As another recession looms, marketers need to improve how they communicate the value of their work to chief financial officers, argues Cathy Taylor, WARC’s US Commissioning Editor.

Here we go again.

The global economy has been sitting on the familiar precipice leading into recession for months now, and most marketers of the world are in an equally familiar posture: a defensive crouch, watching budgets get cut, despite all the evidence demonstrating they should be standing tall and using this anticipated downturn as a time to build their brands for the long term.

WARC’s monthly Global Marketing Index puts data around what we all know is happening. The March 2023 report shows that in every region of the world, marketing spend is declining. Based on an index value of 50, in which scores over 50 indicate growth, and totals below this threshold point to a decline, the global value is at 45.6. The index for the Americas is lowest of all, at 42.0.

Look back at economic downturns over the decades and you’ll find a similar story. In its 2022 Leading National Advertisers report, Advertising Age notes that US marketing budgets declined in every recession dating back to 1991. And it explains that probably the only reason they didn’t decline during the recessions of the 1970s and 1980s was because that was also a time of double-digit inflation, which affected advertising costs.

This juxtaposition between the vast evidence around why brands should continue long-term marketing investment in times like these, contrasted with the wrong-headed, budget-slashing reality, is probably the industry’s best example of the old maxim: “Insanity is doing the same thing over and over again and expecting different results.”

Let’s be clear: Companies can’t cut their way to building stronger brands. But, more importantly, this disconnect is a sign that the problems marketers perpetually have in preserving their budgets doesn’t lie with having insufficient evidence.

Making the case

Reviewing this evidence undoubtedly yields some compelling insights:

  1. A focus on short-term activation damages long-term growth. Per Analytic Partners, upper-funnel tactics are 60% more effective over the long term and 25% less effective over the short term.
  2. Saving marketing dollars in the short term leads to the need for greater investment in the long term. Per the Boston Consulting Group, companies that cut brand-marketing spend not only see a 0.8% decline in market share, but need a future investment of $1.85 for every $1.00 saved from a short-term cut in brand spending.
  3. Shutting down TV ad spending entirely, even temporarily, results in severe impacts. Per Kantar Millward Brown, 60% of brands that did so for six months during the 2008 recession saw their brand image decrease by 28% and brand usage fall by 24%.
  4. The solution to a tight budget isn’t reducing media spend on long-term marketing, but optimizing it for maximum effect. Per Nielsen, return on investment can be as much as 45% lower for promotions than media, because promotional sales yield little in the way of incremental sales, and those sales must be higher to compensate for lost margins.

Convincing the chief financial officer

The holders of the purse strings often have something to say about these metrics – and, frequently, it’s a snide “So what?!”

Having seen this recession movie play many times over the last few decades, I think it’s time to look elsewhere for the root cause of the industry’s spending woes. Why? Because, as convincing as the evidence to keep marketing investment is – despite economic headwinds – it’s obviously not convincing outside of the marketing industry choir.

One crucial thing that’s needed is a better conversion rate not among customers, but among chief financial officers (CFOs).

That’s why a recent WARC webinar was focused on ‘Effectiveness and the CFO,’ and looked at how to bridge that gap in understanding between marketing and finance. As an industry, we’ve long shaken our fists at siloed thinking, but it’s usually part of an intramural skirmish pitting various marketing disciplines against one another.

Meanwhile, the biggest division may be the one that disconnects marketing from finance.

The webinar’s two guests, Pam Forbus, SVP/Chief Marketing Officer at liquor company Pernod Ricard North America, and Nancy Smith, President/CEO of analytics consultancy Analytic Partners, together mapped out the issue’s contours, and offered some strong advice.

Central to those proposed solutions – which include structuring internal organizations to increase the probability of success and focusing on metrics that look at effectiveness outcomes – is that marketers should proactively take the lead here. Encouraging finance to understand your world is one vital step. But it’s even more important to make it your business to understand theirs.

As Forbus noted, “We all study behavioral economics for our own ways to nudge consumers along the path to purchase. We’ve got to do the same with our CFO, our CEO, the C-suite.”

Bridging that gap also involves proving effectiveness together. As Smith said, “Probably one of the most impactful opportunities is to get the finance organization involved in defining how you calculate ROI.”

It should be easy to see how making this a joint practice breaks down silos, giving both disciplines some ownership of effectiveness outcomes.

Certainly, better CMO/CFO cooperation isn’t the only thing holding budgets back. As one example, research from the Financial Times several years ago found that many marketers suffer from “a lack of confidence in how to support brand growth,” including how to measure it. Yikes.

Still, it’s clear that the evidence alone on why brands should focus on long-term marketing isn’t moving the budget needle in most organizations. It’s time, not for more research studies, but for a new approach.