Sunday, August 22, 2010

Oh No! Don't cut Advertising and Marketing

One of the CFO Services available to my clients is an expense review. During this analysis I look for alternative vendors with more value or negotiate with existing vendors for lower pricing. No matter how good the CFO is in cutting expenses I have never seen a P & L with zero expenses. Eventually you are going to need sales growth.

With this difficult economy still continuing, businesses are still looking to cut expenses which is a good thing and cutting expenses should be an ongoing practice no matter what economic condition we find ourselves in. However as this current economic difficulty continues I see businesses now cutting into their advertising and marketing budgets. Like other expenses, a review and analysis of advertising and marketing expenses should be ongoing no matter what economic condition we are in. When this analysis is done and certain advertising is determined to be ineffective then it should be cut. I am fine with that. However, what I am seeing is that business owners are starting to cut more effective advertising and putting off new promotions that they believe will be effective and in my view this should not be done. Cut elsewhere but not advertising and marketing unless said advertising and marketing is determined to be totally ineffective. As a CFO, I am well aware of the risks involved in advertising and marketing. However, I am also aware that businesses owners cannot retreat forever or they will retreat right into bankruptcy court.

I am also well aware that in difficult economic times your most effective form of advertising isn't as effective in difficult economic conditions as it is in peak economic conditions, but it is still your most effective form of advertising and cannot be cut. Making the decision to keep more effective advertising going and making the decision to take on new advertising and marketing opportunities that you believe will work is where the risk of entrepreneurship in its most precious and sacrosanct form comes to the front. This is what separates the good business people from the not so good business people. More importantly this is what separates you from your competitors because your competition is retreating!

When someone either cuts more effective advertising and marketing or passes on a new advertising and marketing idea that they really like, I am reminded about the story of the Hot Dog Vendor.

A Man lived by the side of the road...and sold hot dogs.

He was hard of hearing, so he had no radio. He had trouble with his eyes, so he had no newspaper. But he sold good hot dogs.

He put up a sign on the highway, telling how good they were. He stood by the side of the road and cried, "Buy a hot dog, mister!" And People bought.

He increased his meat and bun order, and he bought a bigger stove to take care of his trade. He got his son home from college to help him. But then something happened. His son said, "Father, haven't you been listening to the radio? There's a big Depression on. The international situation is terrible, and the domestic situation is even worse."

Whereupon the father thought, "Well, my son has gone to college. He listens to the radio and reads the newspaper, so he ought to know." So, the father cut down on the bun order, took down his advertising sign, and no longer bothered to stand on the highway to sell hot dogs.

His hot dog sales fell almost overnight. "You were right, son", the father said to the boy. "We are certainly in the middle of a Great Depression."

If the business is cutting into advertising and marketing because the advertising and marketing is ineffective that is one thing, but if the business is cutting more effective advertising and taking a pass on new advertising and marketing opportunities that they believe will be effective, I think they need to re-think that!