we face a potential downturn: 1) Build a tight relationship with your CFO; 2) Zero out inefficient spend and ways of working; 3) Embrace speed and agility; 4) Stand out by staying in the market; 5) Make decisions in the context of your sector’s dynamics; and 6) Continue to drive forward digital transformation powered by data.
If you’re a chief marketing officer (CMO), the current economic uncertainty undoubtedly creates anxiety for you, your team, and your agencies. The Mobile Marketing Association (MMA) has demonstrated the tight correlation between advertising spend and economic indicators like GDP growth by looking at historical data. But more importantly, marketers know from experience that when the economy turns, their budget is an easy target.
So, with a volatile stock market, continued supply chain issues, strategic hiring freezes and layoffs, inflation concerns, and cooling consumer spend, the big question is: What should marketers be doing now?
First, it’s worth taking a step back. The downturn will likely have dramatically different dynamics across sectors and geographies in terms of intensity and duration. Regardless of where a marketer sits, we know acquiring a customer can be costly. Some have argued it is five times (or even higher) the cost of keeping those we already have. Whatever one believes about the cost of churn, marketers prizing lifetime value and customer relationships don’t want to repeat the mistakes of the 2007–2009 global recession, which proved reacquisition of customers was challenging and expensive.
We should also remember that tough circumstances can breed innovation. During the pandemic, we saw numerous productive marketing advances, many of which were long overdue — from more agile budget allocation to accelerated digital transformation connecting marketing and e-commerce.
A knee-jerk reaction to simply cut marketing spend may be misplaced, particularly if the crisis is short lived. But the financial pressures facing the C-suite are extremely acute and real. Based on my experience in media and marketing through different economic cycles, here are six actions for CMOs to consider as we face a potential downturn:
Under the stress of economic uncertainty, it’s more important than ever to keep an open dialogue. Make sure you have the right math and language to explain results driven by direct and indirect marketing spend.
Leaders under economic pressure will likely prioritize short-term measures of growth, so there will be a bias toward marketing tactics with a clearer return on investment, such as search, social, and e-commerce. Critically important top-of-funnel strategies that build valuable brand equity and tell the brand story have always challenged marketers, because they often don’t get credit for the performance they drive deeper in the funnel. For example, a viewer may react positively to a highly creative television commercial and go online to make a purchase — but it’s likely that the “last click” will get the credit for driving the sale. As much as possible, CMOs must help their C-suite colleagues understand the math of marketing activities holistically and results throughout the full funnel.
Above all, be clear about how the marketing function drives to broader financial outcomes desired by leadership – and speak their language, where possible. Partnership, transparency, and communication with your CEO, CFO, and likely even the board as well, are a potential antidote to cutting critical spend in this challenging moment.
Inertia is powerful. Every organization has legacy spend patterns or processes that aren’t effective or efficient. A downturn is an opportunity for discipline. This doesn’t have to mean cutting overall investment; it could involve simply redeploying resources to their highest and best use. Perhaps politics and preference have allowed certain pet projects that no longer drive results to persist. Now is the time to pause any projects that aren’t tied to current goals and consolidate disconnected efforts.
Often this comes down to accountability and silos. For example, are different business units targeting the same customers with the same channels and perhaps even bidding up the costs against each other or underleveraging their collective buying power? It’s natural for different brands or products to want control over their own demand levers, but this often does not lead to the best results.
Forward-leaning companies are quickly optimizing previously siloed budgets across media channels and investment areas like marketing, trade, and retail spend and working to make sure pockets of spend aren’t trapped across disconnected parts of the organization.
Covid-19 accelerated innovation around agile marketing practices, for everything from creative execution to budget approvals. Marketers will now need to continue embracing speed and agility to react to dynamic economic developments.
Today’s uncertainty will likely cause marketers to exhibit even more real-time media planning and buying strategies, favoring tactics like auction-based buying and terms with flexibility. This may continue to place pressure on marketing programs like expensive sponsorships, tactics with longer lead times, or initiatives involving elaborate production. While large-scale events can create breakthrough cultural moments, now is the time to weigh that brand impact against the risk of foregoing financial flexibility in more turbulent times.
Above all, in a world of speed and agility, companies and their partners (most importantly, their agencies) cannot all be working off of different metrics. Determine which metrics matter most and be sure everyone is operating off that set of data – internally and externally, across functional silos (like marketing, sales and supply chain), and across the different levels of the organization.
As some competitors dial back their spend during the turndown, advertisers who stay the course are likely to realize big benefits. For marketers with the right data-driven mindset, a downturn can offer unique opportunities to buy more or buy at better prices, particularly in large-scale digital marketplaces.
As some players exit the demand pool or sit on the sidelines, the same budget may enable marketers to distinguish themselves from competitors by acquiring short-term volume more effectively or efficiently, with important long-term implications. For example, a brand that stays front and center during this period will see a lasting impact on organic search results, ensuring it has relevance into the future.
CMOs in sectors driven by valuable long-term relationships (e.g., financial services) or high-consumption behaviors (e.g., consumer packaged goods or quick-serve restaurants) are likely to keep steady or even increase spending. Lessons learned from past crises taught these CMOs that the cost of reacquisition is too high. Other sectors, such as the pharmaceutical industry, are likely to focus on their product innovation lifecycles as the cues to drive their business, rather than macroeconomic conditions, so their experience of a downturn may be reasonably neutral.
CMOs in discretionary categories, from entertainment to consumer electronics, will most likely have to make decisions on the fly, knowing that if their sales fall off due to consumption changes, they will be under pressure to reduce spend. For categories under pressure to reduce their marketing budgets, the best strategy will be to reduce advertising in places where supply is constrained. Increasingly, leading marketers are partnering more tightly with colleagues in supply chain and technology to use data to stimulate demand with far more precision, based on where inventory actually exists.
Transformation is not a short-term endeavor, and it is well underway for most CMOs who have accepted the full charge of the growth agenda, particularly as they ascended organizationally as the voice of the customer during Covid-19. These leaders have already made the business case to the CFO and are partnering effectively with their chief information officer (CIO) to align the commercial and technology priorities.
CMOs, while known for nurturing the craft of marketing, must also be champions of disciplined use of data and technology to connect the end-to-end customer journey across business functions. This transformation is enormously complex, long-term and, for most companies, well underway to be sure that the brand promise is delivered, from sales to service. Given the magnitude of this remit, CMOs leading a broader transformation would be well served to stay the course, since it will very likely outlive this time of economic uncertainty. These CMOs must continue to drive the right data strategy, build the right technology architecture, align their talent agenda, and drive adoption, so they can deliver meaningful economic value in the short and long term.
It’s unquestionably difficult to predict the future state of the economy and the impact it will have on marketing. For now, at least, a reasonably steady job market appears to be mitigating other more volatile factors, but CMOs came through the pandemic with a broader remit than ever. Today’s uncertainty presents yet another opportunity to demonstrate that marketers are not only leaders closest to the zeitgeist of the customer, which is critical during crisis, but also to show they have the strategic and quantitative precision to maneuver as conditions continue to change.
The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.