Engagement hot media topic—The Copernicus MZine

Suppose you're cruising along the highway, not too fast but not too slow, at 70 miles an hour. You keep the oil topped off at five quarts. Everything is running smoothly.

Then something happens—say the price of gas starts going up. You know you don't want to drive any slower; you've got to keep up with traffic. And you can't drive less often; you've got to get to work, get the kids to school and piano lessons, etc. You start thinking about other places to cut back. You're not all that knowledgeable about oil's contribution to the overall performance of your automobile, but it seems like a place you could save a few bucks. You pull into the service station to change the oil and, instead of five quarts of oil, you put in only three. The engine runs hot, nevertheless the next oil change you cut back to two quarts. The engine sputters a bit, but the car still runs. Finally, you drop the oil down to one quart. It sounds like a jet engine with all the grinding and it smells like something is burning when you drive. Eventually the engine freezes and you find yourself stranded on the side of the road on the phone with AAA.

Of course, no car owner in their right mind would ever consider driving their car without oil to save money. It's just insane. The cost of repairing the significant damage done to the engine by driving at higher speeds—or driving at all, for that matter—without a lubricant far outweighs the expense of keeping the oil filled as recommended by the manufacturer, mechanics, and other automotive professionals. But what they wouldn't dream of doing to their cars, American CEOs routinely do to their companies. Without any real understanding of marketing's contribution to profitability, they are slashing marketing—the oil in the engine of corporate growth—to save money.

Where firms once sought to out-cheap the competition when it came to the price of their products and services, they now appear locked in a duel to see who can get their marketing budgets closest to the bone. "Unexpected costs such as high fuel prices and fall hurricanes made companies reign in spending [in 4Q 2005], and marketing is often the first spending item to be cut," explained Carl Howe, a principal of Blackfriars Communications which distributes the Blackfriars Marketing Index, a quarterly survey of senior business executives from a cross-section of industries about their marketing budgets, attitudes, and spending. Based on responses to the survey, the firm projected a "timid" start to 2006, which, from recent actions from major marketers, seems to be becoming a trend for the year.

At the very time it's losing share to its surging, smaller rival Advanced Micro Devices, Intel just announced plans to cut $600 million out of marketing and administrative costs. A few weeks prior, in a year where it pledged to turn around the firm with new product launches and promotion of a new pricing strategy, GM said it would drop $200 million from its ad budget. Other recent marketing budget cut announcements have come from a major oil company, a packaged goods giant, and a large credit card firm. We could go on and on.

CEO's sudden openness to non-traditional advertising these days is driven by their interest in cheaper marketing options, ROI—about which they have little to no information anyway—be damned. More and more are inviting bean-counter management consultants who "seem more interested in managing marketing expense, understanding return-on-investment and keeping costs down," as reported in Ad Age, to "fix" marketing.

The only way we can explain this insane behavior is that CEOs have a desperate need for Wall Street's approval. While we think this over-riding need for a thumbs-up from analysts and others on the Street is misguided, to say the least, just for the sake of argument we'll treat it as a reality to doing business today. So given the reality, the next question for CEOs to ask is not where can we cut spending, what about marketing, but what does Wall Street want? They want to see profits, yes, but at what cost? Has anyone asked analysts and major investors who might influence stock price, if we cut our spending on marketing—so we would do less advertising, launch fewer new products, offer less customer service—are you more likely to recommend our stock and/or buy it? Do you believe if we cut our marketing budget we will be better able to deliver profits? Does it make you more confident about our firm as a short- or long-term investment opportunity?

No one wants a car that has been operated without oil—it's damaged goods. Likewise does anyone want to invest in —or recommend someone else do so—shares in a company that's operated with a purposely anemic marketing budget? We wouldn't and given the growing number of comments that companies need to pay more attention to marketing, launching successful products and services, and building strong brands we've seen and heard coming from Wall Street, we can't imagine we're the only prospective investors who look beyond the income statement to see what companies are doing to get and keep customers.



				June 2006