One of the most common — and riskiest — reactions by company directors and executives to tough economic times is to slash the marketing budget. Some companies take the knife to their marketing expenditure in the mistaken belief that money spent on advertising, sales promotion, direct marketing and public relations is a cost, not an investment. Although marketers say that Australian company boards’ understanding of the marketing function has improved greatly in the decade since the 1990–91 recession, too many companies are still ignorant of the risks they run by using the marketing budget as a sacrificial lamb.

Smart companies know that a downturn offers an opportunity to increase their market share and seize on competitors’ weaknesses. That does not mean allotting more funds to the marketing department, but the marketing focus should be honed as finely as possible. The key element is the customer: companies that understand their customers’ needs in difficult economic times, that build relationships with them and convince them of a product or service’s relevance to them, will survive and even flourish.

The global director of marketing for government business at Accenture, Caroline Trotman, says not all company directors think that surviving a recession means cutting marketing expenditure; however, too many still see marketing as an early area of focus. ‘Marketing is associated with spending rather than value in most directors’ minds because they do not know how to measure the contribution of marketing. It is easy to cut because they cannot see how it relates to the bottom line.’

The Victorian president of the Australian Marketing Institute, Roger James, agrees: ‘It is really unfortunate that marketing is viewed at board level as discretionary expenditure rather than key to the business’s operation. Marketing needs to be presented to the rest of the business world as central to the functioning of business. It is seen as a support function to sales, but, of course, sales is just a part of the marketing process. Businesses facing tighter times should realise that there is an opportunity to gain market share when other companies are being more conservative. Now is the time to get out there and consolidate share through increased marketing activity . . .

‘Brands, customers and information about them are the most valuable assets for a company in what I call the age of marketing. A recession is a perfect time for marketers to demonstrate that these are the assets you have to look after.’

The principal of the media planning agency bellamyhayden, Simon Bellamy, says a recession is an ideal time for smart companies to gain the upper hand. ‘So many companies resort to doing less of the same, and as a result they lose a competitive opportunity. It is a common trait to resort to the tried and tested approach, safe and traditional, at a time when innovation and creativity is at its most important. The knee-jerk reaction simply to slash spending across the board without looking at ways of using that marketing expenditure differently is so dangerous. It is amazing how quickly brand equity slips, and you have to spend more to get it back when times improve.’

Required

Assume you are a newly graduated marketing student. You recall from your studies that accounting plays a vital role in the decision-making processes of every commercial organisation. Your employer, the Trendy Tie Company, is suffering from a downturn in economic conditions, and in preparing the budget for 2015 they have reduced the marketing budget by 10%. The marketing manager suggests that if the budget cannot be increased to the previous year’s level, then you will lose your job.

Using the article from BRW as a reference source, prepare a draft report for the marketing manager to submit to the company’s accountants explaining why they should not reduce the marketing budget.

In drafting your report, explain why marketing might be considered an investment rather than a cost, why is it important from an accounting point of view, and how the funds could be used more effectively. You should also consider what is meant by ‘brands, customers and information about them’ being the most valuable asset of the company. Remember that the report is being written to the company’s accountants and you must justify your position in terms of the best financial interests of the company as opposed to best marketing practice.