"Dollar Cost Averaging" the Marketing Budget

Piggy Bank Savings Female Half FilledAccording to a recent AdAge article, “Companies and brands that go with the flow of the boom-bust cycle by cutting ad spending … tend to lose more share to private labels both immediately and longer term.”

And to drive the hurt home: “About half the share lost to private labels in past recessions has never been recovered.”

Citing data from TNS Media Intelligence, the article went on to say that, “Companies whose ad spending didn’t vary according to economic cycles… also tended to increase their stock prices…” This data cut across multiple industries.

The TNS study just confirms the quote from Harvard Business Review’s article from last March:

“Brands that increase (marketing) during a recession, when competitors are cutting back, can improve market share and ROI at lower cost than during good economic times.”

Which leads to this interesting thought from a twitterbuddy, Margot Bloomstein:

Does such research “make a case for dollar cost averaging in marketing budgets?”

You’re familiar with the concept of Dollar Cost Averaging?  It’s a term from the personal financial industry: “Dollar cost averaging is the practice of investing a fixed dollar amount at regular intervals in a particular investment, regardless of its price. In this way, more shares are purchased when prices are low and fewer shares are bought when prices are high.”

Extend this concept to the Marketing Budget, as Margot suggests:

By keeping your budgets constant during a downturn, you can leverage the recession to ask your agencies for more services.  Thus you gain greater value — even as your competitors subject their own programs to the whims of the boom/bust cycle, and probably lose marketshare.

When the economy comes back, your agencies may push back on the scope of services again, but by that point you’ve already taken your whole game up a notch.

Even if you don’t choose to increase the budget when the economy improves, by that point you can do more with less — because your industry prominence was augmented during the steady spending you invested in the recession months!



Posted on: April 8, 2009 at 6:00 am By Todd Defren
19 Responses to “"Dollar Cost Averaging" the Marketing Budget”

 

Comments
  • Popular wisdom says scheduling your investments is the best way to make money. But it’s actually a sales gimmick to wheedle over time what you won’t commit up front.

  • I follow your blog for quite a long time and should tell that your articles always prove to be of a high value and quality for readers.

  • Perry says:

    One of the reasons, too, why businesses are losing their returns is because of the lack or ineffective lead tracking system. They tend to lose hundreds of their leads to their competitors because they simply fail to make a follow-up. Businesses these days really do not need to cut back on costs to survive the economic crisis. They just need to maximize the value of their prospects to improve their profits.

  • Thanks for the citation, Todd. Dollar cost averaging makes sense, at least on the metaphorical level, as marketing should be a steady investment, not a just-in-time mad money thrust. Smart companies realize that ongoing investment, even in a down economy, allows them to survive and even thrive, especially as the market becomes less crowded. Now is the time for persistent birds to reap the worms.

    At ISITE, we’ve long enjoyed building relationships with clients who trust us to build smart web marketing strategies with conservative spending–even in boom times. We’re excited to wow new clients who come to us with smaller budgets–and continuing to thrill them even as their budgets grow in the future.

  • Sometimes the best answers to spending conundrums are the most obvious. This is one of those times. You can easily gain market share by not pulling out money of your campaigns because other companies are reacting to the cold water and pulling out their money. It’s a simple case of reduction of noise in the space.

    Sadly, most companies don’t have the foresight or resources to make this happen.



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