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Cutting your marketing budget in difficult times will reduce profits.

Cutting your marketing budget in difficult times will reduce profits.

Blog article entry on: Mar 1, 2010

he article was contributed by Marc Gough, Chairman of red | Brand Builders, to The Auscham Newsletter, March, 2010

2009 was a difficult year in all of the world’s major economies. In response many companies cut ‘non essential’ budgets, including marketing and advertising. The danger here is that companies forget how they built their business and their brands and sacrifice that process to reach a short-term financial goal.

Large companies can survive using the marketing budget as a profit buffer to some extent, to the degree that consumers already connect with their brands, but even they will face declines in brand equity – such as awareness, price premium and purchase intent, if marketing budgets remain cut for long.

Small companies, however, must focus on aligning their team around brand goals and elevating their thinking beyond the short-term considerations of a difficult economy. The reason for this is that all companies can very easily fall into the trap of price competition rather than ‘value’ competition, and the smaller the company – the more that’s going to hurt. Value competition is where the quality / price / brand values and history of the relationship are all considered together in the purchase decision.

Without sound marketing communications to build ‘awareness’ and communicate – ‘proposition’ / ‘benefits’ / ‘and reasons to believe’, for your brand, consumers have no reason to consider that your product is any better than the product of your competitors. Which brings price to the fore for consumers when they are making a purchase decision.

Price becomes most important when a brand is not differentiated from competitors. So the consequence of cutting marketing budgets is to decrease the focus on the brands and increase price competition, reducing brand awareness and consumer loyalty. In the medium to long term this costs more than it saves and can even threaten the viability of a business as the products it sells become ‘generic’ and the team inside the company become misaligned about what they are trying to deliver to consumers.

The most sustainable competitive advantage a company has is its brands.

Any well considered investment in brands, must be an investment in building points of difference that drive consumer preference and loyalty , through the creation of an emotional bond.

A purchasing decision which is at least partially driven by emotion confers more value on the brand preferred, than its competitors. This is a crucial point that so many in finance departments, manufacturing departments and even sales departments overlook. Intangible value can be built / measured and managed and should be considered more important than tangible value – because that can be matched by your competition.

The kinds of emotions that create brand value include things like:

– A feeling of security that the product will perform as promised – a great brand example is Honda – famous for reliability and durability, or Singapore Airlines – for on time departures, safety and professionalism in the air

– The social confidence that comes from making a well regarded choice – Nike shoes – can make you fly like Mike, Coca-Cola can make you cool, and not just physically…

– A shared dream or aspiration – experienced when you share a brand preference with people with shared values – Apple is a great example of a brand famous for ‘thinking different’ – you become more individual, creative and distinctive when you buy Apple

All too often we forget that when communicating the functional benefits of a brand, we can tie them directly to an emotional benefit. Honda reliability becomes a promise that Honda won’t let you down (physically or emotionally). When you pull your iPhone out of your pocket, you are saying that you think different – that you are not a Blackberry or a Nokia person, you are more creative than that.

You choose your brands because they communicate your message – your brand choices represent your image to the world at large, and a shared vocabulary with your peer group. These choices represent your values / your position on things.

As a company your brand(s) are the rallying point for your own team. They make it clear what you expect to deliver to your customers and consumers. They help you prioritise what is really important within your business and communicate it to the guys in finance / manufacturing and sales. Without brand(s), which represent your promises to your customers, a company has no center.

Once you get clear on what your brand stands for – communicating that – internally and externally is not ‘non essential’ – it is imperative. Not everyone will like it – or buy it, but a lot will, and those that don’t will respect it because they understand you and what you stand for.

Are you and your team clear and aligned about your brand(s), and what they deliver to your customers and consumers?

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