Where We are Now – a CEO’s view of marketing spend
The art and science of marketing is changing. It will continue to do so against an economic backdrop of global business being reshaped by technology, concerns over future growth, a slowdown in China, a Europe left disrupted by Brexit, and with the future of the US yet to be decided.
Against this backdrop, Deloitte’s biennial survey of cost improvement practices and trends in Fortune 1000 companies presents a picture of retrenchment with 90% of organizations worldwide planning to cut costs in 2016-17 … regardless of their revenue growth … and 73% of CEOs already doing so. Of those companies surveyed, 59% were looking to reduce spending by over 10%, while 33% were seeking reductions of more than 20%.
The Hackett Group reports that increased business uncertainty and risk are leading to a resurgence in cost reduction strategies. According to their study of procurement executives from nearly 180 large companies in the US and globally, reducing and avoiding purchase costs is their highest ranking priority in 2016, cited by some 85% of respondents.
If CEOs and CPOs are intent upon driving down costs across their business, then savings will be naturally be expected within every function. That includes marketing, where indirect spend is likely to be one of the first areas to come under the microscope. As a result, CMOs and, in fact, all marketing professionals, will increasingly be called upon to demonstrate even greater accountability for their marketing spend.
The Challenge for CMOs – a new set of rules
However, during periods of doom and gloom, marketing has always seen itself as something of a ‘special case’ – protecting and defending the brand from ‘beancounters’ and their harmful cost cutting assaults. So, heads of marketing have generally pushed back at these times, arguing that when the going gets tough one should not compromise the company’s ability to generate revenue by questioning investment in the brand. Research from McGraw-Hill often creeps into the conversation at this point in support.
In a study of 600+ American businesses with relatively similar sales revenue, McGraw Hill Research’s Laboratory of Advertising Performance (LAP) found firms that increased their ad spend during the early 1981-82 recession, actually grew sales during the next three years by over 250% compared with those that had cut back.
Unfortunately, if marketing wishes to present itself as something of a ‘protected species’, it can’t rely on single moments of historical success, but instead must overcome one big hurdle – how to consistently prove and justify the value of what it spends each and every time a marketing dollar comes off the budget.
Marketing Procurement – under the microscope
CFOs and procurement teams are particularly looking to identify wasteful and inefficient purchasing when it comes to indirect spend, that 20% or so of total spending which is spread between some 80% of an organization’s suppliers. Many of these are providers of marketing services.
Indirect spend is expenditure on goods and services, such as property, office equipment and marketing services, which are not directly related to the creation of an enterprise’s core products.
Compared to direct spend, indirect spend is an untapped source of potential savings. In fact, the annual global cost of indirect procurement waste due to inefficient processes and wasteful purchasing is estimated to be $2.28 trillion.