Is spending out of a slump financially illiterate?

John Bradley and Carrie Bradley explain why one-size-fits-all advice is a bad way for brand stewards to preserve their reputation.

Remember when advertising agencies were asking their clients to invest because investing in a downturn pays off? Seems almost quaint now.

Marketers and agencies did their already-fragile reputations no good with that advice because it ignored the financial carnage hitting P&Ls and balance sheets as demand collapsed, costs ballooned, supply chains fragmented and forward forecasts became garbage. The spend your way out of trouble advice was, in truth, financially illiterate.

Recovery is going to look very different in each category, and even by brand within category. Generic, one-size-fits-all advice is the last thing anyone needs right now. So, what can be done to begin to salvage reputations as providers of sage advice?

Grace Kite, one of the industry’s leading econometricians, argues any spend recommendations need to take four factors into account: the forward impact on your category of past and continuing COVID restrictions; pent-up demand (if any); how dependent sales were on the under-30s; and then, and only then, the cost of media.

Pent-up demand is tricky, as it can go many ways, and it’s proving hard to find categories where six months of missed purchases are still going to be made up.

Kids hair never stopped growing, so those missed haircuts are gone forever – and some will be quite happy having the home clippers wielded for a while yet, so recovery back to pre-COVID levels seems a very long way off for the hairdressing trade. But kids’ bodies also never stopped growing, so they still need bigger clothes, but probably the same number of new outfits and shoes that would’ve happened anyway. Pantry-stocking may have thrust canned peaches and beans ahead of the game, and they may find they have recruited a new army of admirers that put sales on a higher plateau than before.

That’s definitely not one size fitting all. It is now clear that serious thinking is required by all businesses to plot out the likely future demand and investment scenarios, while all categories will most likely work much wider margins for error into their sales forecasts than was the case pre-COVID.

Which brings us back to financial literacy. While finance usually took a back seat to the much sexier creative side of the marketing job, those rankings are now reversed. In a time of unprecedented uncertainty around costs and sales projections, being able to think holistically about the entire business, costs and margins is absolutely critical to having a chance of winning back lost credibility and resources.

The good news is that most financial tools, and the business finance function itself, evolved to deal with uncertainty. Insurance was invented to add predictability to the boom-or-bust trade of sending leaky bucket ships sailing halfway around the world to load up with spices. Discounted Cash Flow was invented to simplify decision-making between investments that paid off at different rates over different timescales. Rates of Return benchmarks help deal with the sad fact that while some investments pay off, some don’t.

This doesn’t mean that every marketer and their agencies need to sign up for a Finance for Non-Financial Managers course, but it does mean that adopting a holistic view of one’s business is a career essential right now. We know enough to be able to at least hypothesize how categories might trend in the next few months and tie that whatever strategic mindset is prevalent in the C-Suite, be it just surviving another week or full-on, brave new world reinvention.

Finding the sweet spot between what a business needs and what it can execute has never been more important, and neither has the ability of marketers and agencies to talk not in the language of their trade, but in the language of business. And the language of business is finance.