Forbes Magazine: The Kraft Heinz Mess Is A Warning To Advertisers: You Can’t Cost-Cut Your Way To Growth

A fascinating look at how the economic recession of the early 2000s kicked off a changing mindset from seeing marketing and branding as an expense rather than an investment. Paired with the fact that technologies shift the focus from strategy to tactics, the result is that too many entrepreneurial business leaders mistakenly equate building buzz with building brand. In short, if you think that posting is marketing, then your business could be in big trouble down the road.

From Forbes magazine: “For much of the first decade of the 21st century American companies amassed significant debt and used it to support innovation and invest in their brands. That changed on September 15, 2008 with the collapse of Lehman Brothers and the ensuing Great Recession. Companies became risk averse, and growth agenda was replaced by cost cutting.

Nowhere was this changed frame of mind more noticeable than marketing. Advertising was quickly deteriorated from being regarded an “investment” to “expense.” Innovation vanished. Companies, and consumer packaged-goods in particular, reduced investment in brands at the same time that the ecosystem experienced digital disruption, zero-based budgeting and predatory active investors.”  Read more

A mania for austerity is now in full swing. Many companies, especially consumer goods companies cut back on advertising in the last decade. Procter & Gamble eliminated $2 billion in marketing costs. Unilever has slashed the number of ads it produces globally by 30% while halving the number of agencies it works with. General Mills scaled back ad and media expenses to $575 million in fiscal 2018 from $869 million in 2014.

The decline of marketing meant that CMOs, once a strategic pillar of the corporation and a leading candidate for promotion to the CEO corner office, came to be viewed as less essential, “the person who makes the ads.” Their tenure is temporary, in some cases a mere two years as their role was diminished and marketing is in retreat. The relationships of brands with the consumer, already weakened by technology and the fragmentation of the media, is fraying rapidly.

Cost cutting brands are like Wile E. Coyote and, only just last week, Kraft Heinz looked down and realized that the cliff it has been running on is no longer underneath its feet. The company, majority owned by Brazilian private equity firm 3G capital and Warren Buffett’s Berkshire Hathaway, enacted draconian cost cutting ever since they bought the company in 2015, but failed to invest in its brands.