News that the UK Government is planning a new campaign asking businesses to cull prices to help consumers in the cost of living crisis set many pulses racing in the marketing industry as implications of cuts to marketing budgets loom.
The initiative, outlined by new Cost of Living Tsar David Buttress, former Just Eat Chief Executive, will see businesses being encouraged to cut prices and in return be allowed to use the campaign’s name and logo within branding. Reports in the BBC last week suggest that a slogan is yet to be decided but will centre around “helping out in tough times”.
Sources also told the BBC that there will be no government funding to support price cuts, with implications that diversion of marketing spend to fund price cuts will provide “kudos” to businesses.
It’s perhaps a well-known, but often unspoken, eventuality that in the event of cost reductions, discounting and price slashes, marketing is the first discipline to see cuts. However, a significant amount of research also exists pointing to why this knee-jerk reaction is often a mistake in the long-term.
PMW spoke to industry leaders to get their take on proposals to cut marketing budgets and the short-term view this encourages. We also asked for thoughts on how brands can effectively focus spend for the most effective outcomes - from the clear discontent on the implications to the industry, to calls to refocus.
“Any business that went down this route would be at a competitive disadvantage”
David Tiltman, VP Content, WARC: "Lots of commentary so far on the absolutely insane proposal by the UK Government to reward businesses for cutting adspend as a way to minimise price increases, but I don't think the biggest issue has really been addressed. Any business that went down this route would leave themselves at a competitive disadvantage to all the other businesses that didn't do it.
“It is extremely unlikely that the relatively small gains in pricing – ad/sales ratios in packaged goods are typically 5% or less – would make up for your competitors being able to out-shout you in the market. Not to mention you couldn't advertise to tell anyone you had lower prices.
"And if we assume UK businesses are more likely to follow the lead of the UK Government than multinationals, what are we left with? A quick way to hurt UK brands and business at a time when they need to support brands heading into a likely recession."
“Now is not the time to cut marketing, but spend should be refocused”
Faye Daffarn, Managing Director UK, Tug: “Now is not the time to cut marketing budgets, but I agree spend should be “refocused”. Brands must be able to move budgets fluidly between the best-performing channels and measure everything to ensure they’re being as efficient as possible and can see where they can afford to pull back without affecting sales.
“Businesses should also be led by demand and focus on showing consumers what they actually want to see: a prime example being sustainability. Rather than slashing budgets, brands should channel them into promoting sustainable consumer choices and developing lower-carbon media plans. Moving forward, we hope to see businesses increase their use of digital advertising to bring added value to customers.”
“Only the most short sighted view spend on marketing as a cost”
Adam Freeman, Managing Partner, MediaVision: “They say no battle is ever truly over and that complacency is a dangerous mindset. Our industry could be forgiven for thinking it had successfully demonstrated the merits of maintaining marketing spend during an economic downturn. In the 2008/9 financial crash, many large businesses refrained from slashing marketing budgets because they’d learnt the hard way that building back brand equity is a hard slog.
“Only the most short-sighted of businesses now view spending on marketing as a cost, not an investment. None other than [brand consultant and marketing professor] Mark Ritson reiterated those very lessons just a couple of weeks ago; the only logical deduction you can draw from his comments is that the government’s mindset is akin to “an idiot move from someone who does not understand history.” OK, Ritson was specifically talking about “esoteric brand budgets” being cut and not performance marketing, but given the government’s dodgy grasp of where marketing fits into the broader economy, we doubt their directive takes into account such subtleties!
“Admittedly details are still sketchy as to how the taxpayer-funded ad campaign to promote the initiative will roll out”, but there are so many ironies and contradictions. An ad campaign (indeed a marketing activity) that is encouraging businesses to divert marketing budgets into price cuts and wear this as a badge of honour…..really?”
