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27 October 2022
Logitech slashes marketing spend after post-Covid slump
PCs, computingMarketing in a recession
Logitech, the consumer electronics brand, is slashing marketing and sales spending as it struggles with declining turnover and tumbling income, forcing difficult decisions.
Why it matters
Logitech benefited from prolonged working from home during the pandemic as workers and employers stocked up on keyboards, mice, microphones and webcams for home office set-ups. But the brand is now struggling to find ways to ride the momentum.
According to the company’s Q2 2023 earnings call, nearly all of Logitech’s product divisions reported declining sales in the quarter: pointing devices were down 2% to $185m; keyboard and combos fell 15% to $200.8m; gaming was down 10% to $297.6m; and PC webcams shrank 36% to $60m.
Marketing spend tightens
Consistent with the previous quarter, Logitech further reduced its expenses, most notably in sales and marketing, which was down 21%, even as the company committed to investing in product design and development. Research and development spend increased by 3%.
“We’re pulling back in different areas throughout the business, including marketing, where we pulled back pretty significantly,” said Bracken Darrell, President and Chief Executive Officer, on the earnings call.
“But [it’s] really on that top-of-the-funnel marketing that we feel like, at the end of the day when the markets are generally softer, top of funnel marketing’s not as effective. Whereas search engine optimization, the things you’d expect us to keep investing in, we’ll certainly keep investing,” Darrell said.
Digresses with marketing experts
Darrell’s comments contrast with established marketing thinking on investment at the top of the funnel. In a recent WARC report, marketing effectiveness expert Les Binet is quoted as saying: “In the current rising interest rate environment, it may be necessary to cut budgets a bit, but don't cut them too much. And if you can, maintain or increase your share of voice by cutting less than your competitors and then optimise the rest.”
Likewise, Mike Campbell – Head of International Effectiveness at Ebiquity – warned brands against cutting investment in brand building and becoming over-reliant on performance media, which damages brand equity. “Despite the tough economic climate ahead, sustaining marketing investment will be the right approach for many brands,” he advised in the same report.
“Marketers should resist the lure of overinvesting in performance media while at the same time underinvesting in brand building media. Focusing on lower-funnel over higher-funnel activities fundamentally weakens brands and does more harm than good,” he argued.
This was a lesson that ASOS, the e-commerce fashion portal, recently learned the hard way. ASOS’s profits plunged 105% last quarter, ultimately the result of putting more than 80% of its spend on performance marketing while “leaving insufficient spend focused on driving longer-term brand awareness” or developing new products, according to the company’s CEO.
Will it pay off?
While time will tell if Logitech has made the right decision, the company’s chief financial officer indicates that marketing investment may bounce back if market conditions improve.
“Even when you look at our marketing spend, though, we’re really aligning it with sales,” said CFO Nate Olmstead. “And if you look back historically, we’re kind of at levels right now that are consistent with the level of investment we’ve had there before.”
He added that the company hadn't cut back on all marketing, as Darrell suggested, but are being “very thoughtful about where it makes sense to invest now. I think if conditions change and we start to see more revenue growth and gross profit expansion, you may see us increase those investments again.”