The whys and hows of zero-based budgeting for marketers

The Drum 02 Dec 2019 01:02
By Chris Sutcliffe-02 December 2019 13:02pm

The marketing sector can be a complicated place as new marketing tools and techniques are launched, almost on a weekly basis. Powered by The Drum Network, this regular column invites The Drum Network's members to demystify the marketing trade and offer expert insight and opinion on what is happening in the marketing industry today that can help your business tomorrow.

This December 5th, The Drum Network is running a breakfast event in Birmingham dedicated to exploring budget and remuneration models. For more information, click here.

Zero-based budgeting (ZBB), a tool designed to keep costs low and profit margins high, is still a source of debate in the industry. Even its proponents note that timing, company priorities, and even sector can have a huge impact on whether or not it works.

For marketers (as ever) this effectively means adjusting to conditions that favour tighter cost management, adjusting budgets from scratch at the beginning of a year, in line with the following examples of brands adopting ZBB. That necessarily increases the amount of labour required from both brand and agency partner, so understanding why brands choose to adopt ZBB is paramount.

Unilever is potentially the strongest advocate for ZBB marketing, having attributed a strong financial performance in 2015 to having adopted the tool. At the time, Chief executive Paul Polman said Unilever was set to roll out a ‘global zero-based budgeting programme that will look to foster a culture of tighter cost management’.

The company continued to use ZBB, and has in fact made it a tenet of its 2020 programme, relaying the progress in its 2017 financial statement: “Zero based budgeting is improving our productivity in brand and marketing investment as we reduce the cost of advertising production and increase investment in media channels. ZBB is also eliminating waste in those areas where we have over-saturated traditional media channels, as well as reducing overheads.”

While Unilever’s adoption of the tool was more explicitly in service of protecting margins, snack manufacturer Mondelez uses ZBB primarily in service of prioritising marketing spend around its power brands. The snack maker hired Accenture in 2014 to introduce a severe cost-control budgeting strategy in a bid to deliver $3bn in gross productivity savings over the following three years.

Since then, Mondelez has continued to roll out ZBB, with its 2017 financial statement reporting: “We have embedded zero-based budgeting practices across the organization to identify potential areas of cost reductions and capture and sustain savings within our ongoing operating budgets. Through these actions, we are leveraging our brands, platforms and capabilities to drive long-term value and return on investment for our shareholders.”

The competition in consumer and FMCG categories means that brands are increasingly adopting ZBB for accountability’s sake, and marketers are often scrambling to find ways to demonstrate ROI when the campaign draws to a close. Tools like the recent Demand Generator from Thinkbox aims to aid brands and marketers to do exactly that: Matt Hill, research and planning director at Thinkbox said: “We hope the Demand Generator will be a helpful springboard for the many brands that don’t already do econometric analyses of their media performance.

As brands look to progress spend from mediums like linear television, some marketers in particular are looking for ways to capitalise on increased use of ZBB to demonstrate there is still life in the old mediums. Over the past three years, P&G has “dramatically” increased its media spend, cutting digital spend by $200m and reinvesting the money into areas with “media reach” including TV, audio and e-commerce.

Despite those tools, it’s undeniable that the rise of ZBB is putting increased pressure on marketers, who are increasingly under pressure to justify their marketing budgets with brand-side practitioners often having to justify their ad spend to procurement departments, many of whom are using zero-based budgeting techniques to rationalize overheads. Mid-way through last year, Unilever went on record as stating how using such methods enabled it to cut elements of its overall marketing spend by as much 30%.

To be a part of a Drum Network breakfast event to discuss budgeting and remuneration on December 5th, click here.

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