“Calls to reduce marketing spend encourages a short term view”
Tony Ayaz, CEO, Scuba Analytics: “Calls for a reduction in marketing spend to relieve the pressure on consumers’ purses is encouraging businesses to take a short term view. The road has not been smooth for brands; despite an initial post-pandemic resurgence in spend, the economic climate is challenging once again. Rather than a reactive approach to economic challenges, businesses should be considering the long term efficiency of their marketing spend. After all, how a CMO chooses to spend their marketing budget can guide an organisation's long term direction, impacting on customer experience and influencing internal efforts such as culture.
“As such, marketers should be striving to deliver the best return on investment and should manage their advertising activity in real time. By leveraging their data to create a continuous, 360 degree view of the customer, brands can produce targeted and effective campaigns. A better understanding of consumer data will afford businesses the efficiency required to deliver what consumers really need.”
“Transparency into where ad spend is going should be the focus – especially now”
There were also calls to understand through insight any implications on marketing budget cuts – and indeed where ad spend is going.
Suzy Ley, EMEA Marketing Lead, Zefr: “Brands that maintain presence throughout good times and bad are the ones that consumers will reward. For marketing budgets, it’s about ensuring you’re maintaining spend where audiences are — which will be good for the platforms — while being cautious about spending in the long-tail.
“Transparency into where ad spend is going should be the focus for marketers at all times, but especially now.”
“We need insights on how marketing cuts will affect the bottom line”
Harriet Durnford-Smith, CMO, Adverity: "In an era of economic uncertainty, it is understandable that businesses are looking at cutting costs. However, the answer isn't just to cut marketing budgets, especially without any insights into how this will affect the businesses' bottom line.
“Cutting budgets, especially marketing, is not a silver bullet that will solve all your problems. Rather, efficiency is the name of the game – businesses can prepare best for a recession by making sure they are as efficient as possible with the money they have. And that includes marketing budgets. Sadly, marketing is often the first thing that gets cut and that is because too often it is seen as a nice to have rather than must have part of the business. Again, this won't change until marketers, and CMOs in particular, start being able to clearly demonstrate what the impact of a cutting marketing's budget will be on revenue.”
“Businesses not being told to cut marketing budgets”
Meanwhile, Wavemaker highlights the absence of explicit calls from the Government to cut marketing spend – but concedes there may be an effect…
Helen Price, Global Chief Investment Officer, Wavemaker: “I don’t read this as a request to cut marketing budgets to pass on savings. GroupM’s recent This Year, Next Year ad spend forecast has just revised down the global ad spend forecast to 8% growth, but the UK is forecasted to grow at 9% so I don’t think we are seeing advertisers cut spends in the way that is described.
“All the evidence shows that brands which advertise during a recession have greater longer term benefits, and for every £1 spent on advertising £6 is generated for the UK economy. So, I’m not sure if the Cost of Living Tsar is giving out the best advice. However, I don’t think that is what they are saying, and also they are launching an ad campaign to promote it.”
Rita Harnett, Global E-commerce Partner, Wavemaker explains in an upcoming episode of PMW’s Attention Seekers podcast: "It’s not so much that businesses are being told they need to cut their marketing budgets, it's that they want them to find the budget to give the discounts to consumers to be able to help them.
“This could affect their marketing budgets because they'll have less bottom line revenue and may decide to cut spending on marketing to avoid losses. There's a lot of evidence out there that suggests that when we are heading towards a recession and we have inflation like this, it's really important to be more prevalent within advertising, because you stay top of mind for customers in the long term.”
“The Government should take a more proactive role in upskilling and reskilling”
While the Data & Marketing Association (DMA) highlighted that the implication of cut marketing could dent the perception of the professionalism of the industry, and as part of its new campaign for continuous learning cultures and prioritising talent asks: “why should businesses invest less time and resource in marketing when there is a skills crisis impacting the UK digital economy?”
Rachel Aldighieri, Managing Director, DMA: “We’d like the UK Government, supported by industry bodies like the DMA, to take a more proactive role in upskilling and reskilling the nation with core creative, data and digital skills - utilising government and industry initiatives such as apprenticeship and retraining schemes. We want to drive responsible growth through the professionalisation of our industry.”