Unilever announced this week that they will adopt a ‘zero-based’ approach to setting and allocating marketing spend budgets. The announcement met with a reception that surprised me. It was seen as drastic, and an ‘austerity’ approach. Why? Zero-based budgeting is, as far as I can tell, a best-practice approach to managing any spend, so why on earth is this surprising? The main surprise for me was that an organization such as Unilever hadn’t adopted this approach years ago!
The alternative to zero-based marketing spend budgets lies somewhere between crazy and dangerous
The alternative (which too many organizations still use) is a budget based on a trend and a target. An extrapolation or forecast of future sales performance is combined with a target (typically a percentage of sales) set by someone in a finance department. So a business might believe sales will rise by 5%, and the CFO decided to cut marketing spend from 23% of sales to 22% of sales. This creates a marketing budget broadly similar to last year’s in scale. There is little consideration of what marketing spend is actually required to drive sales up by 5%. There is little space for other scenarios (could we cut marketing spend by half, or how much would we need to spend to drive sales even harder, for example) which might yield radically different results. The starting point is last year. No critique of what worked and didn’t work. Little recognition that the world of the future is different from the past.
Isn’t zero-based budgeting for marketing spend just common sense?
Before we go much further, let’s just sense-check this. In a zero-based budget world, marketers would have to justify the marketing spend on their activity, rather than just getting a sum of money based on statistics, trends and last year’s budgets. Why the horror? Are marketers really that insecure? Is the idea of checking that we are actually checking that our marketing spend goes on the most effective activities such a terrible thing?
There are many benefits from zero-based budgeting of marketing spend
Zero-based marketing spend allocation changes all of that. As the name implies, budgets start at zero. Assumptions are parked. Plans are built from scratch, and then costed. There are many benefits from taking this approach; here are a few of the key ones (thanks for Kaylor Hildebrand for her comments and input!)
- Breaking the habit. Without zero-based approaches it is too easy to spend based on habit – a particular activity is repeated because, well, just because it’s what we always do. Stopping and thinking for a moment creates the opportunity to challenge whether that activity is still on strategy and still effective.
- Encouraging evaluation. If marketers and agencies are going to have to fight every year for their dollar, then perhaps activities will be put under more scrutiny and evaluations are likely to be pursued more frequently, and with more diligence than currently, if only to create the ammunition to justify future spend. The current approach almost guarantees future spend, so why waste time on evaluation?
- Allow for the spark of creativity. Clearing the desk of everything, creating some white space, is the first step in allowing something new in. Going back to the company’s objectives and then asking afresh what might be the best way of achieving that allows for new ideas and new voices to come to the table.
- Space for new partners. An evaluation of what happened in the past informs the future. In the same way looking at things differently encourages marketers to seek out new partners. Partners who can perhaps answer today’s questions (and tomorrow’s) rather than those of yesterday.
- Reduce complacency. If marketing spend budget is guaranteed (to some extent) there is always the danger of complacency, and that applies both to marketers and to agencies. It is human nature to rise to a challenge, so the approach should bring out the best in us all.
- The best should rise to the top. While it is true that there is a downside for agencies in that they will always be concerned about what will happen next year, there is also an upside. In theory all spend is up for grabs every year. The opportunity to demonstrate that your solutions are more effective than others is greater.
Zero-based budgeting creates uncertainty. Brands will need to plan earlier and communicate more effectively with agencies so that agencies can build competence in a way that will meet future needs that might be less predictable. But in an industry which often bemoans the commoditization of its services, surely the marketing services industry should be celebrating the opportunity to thrive on merits rather than price.
Zero-based budgeting is a sensible way to approach all business planning: it ensures that investment is much more closely aligned with plans and priorities, and forces all marketers on both sides of the fence to be far more considered and accountable. The only surprise in all of this is that this approach to marketing spend is new to Unilever at all!
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