Managing the Marketing Budget in a Downturn

By?Geoffrey Moore

Author –?The Infinite Staircase: What the Universe Tells Us About Life, Ethics, and Mortality

For a whole cohort of executives in high tech, the coming downturn will be their first.?Those of us who have been here before know that, like most everything else in business, downturns can be managed to your advantage, but only if you know the playbook. ?The lead chapter of that playbook is titled Operational Excellence, and a cardinal principle within it is, Minimize Waste.?

This seems like an obvious idea, but few of us realize just how much waste can get baked into our operating models over a decade or more of good times.?Marketing represents a good case example.?Because it funds a host of different activities with surprisingly divergent objectives, you can think you have budgeted for one thing only to discover that the money got spent elsewhere.?Here is a chart that helps illustrate the point:

Every one of these five pillars of spend can generate terrific returns under the right circumstances.?Conversely, under the wrong ones, they just create waste.?

In good times, when it is critical to capture growth opportunities, the bulk of the marketing spend normally goes to field marketing, focused on engaging with prospects, and product marketing, focused on differentiating from competitors.?But when times turn tough, top-of-funnel lead generation isn’t as productive as it used to be because there are fewer pre-approved budgets to tap into, and even when they are there, purchases are still subject to CFO reviews that can delay or simply cancel all the sales efforts you put in.?Similarly, product marketing is less successful in tough times because customers are less interested in how you compare to the competition than they are in how well you can address their current woes.?When you show up to tell your story, they tune out because they only want to talk about theirs.

In a downturn, marketing spend gets a bigger bang for the buck if you focus your prospecting on segment-specific marketing programs, emphasizing the use cases that are causing your prospects the most pain and that they see as the most urgent to fix.?Now, when you talk about their story, you are playing their song, and they are happy to sing along.?To be sure, segment campaigns have much smaller TAMs (Total Available Markets), and in growth times, this can be a big negative, particularly for larger enterprises.?But in a downturn you should not care about TAM, you should care about SAM (Serviceable Available Market), that is, the prospects that you have a good chance to get all the way across the finish line.?To be sure, your top line will go down, but your bottom line will hold up much better.

Corporate marketing also can pay off in a downturn if your enterprise is sufficiently well positioned to consolidate customer spend from a host of point products onto a single integrated platform—namely, yours.?That’s because reducing TCO (Total Cost of Ownership) brings immediate relief to customers’ bottom lines.?To succeed here, you need to have a suite already in market, with a strong anchor offering that you have supplemented with “good enough” add-ons.?These you will use to displace the point-product vendors’ more differentiated offers, selling the value of integration in reducing complexity and cost to manage.?CFOs love this kind of offer, and during a downturn, they have the clout to override the inevitable grumbling that comes from the rank and file, who still have allegiance to the point products.?

Finally, if you have the cash or the stock currency to be acquisitive, downturns are a great time to buy companies, particularly those that demonstrated success in good times but lost their way when the headwinds struck. ?Your goal here is to insert them into your Performance Zone as quickly as possible and install leaders strong in operational excellence.?Again, there will be grumbling, but as you demonstrate traction, it will convert to gratitude.?Downturns are also a good time to employ strategic acts of generosity, be that with customers that might otherwise churn out from your installed base, or with partners for whom an extra point or two of margin could be game-changing.?To be sure, there will be a get for every give here, but the giving will not be forgotten.

That’s what I think.?What do you think?

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