Having worked on both the agency and corporate side of the desk, I can attest that most companies are more comfortable sticking to last year’s budget allocations than changing them. There are a variety reasons for this. One reason is the budget in the previous year was approved so it’s logical to think that this course will help them in the next year. The problem with continuing a budget year-after-year is it makes it difficult to establish and track specific results, and it usually does not bring growth gains that nearly all budgets state as a primary goal.
Consider two companies, each with a different set of brands and strategic initiatives. Company 1 spends most of its budget on direct to market campaigns aimed at a specific customer demographic and adjusts its budget in micro-increments after business results area analyzed, upping or downing mini-campaigns based on results. Sounds pretty smart, right?
Now consider Company 2 who invests in specific business divisions that perform at their highest projections and rewards them for their performance, and makes major changes in their budget allocation as success is achieved based on the division’s earning potentials.
Over a number of years, which one of these companies would you suppose would end up the winner? If you guessed Company 2, you would be right. It’s because as time goes along the more major investment in the strongest brands that is based on performance will outperform weaker brands that have been propped up with incremental budget support.
Over the years I have found companies much more comfortable taking ‘small steps’ because they felt they were taking on less risk. After all, if they guessed wrong they’ve only hurt themselves in a small way. Therein is the major strategy misstep that companies fall prey to in the budgeting process. They train their executive management and therefore their staffs to not look for big opportunities, but rather ‘safe’ ones. So year after year a company can underspend itself out of business particularly if they apply this same strategy to their product development. It’s sad to say, but many companies are in a downward spiral this year because they can’t break out from what they did last year.