How Do You Know if it's Time to Spend MORE?
By Pat Lapointe, Marketing NPV LLC
As the economy begins to recover, CMO thoughts turn
to the prospect of spending increases and the
prospect of topline growth. For some, leaping ahead
aggressively is exactly the right thing to do. But
headline-grabbing stories of marketing heroes who
have taken this approach tend to emphasize the few
who have succeeded, and gloss over the vast majority
who have squandered not just money, but personal
credibility by jumping headlong into a hurricane of
economic uncertainty. The margin of error between
success and failure in such times tends to be very
narrow. It can be a roll of the dice against pretty
As if that wasn’t reason enough to be cautious,
CFOs, fresh off their cash crunch nightmares, are
reluctant to open the spigot without a clearer
vision of ROI than ever before. The standards for
risk-adjusted payback have gotten much higher in the
The quickest way to lose credibility is to suggest
that you need to raise your spending level to match
the competitors to maintain some equilibrium in
“share of voice.” Most CEOs and CFOs see this as
foolish logic. For example, how do you know the
competitor isn’t making an irrational decision? What
do you know about the effectiveness of your spending
versus theirs? How much ground would you lose if
they outspent you by a substantial amount? If you
don’t have specific answers to these questions,
anecdotal evidence won’t help. Relying on fear and
doubt may get you the spend levels you’re requesting
in the near term, but if it doesn’t work out, the
memory of your recommendations will undermine your
career progression for years to come.
To make smarter budgeting decisions and build
credibility with the rest of the senior management
team, you’ll need a sound framework to set a strong
foundation for your recommendation.
Same or Different?
If you’ve used marketing mix models (regression
analytics) in the past, you may be thinking that the
very same tools are the best predictor of the
expected return from various spend levels. Perhaps.
But for that to be true, you have to pass a simple
For each of the following questions, answer “same”
• Are the buying patterns in your category largely
the same as they have been over the past few years,
or are there different dynamics taking shape which
seem to influence who buys what, and how much of it?
If you answered “same” to all four questions, then
chances are, your mix model will guide you correctly
toward the right spend levels. However, if you
answered “different” to any one of those questions,
the analytical tools that served you well in the
past may not be up to the challenge of properly
forecasting the right spend levels for the future.
In fact, they may actually be misleading you,
delivering a “precisely wrong” direction.
• Are the competitors in the marketplace the same or
different, and are they taking the same familiar
competitive postures and positions, or are they
acting differently than before?
• Is your marketing mix for the coming period the
same, or are you introducing a different set of
• Is the relative strength of your marketing message
execution (compared to competitors) about the same,
or is it different?
And if you can’t answer the questions because you
don’t have a mix model, then clearly, you too need a
A Better Framework for Spending Decisions
To build a stronger foundation for the “right”
spending levels, look first at the marketplace. In
turbulent economic times, buyers re-evaluate the
value propositions of what they buy. They make
tradeoffs on the basis of what is or isn’t
“necessary” anymore. Shouting louder (or in more
places) is unlikely to break through newly-erected
austerity walls. What do you know about how the
buying environment has changed, and how does your
spending plan seek to capitalize on it?
Second, tune into what the CEO is looking for…
leverage. They want to find places where the return
on investment is potentially large and realized
quickly, to generate more free cash flow to fund
To help, focus your thinking on these key variables:
• Value Proposition - What is the relative strength
of your product/service value proposition versus
your competitors? If you believe (or better yet,
KNOW through customer research) that you have a
relative and meaningful value advantage which can be
furthered by increased marketing spending, then
spending more might be the right thing to do.
Of course, even if all of the above considerations
suggest the time for more spending is NOW, this
framework doesn’t take into account the possibility
that the company may actually have more attractive
options for investments. Economic resurgence means
new plants and capacity are needed to serve
anticipated demand. Pent-up desire for improved
information systems gets re-considered. And,
generally every manager who cut their budget during
the downturn is seeking to gain some of it back.
• Message Strength - How strong is the relevance,
clarity, and distinctiveness of your message, and
can you defend it from copycat claims?
• Marketing Response Elasticity - Is your category
going to be responsive to more marketing spending,
or does it require additional or different types of
stimulus (e.g. more direct selling) to shift the
status quo? If you’re not sure, then it’s best to
experiment on a smaller scale with higher spending
levels before you jump off the cliff.
• Customer Switchability - What do you know about
customer profitability and prospect switchability?
Are profitable prospective customers more likely to
jump to you now, or are you more likely to attract
cherry-pickers who will bleed your margins? Can you
tell the difference between the two? What is your
current share-of-customer? If it’s high, you may not
have much upside amongst your loyal base. That would
cause you to bet on the ability to steal customers
from competitors, or attract new customers to the
category. How easy are these prospective converts to
identify? How willing are they to switch? The
barriers to attraction generally get higher and more
costly to overcome as you further penetrate the
market. The incremental lift per dollar spent may be
lower than your historical averages.
• Competitive Reflex - Are you the dominant market
share leader? If so, the marginal cost of each
additional share point may be much greater, assuming
you can wrest it away from another established
player. Alternatively, if you are a minor player
trying to steal share from giant competitors, be
sure you have a clear vision of what the true cost
may be when they react (which they usually do). No
business will sit back and watch their customers
stolen away – especially the profitable ones. Plan
for their reactions. You don’t want to get caught
with all your cash on the table if they haven’t
played their first card yet.
• Operational Readiness – Are you operationally
ready to serve the new business you hope to attract?
Is your supply chain in order? Do you have the right
resources properly trained to provide the necessary
level of customer experience to realize the
potential value you went after? If you thought the
cost of acquiring them was high, just wait until you
pay to re-acquire the ones you couldn’t serve well.
And finally, if you score yourself high on all of
the above dimensions, don’t forget to check…
• Balance Sheet Strength – Does the company have the
cash resources to fund an aggressive escalation in
spend? Would further marketing spending increase the
company’s overall risk exposure beyond a reasonable
point? If the marketing effort failed, would it
seriously harm the company’s financial viability? If
you don’t know, find out BEFORE you recommend
spending more. You don’t want to have the executive
committee tell you that your spending proposal is
well conceived, but poorly timed. In technical
parlance, this is known as a “career-limiting
But if you follow this framework to build your
business case, chances are your proposal will win on
the strength of your comprehensive, credible
---Source: MarketingNPV Journal Jan.
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