Marketing cuts accelerate the shift to digital

Cuts in marketing spending are disproportionately affecting traditional channels, accelerating the shift to digital.

In economically uncertain times, it’s not only retail that feels the heat first. It’s also marketing. When the going gets tough, companies cannot resist cutting their marketing spend. This is because it is relatively easy to do. It doesn’t affect production, and the results show almost immediately. In the medium or long term, however, it can hurt, but even these cuts can be reversed quickly. Spending more money on advertising isn’t really a problem when you suddenly get the budget.

When Neil Patel surveyed marketeers about their spending plans for this year, the sentiment he found was mixed, but positive: more marketeers intended to increase their spending than decrease it. In June, Group M’s This Year Next Year 2023 Global Mid-Year forecast expected global advertising revenue to grow 5.9% in 2023 and 6.0% in 2024 (excluding U.S. political advertising – remember, 2024 is a presidential election year).

According to Group M’s forecast, the internet already accounts for roughly two thirds of all advertising revenue – not counting the digital extensions of traditional media. The top 25 global ad sellers are pocketing three quarters of total revenue. A lot of this money goes straight to the purses of Google, Meta, Amazon and, to a lesser degree, Apple.

On the other hand, the same bunch of companies are now amongst the world’s largest advertisers. The situation is difficult to see clearly as they sit on both sides of the table. How does the money flow from the left pocket to the right pocket?

Further cutbacks?

Two-thirds of the way through 2023, the global economy continues to wrestle with high inflation and slow growth. In the meantime, the US economy seems to have postponed or even avoided the threat of recession. The share prices of the four tech giants have recovered from their winter lows, with Apple and Microsoft even hitting new all-time highs.

At the same time, Big Tech has not only laid off many people, but also made massive cuts to their marketing spending. Given their sheer size, including as marketing spenders, this has impacted the advertising conglomerates. What do these cuts tell us about the current state of marketing? Are the major tech companies leading the way and pointing to further cutbacks?

Marketing is, along with the whole economy, still in a phase of readjustment. The polycrisis has forced an adaptation process – i.e. cuts – that will continue at least as long we see high inflation rates. For marketeers, inflation means that even if their nominal budget would remain the same, they couldn’t continue to do what they did before.

In tough economic times, budgets are under severe scrutiny. In early 2023, Mastercard CMO Raja Rajamannar called it good news that these testing times are due to continue

because tough times are when marketing most needs to prove its value. Testing times force us into good habits and ensure that we demonstrate our impact both externally and internally. By contrast, when the economy is growing fast, the temptation to slowly abandon best practice can grow as life gets a bit easier.

Thus, we can expect further cuts in areas where marketing cannot prove its value. In theory at least, this could favour performance marketing over brand marketing. However, what marketeers should really do is cut through the clutter. It’s not sufficient to simply cut brand marketing and shift what remains of your budget into performance marketing.

Back to cold, hard value

Instead, you need to adjust your marketing system. This isn’t a new task, and it may become harder in times of budget cuts. In essence, it’s about linking brand marketing and performance marketing, creative and design crafts:

It’s not that the brand, or creativity alone, will solve everything. Neither will media, technology, or data turn out to be the holy grail.

All this must be integrated to create a solution, and design has to play a crucial role here.

The marketing system is under pressure to evolve. CMOs will cut away what they deem no longer necessary and slim down their organisations. On the other hand, there are some areas where the majority of marketeers surveyed by Neil Patel significantly indicated their intention to increase their budgets: SEO (68%), content creation (83%), community building (84%), and podcasting (92%). Meanwhile, traditional ad spending intentions were down for all channels.

According to Gartner’s The State of Marketing Budget and Strategy in 2023, CMOs were also planning to cut investments in continuous improvements and optimisation of existing martech solutions. This is a trend that will most likely backfire, affecting martech utilisation rates and ROI.

In essence, we’re back to cold, hard value on all levels of the marketing game: for the people who buy the products, for the marketing organisation, and for the company. Everyone has to reduce costs.

  • People adjust their spending to the products they get the most value from.
  • Marketeers adjust their spending to the channels they get the most value from.
  • Companies adjust their budgets to make sure they get the most value out of their spending.

And this is where brand marketing comes in (again). Driving short-term sales through performance-driven tools and channels isn’t enough. It’s about building long-term brand value. It’s the old game, but with new tools, channels, players, and systems.

The polycrisis as catalyst

There is a lot of structural, systems change driven by the seminal shift to digital channels, and the polycrisis (or permacrisis) acts as a catalyst and accelerator. Marketing cuts are disproportionally affecting the old, outdated stuff. CMOs are cleaning their house to get rid of it. In better economic times, this would have happened more slowly, if at all.

Even if spending for digital marketing wouldn’t grow in absolute terms, its relative share would still increase. It’s the same phenomenon we see in retail, where brick-and-mortar declines faster, accelerating the shift. Or, as strategic communication specialist David Fish has put it:

Companies are still spending, it is just a question of where that money goes.

Last updated on October 18, 2023. Photo by Sirisvisual on Unsplash