It appears that zero-based budgeting for marketing is rapidly becoming a common-place practice. News of major companies such as Unilever transforming their marketing budgeting practices has had a big impact. Now it appears that zero-based budgeting is rapidly becoming a common best-practice. That talk is still focused on marketing budgets, and not (as I have argued) extended to trade spending, but it is a good start. But while zero-based budgeting has its fans, there are plenty of legitimate concerns raised about the approach – primarily that there is a danger of focusing marketing spend on short terms wins rather than long term brand health. So how to get the best of both worlds? How to make zero-based budgeting support your marketing strategy as well as improve investment returns?
The pros and cons of zero-based budgeting
Proponents point to the obvious benefits of zero-based budgeting. Marketers are made much more accountable. Activities are more likely to be evaluated leading to more rigor and, in theory, better, more effective practice. And yet there are still many perfectly legitimate concerns around zero-based budgeting. Some suggest that it is merely a way of cost-cutting and that it can lead to short-termism, as only activities which deliver short term benefits are continued. Activities which support the brand in the long term, but perhaps have little impact on short term profit, might be ditched in a zero-based budgeting world.
The need for marketing to become more accountable is clear. Too many marketers (of the shopper and consumer varieties) are woefully poor at evaluating their activities, arguing that evaluating activity is too time consuming, or that the value of their activity is ‘strategic’ (which is often used as a synonym for undetectable!). There is a most definite need to bring more robust evaluations to the marketing world, and if zero-based budgeting forces this hand, then that is a good thing.
The converse is also true. There is a grave danger that zero-based budgeting becomes ‘marketing for accountants’: where every marketing activity is judged based on its ability to deliver a short-term ROI. While most poor activities would fail this hurdle, many worthwhile activities might also be thrown out. There is a role for long term brand building and sustenance, against which a short-term ROI is difficult to see.
How to ensure zero-based budgeting supports your marketing strategy
It appears that zero-based budgeting is coming to marketing (and one hopes, trade expenditure management too!) Managed well, there are clearly benefits in moving to a zero-based budgeting approach for both all marketing activity: consumer, shopper and trade. There are also clear dangers. So how then should a business approach the challenge to create accountable marketing, without risking the longer term marketing strategy?
Create a clear marketing strategy which integrates consumers, shoppers and retailers
Brand success comes from affecting the behavior of consumer, shoppers and retailers. If you don’t get the shopper and retailer bits right, it doesn’t matter how much consumers love your brand: they’ll never have the chance to buy it. And vice versa, too. If zero-based budgeting is designed to create effective activity, then this will be best achieved as part of an integrated marketing strategy. A truly successful approach to marketing and sales investment requires absolute clarity on what the business is trying to achieve with consumers, shoppers and retailers. This is the foundation of a consumer goods strategy. Strategy is the foundation of any effective investment approach. Investment can’t be properly planned without an integrated marketing strategy. And an activity can’t be effectively evaluated either.
Express integrated marketing strategy as a balanced set of measurable Key Performance Indicators (KPIs)
A clear set of KPIs ensures connects activity with results. A balanced set of KPIs connects results with strategy. The exact set of KPIs required will vary, but typically we use a balanced scorecard of KPIs. This ensures that there is financial rigor for sure, but that the KPIs go well beyond financial measures. These KPIs should include consumer behavior and attitude, shopper behavior, retail behavior and retail compliance.
Create measurable proxies for each longer term KPI
Many of the elements that are key to longer term success are hard to measure in the short term. Wooly terms such as brand equity sound very nice, but are tough to pin down. How do we know whether a single activity contributes to something as nebulous as brand equity? The answer is, in many cases, you can’t. Instead, set up alternative ways of measuring, as follows:
- Focus instead on consumer behaviors. Ask “If we were on strategy, which consumers would start behaving differently?” To drive growth, consumer behavior must change, so logically it should be possible to track consumer behavior that at least suggests the strategy is working.
- Create short term proxies for anything that can’t be measured in behavior. What indicators would you see in the short term if this long-term measure was being supported?
- Create methodologies to measure these short-term indicators or proxies.
Evaluate activities against these new KPIs
At the heart of successful zero-based budgeting is effective evaluation. A balanced set of KPIs drives balanced evaluation. This is the best way of ensuring that activities are assessed on more than their ability to drive short term return on investment
Use this balanced set of KPIs to drive the budgeting process for marketing and trade spend
Zero-based budgeting doesn’t have to be all about finance. It often is, but that isn’t what it means. Zero-based budgeting is merely the process of ‘starting from zero’. The skill lies in the criteria that are applied to the decision of whether to run an activity or not. If this is all about short term return on investment, then short term is what you will get. If the KPIs are balanced, then the budget will be balanced, as will be the plan
At engage, we believe in accountable marketing: activities across the marketing and sales arena that create real value and drive brands forward. We work with clients to develop insights, define new, integrated marketing strategies and KPIs, and yes, to use this to create better investment plans. If you want to drive accountable marketing and trade spend in your business; if you want to drive short term returns and stay on long terms strategy – in short, if you’d like to reap the benefits of zero-based budgeting while managing the risks, please contact me.