The curious case of why Marketing budgets and positions are always the first to go and why that decision is so counterproductive.
It's that interesting time in the economic cycle again where we're either in or barreling towards a recession, and corporations claim they need to cut costs despite making trillions in profit. I know various leaders and economic experts are claiming specific definitions as to why it isn't a recession yet and that our economy is doing just fine (see this), but based on the decrease in Help Wanted signs plus how many "Open to Work" symbols and "I just got laid off" messages I've seen and continue to see on various social media platforms for the last 6-8 months, I call bullsh!t. Regardless of whether we're in a defined recession or not, budgets and jobs are being slashed to ensure company 'survival' (for the record, I realize some companies truly are just trying to survive and don't have a choice, but many of the larger corporations are doing just fine yet are cutting budgets and people anyway).
Where Do Internal Marketing Budget Cuts Begin?
This leads to the age old issue of where do budget cuts come from? Marketing budgets are almost always the first budgets to get cut - sometimes upwards of 20% - and those employees are usually some of the first ones to be laid off. It's not just the worker bees that get cut - CMO roles are also often eliminated by organizations to save money. In fact, in December 2023 three major companies eliminated the CMO role after major revenue dips. So the next question is always why?
The Misinformed Savings Illusion
There are a variety of reasons or assumptions organizations give for choosing to gut marketing budgets first:
Cutting marketing budgets will save them money right away
Marketing cannot prove ROI, therefore is an unnecessary expense in a recession
Branding and brand purpose don't actually matter (see Terry Smith's perspective on Hellman's mayo as mentioned in Fast Company and multiple other publications.)
To be blunt, these short-term decisions are often made in a vacuum by individuals without understanding the long-term implications of such a decision. Additionally, leaders often times don't realize just how much value marketing provides - especially in a recession. Nor do they seem to understand just how much marketing has evolved in the last 20 years (see this blog post for some color on that topic) to become not a cost center, but a revenue generator.
The Real Consequences of Cutting Marketing Spend
The reality of taking a sledgehammer to your marketing budgets - especially during an economic downturn - actually creates a massive negative ripple effect for business long-term. Often times this ripple effect can takes years post-recession to overcome, if ever. Let's explore some of the consequences of those decisions:
Brand Awareness and Loyalty
When organizations cut their marketing spend - especially their advertising spend - it creates a huge void in brand awareness and loyalty for consumers. Yes consumers are cutting costs so may not be spending with your brand right this minute. But if you don't stay top of mind with them or continue to build rapport with them for when they do start spending again, their spend with you will likely decrease or evaporate entirely.
With Gen Xers and Millennials being overly skeptical and Gen Z moving rapidly into adulthood, brand loyalty is now earned in a reciprocal fashion. Therefore, continual connection from brands is vital to win consumers over. This becomes even more challenging to overcome when your competitors keep their spend the same. Guess who consumers will remember? And guess what that will translate into for your competitors? Sales - see this article for a multitude of examples over the past 100 years of how this plays out.
Growth and Evolution
With the relentless evolution in technology across the board, brand and marketing have also evolved at an insanely rapid pace - and with AI coming in hot, it's poised to accelerate even more. Every time an organization takes the "do more with less" stance toward marketing, teams are forced to prioritize based on what they can afford to do and what they have the bandwidth to tackle. The things that get deprioritized are often the foundational improvements that are actually quite necessary in order to evolve the business to keep pace with technology. Without the foundational improvements, the strategic needs and the infrastructure that supports that evolving strategy become increasingly misaligned which only makes the work harder to do.
These are the non-sexy aspects of marketing that non-marketers don't understand. Or they don't even realize are elements that marketers have to manage on behalf of the organization in order to drive business forward. Here are just a few examples I've either had to navigate myself or heard from my peers:
Quality of data sets - dirty data sets, incomplete customer information, organizations don't have first party databases they can use or don't have cookie consent policies in place (GDPR and CCPA cookie consent) in order to target consumers digitally
Consolidated data sets - every time a merger or acquisition occurs or organizations restructure their business units, guess what has to be consolidated and de-duplicated before it's usable for campaigns? And guess what has to be confirmed to be GDPR and CCPA compliant? And guess who has to do that work?
