Sometimes budget cuts are inevitable. If you know you need to adjust your spending, make sure you’re saving the right money in the right place to maximize the effect of the remaining dollars and minimize the negative impact on ROI.
While withdrawing media spending may seem like an obvious way to reduce costs and achieve financial goals, the benefits can be relatively low. According to a study by Nielsen on media planning, only 25% of channel-level investments were too high to maximize ROI, and the median overspending within this group was 32%. Reducing spending will improve channel ROI by 4%, but the brand will see a significant drop in sales due to a drop in advertising-driven sales.
While consumers may want to increase promotions as they cut spending, this approach has its own challenges. Regular promotions may require consumers to purchase only when there is a promotion, resulting in reduced sales of regularly priced items and margin compression. According to the Nielsen marketing mix model, promotions also tend to be low for promotions – 45% lower than media – only a small fraction of promotional sales are truly incremental and promotional sales should be much higher to make up for lost margins.
Instead of relying heavily on promotions, consider what channels can be reduced or reduced while you minimize the impact on ROI. If a channel already lacks results, it is recommended to reduce it completely and reallocate expenditures to channels with better metrics and higher ROI potential.
Remember that ultimately, whatever media mix and budget allocation you decide, all spending is better than spending nothing at all. According to the Nielsen Marketing Mix model, off-air brands can expect to lose 2% of their long-term sales every quarter, and if media efforts resume, it will take 3-5 years to recover from stock losses caused by downtime. And revenue isn’t the only thing that can struggle if you cut media spending – marketing accounts for 10%-35% of brand shares, according to Nielsen data.
