Business 101: Why Increasing Marketing Spend in Down Years Is Critical

2023 is expected to be a tough year for everyone. Companies are already downsizing programs and cutting funding for both line and staff organizations, particularly marketing. This is despite what is generally taught in entry-level business courses which is that cutting marketing in a down year will increase the revenue damage in a down year. Companies that increase their spending instead (coupled with strong execution, of course) will take share and are more likely to survive the event than their foolish peers. This may seem counterintuitive to engineers who tend to think in terms of direct action/reaction. Marketing functions more ephemerally.

Let’s talk about why you may want to avoid cutting marketing in 2023.

Marketing isn’t voodoo

Often in technology firms which are heavily staffed with engineers, marketing is poorly understood. The engineers understand sales and they generally get finance and even HR (though far too many engineers take HR mandates as suggestions, particularly when it comes to misogyny). However, marketing often seems like the less an executive knows on the subject, the more they want to weigh in on it as if they were an expert. If there was one area in a tech firm where you see the Dunning/Kruger effect demonstrated in spades, it’s marketing.

As a result, what should be one of the most powerful weapons in a tech firm’s arsenal is more often its weakest. It’s underfunded, often staffed by undertrained folks, and is treated like some kind of necessary evil, so marketing tends to languish even in a good year in tech.

Marketing is what creates demand for products, creates and maintains the image of the company, protects a firm’s reputation and assures consideration for the firm’s products. Companies have and can be successful without marketing, but they will be less able to handle image problems (you are seeing this real-time with Tesla and Musk), they tend to have too many products but not enough customers (pretty much the entire tech consumer market other than Apple), and they are unable to protect their CEO in a crisis. Marketing has the greatest ability to protect a CEO’s job by positioning the good things advantageously against any mistakes that are made.

Thus, marketing is often both the most powerful weapon and most powerful defense against a hostile world, yet it is constantly underfunded because most executive teams don’t understand it.

Marketing in a down year

When you realize that marketing owns the company image and generates demand for the firm’s products, you realize that a marketing disparity both in funding and execution can lead to significant market share changes. When Apple moved against the then smartphone market with a massive marketing and seedling campaign, the dominant companies were unable to defend their solutions due to a lack of marketing capabilities. Worse, they didn’t defend their position at the time that smartphones should be business- rather than entertainment-focused, and the market pivoted to the Apple model, effectively wiping out BlackBerry, Palm, Nokia, LG, and knocking Microsoft out of the segment.

In a down year like 2023, the total available market will shrink, which means that there is less money and fewer potential buyers for your products. If everyone cuts demand generation in a segment, things get worse if other segments either maintain or increase their spend because the money will follow the successful demand generation efforts. If a minority, or one, vendor increases their spending and executes (the execution thing is as or more important than the spend), then they will take share and may be able to better defend against the segment losing money to another competing segment.

For instance, in a good year, a consumer might be able to afford both a new car and a new washing machine. In a bad year, they’ll have to make a choice. The industry doing the best job at building demand is more likely to see their product win. Same between companies. If you get excited about seeing an ad or placement for a new Motorola phone while Samsung cuts marketing, you are more likely to buy Motorola than Samsung. In this last case, Motorola’s revenue should, from a growth perspective, out-perform Samsung’s.

It is a tough decision because increasing the spending in one area, particularly a staff division like marketing, over a line position is politically difficult but still the right thing to do.

Wrapping up. The Fantome

I’m reminded of a story that was told by a now dead skipper of the Windjammer Ship Fantome. I sailed on her before she sank. On the first day of the cruise, the skipper told this story.

The skipper had been a captain for a cruise line before joining Windjammer. He was docked at right angles facing one of his old cruise ships. The Fantome was a sailing warship, so to show off, he planned to leave under full sail, making for a spectacular show. But, being a warship, it had battleship level armor which means if it rammed a cruise ship it would cut through it like a hot knife through butter. This quickly became a problem because the third mate, who was supposed to release the fore sails to bring the bow of the ship around and miss hitting the cruise ship was instead chatting up some passengers in the galley. The ship was building up ramming speed aimed right at the midsection of the cruise ship, giving the captain two viable choices given the ship also had some military grade engines.

He could order full astern which would reduce the speed of the ship to a degree where it would make a hole about the size of a decent sized house but maybe not sink both ships, or he could order full ahead and hope he gained enough speed to allow the rudder to turn the ship and miss contact but, if it still hit at that speed it would cut the cruise ship in half sinking it (the bow of the Fantome was designed for ramming).

He ordered flank speed. The rudder grabbed but not enough to miss the collision, but the Fantome turned enough so that it was a glancing blow, breaking the massive oak masts on the Fantome and putting a huge scrape along the side of the cruise ship but saving both vessels. His career survived, the third mate’s did not, and he even got a free cruise on his old line as a thank you for not sinking the ship and to show understanding that shit happens.

CEOs are often faced with decisions like this, do you mitigate the damage, or do you swing for the fences with the belief that your team will execute and turn a coming disaster into an opportunity? I expect most CEOs would have ordered full astern, but those few who order flank speed and spit in the face of adversity and execute (the execute part is critical; otherwise, this move is suicidal) will be forever remembered much like Steve Jobs is for his similar moves with the iPod and iPhone.

Typically I’d end the story there, but there is more to the Fantome. Years later, this same captain was faced with another choice. Either moor the ship during a major storm, which would have likely sunk it, or take the ship to sea and try to weather the storm, increasing the odds the ship would survive but putting lives at risk. The Fantome went down with all hands. Risks do come with consequences. But that doesn’t mean you should avoid risks. Just recognize when they may become unreasonable. And, in the end, realize that sometimes lady luck just won’t be on your side.

Something to think about over the holidays. I wish you all a wonderful Christmas and an awesome new year!