by Erna George. As the world moves faster, we know expectations are growing — more begets the hunger for even more. Shareholders seek more value, so businesses drive more cost-reduction and more from each of their resources. In a context where consumers expect faster service, better quality and more innovation, technology-update frequency grows and great talent expects more in return for their contribution, how are constant annual cost-savings feasible?
And brands need more to grow in a cluttered, fast-moving world. Something has to give. Balancing cost-saving with people’s need to progress and business profitability, as well as brand and share growth requirements, is a fine art and, if not planned or thought through, meticulously leads to declines.
While I understand the rationale for cost-cutting, having often sat on the side of being told to cut budgets and sacrifice brand-building activity for the bigger goal, I was in part seeking a rationale for cost-saving being detrimental to brands when I started this piece. While I found a number of examples and case studies of how cost-cutting led to losing a competitive advantage or even to the demise of a brand, there were an overwhelming number of examples that showcased successful cost-cutting where brands emerged strong and set for growth.
Amazon as an example
A case in point is Amazon. Among competitors focusing on intuitive simplicity or data, Amazon focused on saving in order to offer customers the best deals. This focus has contributed in a significant way to Amazon’s successful shift from selling online books to becoming a giant in the technology field.
The reality is that, in the current economic and competitive environment, cost-saving is here to stay, in one form or another. I suppose the trick is how to navigate so that the brand’s needs and cost-saving requirements are aligned.
Cost-cutting is never easy and often urgent, so many management teams often seek low-hanging fruit such as capex, sales budgets, and marketing (often some of the big numbers on business income statements, besides salaries). What I have often seen applied is the announcement of cuts across the board to reach x-target. A cut-down on extras, limited travel, maintenance rather than investment in new capital expenditure; reducing brand investment to make annual profit targets.
Long-term vs short-term
This approach is tough on long-term growth plus everyone’s confidence in the future. It’s a draining process but it may be useful in the short term to prevent retrenchments and, if channelled properly, might help provide fuel for growth.
Unfortunately, many times it is not applied for short bursts only. Frequent brand-budget cuts may not make an immediate dent but as investment is cut without thought on how to channel that spend to different efficient activity, brand presence is lost in the market and the relationship with consumers may wane. And as the behaviour becomes cyclical, budgets are cut and targets are met, then the expectation is that more can be done with less. Brand growth is limited.
This approach is either applied unilaterally (ie everyone must save 15% on costs) or it handed to team managers or directors to save costs. In the everyone-be-responsible-and-cut-your-own-budgets approach, each manager is chasing his or her own view and agenda. In this silo mentality, departments could compete to be cost-saving heroes or limit their cuts so they do not have to experience as much of the pain.
Win some, lose some
Every brand manager knows to expect a budget cut by or just before mid-year, so this leads either to the spend or commit-as-much-as-possible in the first six months so your brand is less impacted. If not led by a common goal with a clear agreement on how to reach that goal with a role for each department, some brand teams or departments win and some lose. Ultimately, this disorganised, silo-approach often results in too much investment in brands or activities that are not the big growth engines of the business.
It is critical to first understand the business in great detail, and the cost drivers. It is critical for the saving initiative or plan to focus upon the real cost-drivers, or it will not be sustainable as a strategy.
For example, one of General Electric’s strategies was to only focus upon markets where it could be no. 1 or 2. This resource-prioritisation strategy was established and rolled out throughout GE. Understanding key drivers of costs and value for its specific business led to a clear strategy to drive success.
Brand-value chain
On a smaller scale, this means that brand managers need to understand the brand-value chain and be more commercially focused than ever before. With deep insight into the key areas of the value chain, brand teams understand what adds the most value, making where to cut costs not only easier but more-aligned to growth strategies. This approach identifies clear profit generators so resources may be allocated in the correct weighting across areas.
Yes, some brands will need to take a back seat but there are ways to reconfigure spend to focus upon the drivers that differentiate — significant mass media in year one, focused digital in year two, etc. With a strategic approach, there is more investigation of spend options and planning to ensure market opportunities may be exploited.
Ultimately, this calls for marketers to carefully balance great strategic thinking, creativity and commercial acumen. Brand teams are required to understand costs and profit engines — more than ever before — for competitive edge and long-term growth. There is no use in fighting this; one has to entrench it within the expanding role of marketers.
How to
For cost-saving to stick and not to make this the sole focus of a marketer’s job:
- Base cost-saving programmes upon brand-growth strategies so the items that drive growth or capabilities required for growth are not impacted — marketers must accept that, for some things, good enough is just that.
- Set an agenda for the journey ahead and build a path to drive the change through the business so that all are aligned
- Be disciplined and ruthless in execution of the strategy
All that remains is to monitor and manage carefully, so you can tell when or where it is time to shift from cost-cutting to a full investment phase. Happy costing!
Erna George is the new marketing executive of Pioneer Foods’ Cereals & Other division. She has worked on both client and agency sides with diverse brands and categories — from FMCG, alcohol and agriculture to financial services and entertainment — in countries across many geographies, including South Africa, Mozambique, Nigeria, Kenya, India, Philippines and Brazil. She contributes the monthly “Fair Exchange” column, concerning business relationships and partnerships in marketing and brandland, to MarkLives.
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