A 3-part look at the marketing options open to business leaders battling a downturn.
Part 3: Making Tough Decisions in the Midst of Economic Uncertainty: The Boardroom Perspective
Let's explore the reasoning behind the controversial move of trimming marketing budgets during economic downturns.
Firstly, the fear of financial instability looms large. The cash flow pressures faced by businesses during a downturn are like a vice grip, squeezing from every direction. History has numerous tales of corporations that, in an effort to maintain spending, ended up overextending themselves, leading to disastrous consequences.
Take the story of Toys "R" Us, for instance. In the face of the 2008 recession, they chose to continue with aggressive marketing and expansion strategies1. This, unfortunately, exacerbated their financial distress, pushing them into bankruptcy in 2017, a tragic end for the beloved brand1. There's a lesson there about the dangers of overspending during a downturn.
Another reason behind marketing cutbacks is the sheer unpredictability of consumer behaviour in an economic downturn. It's comparable to navigating a ship through a dense fog. Consumer spending habits become erratic, making it incredibly challenging to create effective and targeted marketing campaigns2. Is it not then prudent to dial back on marketing spend, focusing on survival rather than conquest?
Consider also the operational challenges. In a downturn, we need to conserve resources and ensure the longevity of the business. If our IT team needs to keep the servers running, or our Operations team needs to ensure continuity in production, marketing may need to take a back seat. In essence, our decision is akin to a captain deciding to secure the ship's hull during a storm rather than hoisting more sails.
That said, we fully acknowledge the risk of losing market share. Our decisions aren't born out of fear, but are a strategic response to market conditions. We don't ignore marketing, but we reprioritise and innovate, focusing on cost-effective and highly targeted strategies, like digital marketing and customer retention efforts3.
So, in the throes of an economic downturn, when every pound needs to count, cutting back on marketing can indeed be a strategic decision. It is not a matter of lack of bravery or leadership, but rather a testament to our commitment to ensure the survival and long-term prosperity of the company. It's in these moments that we are tested, and through these trials, our resolve is only strengthened.
Ahlert, D., Evanschitzky, H., & Thesing, M. "Performance Implications of the Recessionary Marketing Strategies of Retailers". Journal of Retailing and Consumer Services. 29, 2016.
Srinivasan, R., Rangaswamy, A., & Lilien, G. L. "Turning Adversity into Advantage: Does Proactive Marketing During a Recession Pay Off?". International Journal of Research in Marketing. 29(2), 2012.
Roll, M. "Why Luxury Brands Must Be Innovative". Journal of Brand Strategy. 4(4), 2015.