Monday, July 12

Cutting Budgets: Reinvest It Instead

After what seemed like several steps toward economic recovery, the second quarter has shaken the confidence of some U.K. companies. Almost 20 percent cut marketing budgets. Business confidence is tuned to consumer confidence, according to the IPA/BDO Bellwether survey.

To some degree, it is expected. Last week, Diane Swonk, chief economist of Mesirow Financial, said it is likely that Europe will stay in a recession through 2011. (Report.) The United States is anticipated to recover quicker, but its recovery hinges on how many new regulations and increased taxes are passed in 2010.

The real bellwether for economic recovery, of course, isn't businesses or financial advisors. U.S. consumer confidence remains low, with a recent USA Today poll revealing as many as 54 percent of Americans surveyed believe their standard of living has not improved, when compared to that of 5 years prior. Fifty-five percent believe that things will not improve for their children.

In a different poll, just over 20 percent are satisfied with the direction of the country. The problem is private sector job creation. Even companies that are succeeding have been slow to hire new employees because there is no certainty.

The Alternative To Cutting Budgets Is Recreating Culture.

Conventional wisdom suggests that companies ought not to cut their marketing budgets. But as companies face a diminishing return on their marketing, they often feel compelled to make marketing cuts to forestall another round of layoffs.

What could they do instead? Almost every recession success story seems to have a common thread. The companies that win have successfully identified a company "culture" inside and out. They recognize that they cannot win with being faceless commodities no matter how deeply they slash prices. Instead, they rely on a culture with which consumers can identify.

• Wal-Mart. Say what you will about Wal-Mart, the company is still succeeding with what it calls servant leadership. The concept is so deeply rooted in the company that it has become part of its culture.

• Ikea. A growing global company, Ikea places its emphasis on leadership that reinforces its core values and culture. Even without knowing what is on sale, there is an immediate emotional connection with the name.

• Apple. Even as critics continually knock the company, it remains steadfast on success. The reason is simple. It focuses less on reputation and more on character or, specifically, a "culture."

• Zappos. Make no mistake, Zappos did it right. Ask anyone who worked at the company then and they will tell you. The most critical component to the longevity and success of Zappos is its culture.

So maybe cutting the marketing budget is less important than funneling some that money into defining the culture of the company inside and out. The challenge for those who recognize the need is easy to see. They don't know how.

The First Step Toward Recreating Culture.

Great communication happens from the inside out so never mind external crowd sourcing at the moment. As good as customers are at telling companies what is wrong, the people inside have to believe that they can deliver on the promises that their leaders make.

In order to recreate a new culture, it requires bringing internal stakeholders to the table and the deeper down the better. Not only do employees hear from customers day in and day out, but they are keenly aware of what can or cannot be done. Accept their input, pick from the clear differentials, and let them make that commitment before you take the message to the marketplace.

Reputation is the by-product of action, not communication. Communication and marketing merely make the promise.

For Apple it's innovation. For Ikea, it's affordable designs. For Wal-Mart, it's everyday savings. For Zappos, it's friendly online customer service. And sure, some people don't like those messages or those companies. But that is okay. Monopolies and market dominance make most companies lazy anyway.

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