Mark Ritson wrote an article for Marketing Week titled We need a new ‘third way’ to set marketing budgets.
« When a private equity firm, like 3G, buys a branded business, like Kraft Heinz, there is an initial flush of profit as costs are cut and the company coasts along on the fumes of former marketing investments. But eventually, reduced marketing budgets cause the business to splutter and then dive. The declines in salience and brand equity caused by under-investment manifest in lower revenues, greater price-sensitivity and increased vulnerability to private labels. »
« Much of the criticism of the private equity approach to brands focuses on one of the sector’s most beloved instruments – zero-based budgeting (ZBB). It has been part of the private equity tool kit from the very beginning. »
« And let’s add another factor into the mix – the usual alternative to ZBB is a total load of cock. I appreciate that more than 90% of companies set their marketing budgets using advertising-to-sales ratios, but the approach is so ridiculously amateur and non-strategic we are almost better off using ouija boards and numerology to derive our marketing budgets for the year ahead. »
« A third way to budget… my two-speed brand plan. »
« Interestingly, as I work on these plans with clients and teach them to executives, it becomes clear how crucial the two-speed ethos is and how difficult it is to pull off. You really have to commit to 50% or 60% of your budget for the longer, slower tactics to deliver on your brand building objectives. And to do that you have to ensure the shorter, faster half of your brand plan really delivers the cash in the upcoming year. »
« To master a two-speed brand plan requires a form of strategic schizophrenia, in which you build brand equity with mass marketing and long-term horizons and then harvest it with entrepreneurial and immediate commercial zeal. »
« And what I like most about these nascent plans that are emerging around me is that they reject the tyranny of ‘or’ and replace it with the generosity of ‘and’. Too often marketers are being forced to choose between short- or long-term. Between the top or the bottom of the funnel. Between performance marketing and brand-building. Or digital versus traditional. »