Technology stack - if they aren't cut altogether to save money, many tech stacks are often antiquated, include technology that is either duplicative from platform to platform or leave massive gaps that require even more manual work.
Technology integrations - above said technology platforms sometimes are not easy to integrate or don't have an out of the box solution for the integrations. This then requires custom integration builds that are expensive and labor intensive. Without tech stacks being integrated, the burden falls on the practitioners to work around it. This translates into manual data work or activities into each platform to use it, then manually de-duplicate it, manually reconcile the performance of the data in each system and so on.
People
Let's put aside for a moment the callous nature of taking away peoples' livelihoods, health insurance, etc. for the sake of increased profits that many of the larger corporations are enacting, and focus on just the logistical implications of cutting labor.
Depending on the organizational structure, philosophy and prioritization, internal marketing teams can be relatively small to begin with. That means the team members are often already doing the work of 2-3 people. So when job cuts happen and there are even fewer people on those often already too-small teams, that means the employees who don't get laid off are now doing the work of 4-5 people. When marketing teams have to try to hold it together with silly string and bubble gum, a lot of important work will fall through the cracks and people get burned out.
Many will say that it sucks to lose people, but that technology can supplant the loss of hands on deck. Yes, marketing tech stacks have improved significantly in the last 10 years. Marketing automation tools, design tools, social media management platforms, etc. can save marketers a boatload of time and effort to get content out the door and quickly.
But the problem is that technology is also often cut or deprioritized. So when you cut the people who make the work happen and you cut the technology or integrations they need in order to make do with fewer people, you paralyze the marketing team. And when the people who are left are forced to use bandaids to solve larger challenges, this makes foundational problems that were already big even bigger. As a result, the organization gets further and further behind.
What Should Organizations Do Instead?
To be clear, I'm not saying that budget cuts shouldn't apply to marketing at all and therefore be shoved off onto other departments. Every department needs to be able to do their part to keep companies stable so that they can come out of an economic downturn intact. Instead I am saying that organizations should have a comprehensive strategy in place that is more thought out than just making severe budget cuts and cutting jobs.
Most organizations know when a recession is coming based on economic signals. Or they know when they aren't going to perform as well as they predicted. To me, having a strategy in place based on a deep understanding of what will help maintain stability in the short-term while also setting the business up for long-term prosperity and growth is the best way forward. Those decisions can't be made in a vacuum with just a financial spreadsheet or two and some finance folks huddled in a corner. Rather every department leader - including marketing - should be sitting at the table to build that comprehensive strategy together. Once that strategy is in place, it becomes much clearer where budget cuts should lie. And it puts a proactive plan in place versus being caught flat footed and scrambling.
And finally, leadership should be able to effectively communicate those decisions and that strategy to the organization at large. After all, if employees understand what they need to focus on in an economic downturn, they can unite behind that and help drive the business forward. But if employees are only informed that their budgets are being slashed and jobs are being cut, it's hard for them to stay focused at the task at hand, much less feel motivated or invested in the organization as a whole.
Conclusion
While cutting marketing budgets may offer short-term relief and are easy to circle on a spreadsheet, the individuals in charge of making those financial decisions need to understand the risk and long-term implications of such decisions. Rather than viewing marketing as an expendable cost that does not provide value, companies should instead seek to better understand the value marketing does bring. After all, leaders clearly understand the evolution of technology and how it can grow their business - so why can't they see how those same tech evolutions apply to marketing too?
By understanding the value that marketing brings in the short-term and in the long-term, and by developing a comprehensive strategy to mitigate the risks, companies can navigate economic challenges more effectively, keep their companies moving forward and ultimately emerge stronger on the other side.
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