The cost of cutbacks

Slashing brand budgets may not yield even short-term saving

Alexander L Biel

Extensive macro analysis in two continents shows that the temptation to retrench during a down-turn generally has a serious long-term ROI cost - and can hurt the current account as well.

Then the economy turns down, businesses naturally search for ways to cut overheads. Marketing budgets in general, and advertising budgets in particular, are often vulnerable targets, since they can be cut on relatively short notice.

But do budget cuts really help even short-term profitability and what, if any, are the down-side risks of pulling the wagons into a circle?

Not all marketers of course retreat when the economy heads South. Here is what Toyota's US head of marketing, George Borst, said to Wall Street Journal reporters just last fall, as recession drums were starting to seriously sound across the Atlantic: "We see this as a time to strengthen the brand image of Toyota ... Toyota has posted a healthy increase in its fourth quarter spending..."