The case for keeping marketing budgets amid economic uncertainty

Why short-term marketing cuts aren’t a long-term solution for brands

Every brand will feel the impacts of tariffs differently, whether it is a change in demand or pricing decisions. As such, they will need to adjust their marketing plans to accommodate these changes, whether by shifting messaging or allocating spend to different channels.

However, it’s important that brands not cut spending altogether. Cutting spend can have negative short- and long-term consequences for a brand, resulting in a loss of brand equity, customer loyalty and sales.

For example, a clothing brand that manufactures its clothing overseas could foresee a higher degree of uncertainty on its bottom line, so it considers a 50% cut in marketing investment. The typical considerations for cutting spend include where dollars are repurposed, if at all, and how competitors will react to the same headwinds. However, many marketers ignore the most important considerations: marginal ROI and the long-term impact on the top and bottom of the funnel beyond the immediate quarter.

By ignoring these two factors in this potential scenario, the clothing brand saw an improved net profit of $600,000 for that immediate quarter but experienced a $14 million hit to its top line during the same period. Additionally, those minor gains were erased by year-end, along with revenue losses expanding to $17 million. As a result, the brand lost manufacturing efficiency and saw a reduction in market share.

Future quarters will be impacted by the marketing decisions made today, so it’s important for brands to consider the long-term play before making any changes to their budgets to resolve short-term pain.

How scenario planning equips brands to navigate uncertain environments

As demonstrated above, scenario planning helps brands avoid making catastrophic decisions and sets them up for success, no matter the state of the economy.

Scenario planning shows brands how different tactics will impact their bottom line now and in the future, empowering them to make the best decision possible for their business. For instance, brands can determine whether it makes sense to stick with the status quo, or what it looks like if they decide to optimize spend or maximize profits.

Based on its preference, a brand can use marketing mix modeling tools to run different scenarios and see the possibilities available to them. Once brand teams have seen the range of potential outcomes, they can then determine the marketing plan that best fits their business.

Using scenario planning tools also helps brands have a plan in place should certain environmental changes occur. For example, if a brand has a scenario accounting for supply chain disruptions, they can immediately pivot their budget to that tactic so the impact of those changes is minimal. This helps brands maintain their bottom line while also positioning themselves to take market share from competitors who might not have been as prepared.

In some cases, marketing reductions can be a smart financial decision. It depends on marketing ROIs and where a brand is on the marginal ROI curve. And of course, some brands cannot avoid it at all. However, it’s important that brands not ignore the long-term effects of such decisions. Before making such decisions, brands need to acknowledge the potential hole they’ll need to dig out of to recover from the long-term effects of those short-term decisions. By using scenario planning tactics, brands can avoid some of these headaches and find the best approach to navigate today’s economic environment.

Sponsored by Keen Decision Systems