Although most companies say they believe in marketing, not all of them show it with their budgeting decisions. In fact, despite the great economy, the world’s largest companies have been aggressively cutting costs for the last decade or so. Gartner reports that marketing budgets among Fortune 500 companies decreased last year from 12.1% to 11.3% of revenue. That may not seem like much, but across Fortune 500 companies alone, that amounts to a year-over-year marketing spend reduction of approximately $137 BILLION dollars! Interestingly enough, 53% of that same group of companies showed an after-tax profit decline (source).
From a short-term perspective, cutting costs is a great way to boost profits. But the long-term effects can be devastating, as seen with Kraft Heinz. Kraft Heinz has been on a cost-cutting rampage over the last two years, and it’s starting to catch up with them. Kraft Heinz stock is now down some 60% from its 52-week high. Forbes recently reported,
The wheels came off last Friday morning when Kraft Heinz stock dropped 30% at the open and the company lost $16 billion of its market value. The essential problem facing Kraft Heinz is that it stopped investing in its brands at a time when consumer tastes and behaviors are shifting, and the competitive environment is intensifying (source, emphasis added).
The moral of the story is this: you can’t cost-cut your way to growth.
Contrast the Kraft Heinz approach with some of the top brands in the world, like Apple or Coca-Cola. These companies—some of the most profitable in the history of the world—believe in marketing. In 2015, the last year they disclosed their advertising budget, Apple nearly doubled their advertising spend to $1.8 Billion. Coke spends roughly $4B/year on advertising. Both companies are growing aggressively.
The lesson for brands, big or small, is that your branding and marketing budget should be viewed as an investment. Just like you build equity in a building, you should also build “brand equity,” i.e., make investments over time that build the value of your brand. That kind of investing will pay dividends for years into the future, in both good and bad economies.
Harvard Business Review notes that “building and maintaining strong brands—ones that customers recognize and trust—remains one of the best ways to reduce business risk.”
There is even a correlation between stock performance during a recession and the strength of the brand:
The stock prices of companies with strong brands, such as Colgate-Palmolive and Johnson & Johnson, have held up better in recessions than those of large consumer product companies with less well-known brands (source).
Don’t succumb to the siren song of “cutting your way to growth.” Now is the time to build the value of your brand—and in so doing, build the value of your organization.