While being deprived of budgets, CMOs are now confronted with two fundamental questions:
- Which core marketing objectives do you defend?
- How will you organise your marketing activities to deliver on those objectives?
In the current Covid-19 crisis, sales & marketing expenditure is spotlighted as one of the main areas for cost reductions. As Avaus’ recent survey highlighted – cost cutting is now inevitable for all but 10% of respondents, therefore the best course of action is to approach it proactively.
Primarily, you should identify and terminate activities that do not have a clearly defined purpose, or that do not support your core objectives. When in doubt, trust the data. If you lack data, you should terminate. This exercise will bring you closer to understanding which 20% of marketing activity generates 80% of the value.
In Nordic firms, the average marketing spend is 4-6% of revenue, including marketing employee costs. There is significant variance around the average – B2C brands spending in excess of 20+% and B2B companies often below 2% of revenue.
Data from previous recessions, combined with current economic forecasts, indicate average cuts of 15-20% in marketing spending, not including salaries. Accepting that cost cutting is now inevitable, the best course of action is to approach it proactively.
As Gartner notes, most current CMOs have not experienced this kind of emergency, given the relative stable spending environment of the past 10 years. At the same time, the job has become more difficult due to the complexity of different marketing competence requirements, fragmentation of the media landscape, proliferation of digital channels, and pressure for conversion as well as brand building.
Starting point – the four big buckets
Marketing spend is poured into four major buckets. Cutting into just one of these will not deliver your required savings; cutting into all of them will make it hard to deliver on your core marketing objectives.
Marketing spend – The Four Big Buckets
Source: IRM, Kantar, IAB, IDC, Avaus 2020
This is why the current situation calls for the reorganisation of which marketing you do, as well as how your marketing is done.
Maintaining the perspective that marketing spending delivers more revenues is now more important than ever as it is the key to justifying the budget level that you will end up with. Here, we reiterate the mid-term recommendations first published in our blog “Covid-19 Response #3: How Should Marketers Respond?”
Recommendation 1: Focus on your existing customers and customer profitability
All core activities should improve customer profitability. Simplifying your KPIs will help your internal communications and make judgements easier when uncertainty is high. Customer profitability puts tight controls on customer-related costs. It will allow you to better manage your bottom line during periods of top line decline.
Firstly – you want to increase the value of your best customers – Do not throw away margins by giving discounts to customers who would buy the product anyway. There are many textbook examples in the Nordics from retail, hospitality and subscription businesses that give away huge discounts to attract customers, which will create double negative profitability impact.
Secondly – you need to address your unprofitable customers – Swedish eTailer Boozt blocked their unprofitable customers, which led to a remarkable improvement in results. This is a demonstration of what may be done when you monitor your CLV. Surprisingly few marketing organisations know their CLV value, and even if they do, they rarely optimise marketing against it.
Thirdly – naturally – reduce the risk of customers leaving
Preventing churn is the best strategy for short term profitability. Have you doubled down on making sure you know who will churn, and that you are addressing them in all channels and interactions? Most marketing organisations are not addressing this enough. Now is the time!
Recommendation 2: Increase automation
Workflow automation in most marketing organisations is still at low levels. Our studies show that the labour-intensivity of marketing has grown 25% over the past decade, with in-house personnel and agencies now accounting for 43%-48% of overall spending. If the media buy and above-the-line service costs are included, total labour-intensivity is now well over 50% of the total marketing spend.
The rise in labour-intensivity has been an unintentional consequence of digitalisation. The proliferation of touchpoints, technologies, channels and associated specialist skill requirements have created a record number of new marketing positions. Overlapping roles and responsibilities, and non-scalable activities should be identified and re-assessed.
Companies have started to implement different types of automation that are not sufficiently leveraged. By further standardising, and automating processes in marketing, sales, and service, you will be able to increase efficiency significantly.
We see the biggest potential to address in 2020-2021 as:
- Simply automating hundreds of customer journeys, not tens, as most have implemented by today.
- Improving efficiency in content creation
- Reducing inbound service requests and reducing call handling time
This is a question of scale – not individual use cases that you are piloting. Process automation requires systematic, diligent, processual leadership and following the results with clear metrics. The leading companies who have been doing this systematically over the last couple of years are reporting that they’ve automated hundreds of processes.
Recommendation 3: Increase use of your own (1st party) data
Your own data (including not only transactional CRM data, but also web, app, service, social) is the key to how to better address and focus on your most valuable prospects and customers.
As digital spend in the majority of Nordic companies represents more than half of total ad spend, buys of programmatic, search and social should be thoroughly audited and scrutinised. By introducing automation into your digital advertising campaigns, you can reduce waste and increase conversions – with a target of increasing efficiency by up to 25%.
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Recommendation 4: Work with advisors
Appreciate external perspective and sparring aid. Re-evaluate your advisory relationships. Will they provide optimal solutions and help you to reduce your marketing cost base? Choose partners based on their ability to deliver on customer profitability, automation and data leverage. And don’t underestimate the need for a scapegoat, communications and follow up – things that are core to a thorough transformation and easily left undone when the daily commotion sweeps you away.
At Avaus we have been working with marketing efficiency, data and automation since 2007. We can plan, execute, and set up and run change management teams together with you. Let us help you in getting your restructuring under way.