June 1, 2009

Tough times call for tough decisions. But that doesn't mean that fair business requirements are ignored in the name of tough times. One of the biggest mistakes companies do in tough economic times is to curtail marketing budgets. It may make short term sense to cut marketing expenses to boast short-term margins but long-term effects may be harsh, particularly if you face an aggressive competitive environment. A more prudent approach would be to take a short-term cut in margin to strengthen pillars of long term profitability.

Let's take an example of a brand which we will call "X". This brand has a virtual monopoly in its category. But of late competitive pressures have set in and the category is witnessing aggressive competitive dynamics. To worsen the things further, misfortune comes in the form of economic slowdown and brand "X" comes under severe duress. Sales stagnate and threaten to remain so as economic recovery if not foreseen in immediate future. What should the management do? Should they cut their marketing budget to maintain margins during sales slowdown? Or should they go into overdrive to accelerate their marketing programs, even at the cost of lower margins in short-term, to cut competitive pressures to size before they become monsters?

If the overall margin is healthy for brand "X", a suave marketer would opt for a marketing overdrive to ruthlessly cut competitive pressures to size. Even if it meant taking a beating on margin front in short-term, this approach would bode well in the long-term in terms of profitability and market dominance. On the other hand, a conservative approach to marketing expenditure may mean less focused approach in tackling competitive pressures thereby resulting in serious ramifications in future.

Bad times are always good time to make great investment. Marketing is one such long-term investment companies should make during tough times. Better to be pound wise and penny foolish rather than the other way round!