“Cotton prices have jumped 95% in the last 12 months, so we’re going to cut advertising.”
That doesn’t seem like it makes much sense, yet it’s happening today. Why?
To demonstrate, we’ll explore a hypothetical apparel manufacturer who ends up buying a lot of cotton. And here’s what is going on in the cotton market- it’s at a 140-year high:
So the apparel market is going through quite a shock these days. The sequence of events that starts with commodity prices and end with budget cuts. Let’s explore the mechanism:
1) Commodity prices will squeeze product margins, reducing marketing ROI.
2) And if Marketing’s ROI goes down, we should spend less on it.
We routinely tell clients that the math is only half of the work we do- and in this case we recommend more, not less, marketing spend. Why?
1) Prices will rise, but price gap to competitors probably won’t.
2) However, as the whole category price rises, the pie will shrink.
3) Therefore, goose advertising to offset category declines.
Absolutely we do. As Frederick Phillips said, “It is often hard to distinguish between the hard knocks in life and those of opportunity.”