How budget reviews impact strategy

Being agile without straying into short-termism is something every marketer aspires to achieve. Strategic, long-term thinking is essential to drive sustainable brand growth and yet evolving internal and external forces necessitate an ability to adapt.

This constant balance between driving forward a long-term strategy while building in agility is something senior marketers must consider during budgeting season. Planning out their financial strategy for the year ahead, marketers must also have an eye on the annual plan and into the longer term.

Yet, no marketing team wants to be seen as inflexible. In most organisations, how marketing spends its budgets will not be fixed at one point of the year.

If you’re a marketer and you think your budget might get taken away, guess what you do? You spend it now.

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Jon Evans, System1

Recent research from Adobe and MMA Global suggests 50% of marketers conduct budget reviews quarterly, while over one in four (26%) conduct them monthly. Some 6% conduct these reviews weekly, while 4% do it ‘in real time’.

There are many reasons why a marketing team might choose to review its budgeting strategy quarterly, or even more often, but sometimes that pressure can come from others within the organisation, notes System1 chief customer officer Jon Evans.

Business structure – particularly public ownership – can dictate how companies approach budgeting. Most companies that are publicly owned will review budget at least quarterly in order to meet expectations from investors, Evans explains.

Under quarterly scrutiny, marketing budgets are particularly at risk, because they are classed as operating expense (OpEx) rather than capital expenditure (CapEx).

“The reason marketing budgets get hit more than any other budget is with capital investment, you tend to commit to long-term infrastructure projects. With marketing budgets, they tend to be discretionary that you can pull back, or you can increase, depending on how the business is doing,” Evans says.

The threat budgets can be cut at any time makes marketers act in a short-term way, he suggests, and could make them suddenly change tack.

“If you’re a marketer and you think your budget might get taken away, guess what you do? You spend it now,” says Evans.

The case for agility

Marketing departments that feel under threat from cost-cutting can make decisions that are more about the present threat to budget than planning for the long-term. However, a regular cadence of budget reviews isn’t necessarily a short cut to short-termism.

Speaking about marketing budget practices earlier this year, CEO of spirit giant Pernod Ricard, Alexandre Ricard, pledged to be agile in how the company deployed its spend.

“A one time per year budget is no longer valid in today’s world,” he told investors.

Frequently reviewing budget strategy, not just in the marketing workstream, is institutionalised at VodafoneThree, explains chief brand officer Maria Koutsoudakis. Budgets are iterated around nine times a year.

“What it also allows us to do is plan capacity from a creative and a resources point of view, because it’s not just about agility, but it’s also having capacity,” she notes.

When I do the yearly annual budget, there are some big strategic drivers behind it, so there will be the longer-term KPIs that we don’t even reset every year.

Kerttu Inkeroinen, Lucky Saint

This is particularly notable in the telecoms sector where there are frequent trading moments around different offers or deals. That requires adjusting capacity from a media and creative point of view, Koutsoudakis adds.

In the mobile sector products can be delayed, for example, which necessitates building in a degree of flexibility. In this case, VodafoneThree might to “fill a gap” from a brand standpoint, but support the product down the line when it does launch.

In certain sectors one-time-a-year budget is particularly unrealistic. Likewise, for smaller brands, where agility is particularly prized. This is the case at non-alcoholic beer brand Lucky Saint, a business taking on much bigger players in its growing category.

“I definitely do review the budget throughout the year,” says CMO Kerttu Inkeroinen. “As a small business, it might have to be adjusted based on performance of the total business and what’s happening in the market. Things change quickly.”

‘Agility within a framework’

Brands can still drive towards strategic progress even as they review budgets at different times throughout the year.

Lucky Saint isn’t resetting its strategy each time it reviews its budget, notes Inkeroinen.

“When I do the yearly annual budget, there are some big strategic drivers behind it, so there will be the longer-term KPIs that we don’t even reset every year, but they’re the same things and focuses that we have year after year,” she explains.

For example, there are major category moments such as Dry January that act as “big business drivers”, where Lucky Saint knows it is going to show up in a significant way.

The marketing team is committed to testing new channels, says Inkeroinen. Revisiting budgets during the year affords the business the flexibility to upweight these channels if needs be.

Koutsoudakis explains her team lay out “quite a firm hypothesis on at the beginning of the year”, in terms of how they are going to spend their budget. In particular, it lays out broad buckets of how spend will be allotted.

Within these buckets of spend, there is an understanding among the team that if they want to add something into the mix, they’ll have to lose something within that particular bucket.

“Very seldom do we swing money between the types of spend once it’s set out,” Koutsoudakis says.

That means the business has “defined capacity” and can make decisions accordingly, an approach she describes as “agility within a framework”.

Like many marketing leaders, Koutsoudakis works to a 70:20:10 ratio, with 70% of budget going on activity the business is confident will deliver and 20% on activity that is newer or still carries a degree of risk. The remaining 10% of the budget sees the business “throw caution to the wind” and “take a punt” on different ideas.

While she sets money aside for more boundary-pushing activity, one thing Koutsoudakis would not do is leave unallocated budget at the beginning of the year.

“All unallocated funds say to finance is you don’t really need it, because you’re delivering the numbers and you don’t really need this cash, so that’s the first cash to go,” she says.

Agreeing direction

While it is possible to strategically review budget throughout the year, there can be pressure to divert spend into channels where impact is more easily measured, notes Koutsoudakis.

“The other thing that’s made it more difficult these days is the notion that digital media is more accurate and accountable,” she explains.

The VodafoneThree chief brand officer believes no channel should be taken in isolation, although she recognises people outside marketing often understand the impact of channels like pay-per-click better than out-of-home, for example.

This is a sentiment echoed by Evans, who agrees for businesses reviewing marketing budgets it can be tempting to divert spend into performance channels if the business needs to drive sales.

“We tend to prioritise what can be measured over what matters,” he says.

Regardless of whether you intend to review your budget yearly, quarterly or even monthly, Evans recommends getting the business to agree a direction of travel .

“Most marketers tend to focus on spending the money rather than showing the direction that they’re going in,” he says. “Now, if you’ve got everyone agreed to the direction, when a decision or compromise gets made, people are going to realise the trade-off.”