Since the great recession hit, it seems that marketing budgets have been in the sights of cost cutters throughout most companies. Immediately following the recession, we saw budgets decrease by 50% or more.
Now that the budgets are moving back up, our lessons from the penny-pinching days of the recession stick with us. That isn’t a bad thing, but I believe it can cloud our thinking.
Reducing marketing costs is not the same as increasing sales
There are methods of reducing marketing cost, but that shouldn’t be Marketing’s primary goal. Marketing is the fuel that drives all the machinery in
the business. Pull out the marketing efforts (I like to think of Marketing as an umbrella that includes sales, marcom and media) and your organization will stall.
Management has to set the tone. If a marketing department is receiving more kudos for cost reductions than business growth, client growth, retention or revenues then we’ll see a misplaced focus.
Progressive companies see marketing as an investment.
How reducing marketing expenses cost you more than you save
I recently came across two examples of marketing programs that were operating well, but the client wanted to make changes purely for cost savings purposes.
Example 1 – Reducing frequency of contact
Our client has been sending out quarterly offers to consumers with pre-approved letterchecks. These letterchecks can be immediately deposited and charged to their current credit account. They are great for paying off higher rate bills.
In 2015, we sent out 53,000 letterchecks (approx. 13,000 per quarter) during the year. Each letter featured three checks. The client realized a 5.5% response rate for a total of $7.5 million in redemptions for the year-long campaign.
In 2016, we increased the count of checks to six per letter but we decreased the number of mailings to only 2X per year, sending out a total of 27,000 letters (13,500 each mailing). The client received a higher response rate of 7.7%. However, their total redemptions only amounted to $5.0 million. Why? The response rate increased because we had more checks in each mailing…a more effective package. But, total redemptions went down because we had only mailed to them twice during the year, instead of on a quarterly basis.
Yes, we saved money. But would you rather have a 5.5% response on 53,000 pieces for $7.5 million or 7.7% on 27,000 for $5million?
Example 2 – Changing the media mix
This client has been working with us for an ongoing consumer lending initiative. For three years we have been sending out pre-approved loan offers via direct mail to about 35,000 recipients. Historically the response rates on these letters have hovered around 2% and total loan production would average about $12 – $15million each quarter.
Last year we began adding emails to the marketing mix so that recipients would receive a letter and then a follow-up email as a reminder.
With the combination of both media response rates got even better.
Since we all know that email is much less expensive than direct mail, it wasn’t long before the suggestion came to see if we can execute the campaign using less direct mail as a way to reduce costs. On the next campaign, we split the list and sent half the list as “email only” and the balance the normal way.
The customer’s feedback said it all, “Shoot, I just compared the current campaign to the last four and the number of accepted loans is only half of the previous offers. I think we need to go back to the letter. We didn’t save enough money to offset the reduction in the number of loans.” There are definite advantages of direct mail pre-approved loan offers.
Lessons Learned
We can never save our way to increased sales and profits. However, being smart with your marketing budget means taking a few risks and trying different approaches. If you are going to adjust your mix, make sure you are tracking and evaluating results to make sure you receive the results you really want and can adjust where necessary.
In both cases our clients have re-evaluated their initial decisions. However, in many situations there is no analysis and the results of these type of decisions is never fully understood.
We can never save our way to increased sales and profits. Your minor cost reductions are not worth the risk of decreasing major sales.