September 15, 2018

by Nigel Hollis

In theory the application of zero-based budgeting to marketing ought to be a good thing: no more budgets based on historical spending and funds allocated between options based on current performance. What is not to like? How about the fact that there is often a huge divide between theory and practice?

Let’s be clear, just as zero-based marketing ought to be a good thing in theory, my concerns about its application are also theoretical. However, knowing how marketing is regarded by many in the C-suite – a cost not an investment – and having seen similar trends sweep through business in the past, I think I have some basis for my concern.

This article makes the pitch for the sensible application of zero-based budgeting to marketing. The authors are very clear that the objective of zero-based budgeting is reallocation of funds to programs that are delivering better returns. After noting that the application of zero-based budgeting principles to marketing can save between 10 to 25 per cent of spending in certain categories they state,

“…with the rare exception of industries that are in a global state of decline, a well-executed reinvestment in high-ROI opportunities will deliver a greater return than “banking the savings” will.”

Whether or not any savings are reinvested is, of course, going to depend in large part on the mindset of the people who implemented the budgeting program in the first place. I suspect the desire to pocket savings is far more pervasive than the McKinsey team might think. Unless a brand is growing profitably the allure of an improved quarter’s results might prove stronger than the need to continue building the brand.

All too often, brand-building is regarded as a discretionary cost, not a necessary investment. The assumption seems to be that a strong brand will remain strong with reduced support. Unfortunately, this is not the case. Beyond the negative impact of competitive activity, in the absence of ongoing marketing support brands simply lose salience: people become less likely to think of them in relation to purchase occasions and the associations that make them worth paying for also fade with time.

Opportunities to save costs are always alluring in business because they are easily quantified, as a result practices get accepted at face value and only later are the full implications realized. Take the example of open-plan offices. Judged solely on the basis of cost-saving, open-plan offices seem like a great idea, which is why so many companies have adopted them. Judged on a wider basis, including productivity, quality of communication and employee self-esteem, a different conclusion might be reached. A recent article in The Economist reports research that switching to open-plan offices reduced face-to-face communication, increased email traffic (and we all need more of that) and, in one case, reduced productivity.

Given that the basic premise of zero-based marketing is sound, it seems to me that the real challenge is to make sure it is implemented correctly and that requires understanding how brands really grow and prosper, not just looking at short-term performance and costs. I will return to this topic in a later post but meanwhile what do you think? Is zero-based budgeting an opportunity or threat to effective brand building?

 

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