The softs drinks maker announced its senior marketers would be required to justify budgets from scratch each year instead of basing them on the previous year’s plan.
It is a process being stretched across the business but where most divisions will look to unearth savings that can be reapplied elsewhere, any freed-up marketing funds will most likely be reinvested back into brand building.
Marketers have often shied away from the method, according to management consultants Accenture, because they feared it meant “budgeting from zero”. In reality, it’s a structured process designed to nurture a culture of cost management.
Costs are redirected from non-working media including market research, production and agency fees throughout the year into areas such as media buying, sponsorship and packaging that directly impact sales.
Redirecting marketing costs to more productive areas that drive growth
Robert Willems, managing director of consumer goods and services at Accenture, says: “People think zero-based budgeting is a simple cost cutting exercise but its not. It’s about how do I free up the money and then invest in the right places to grow faster. That’s particularly true for when [zero-based budgeting] is applied to marketing because there’s more of a need to reduce the costs of non-working media that don’t add value to the company.
“There’s more challenging [in marketing] around where you invest the money and whether its being put in the right place that will get the biggest bang for your buck. The way budgets are billed gives senior marketers more visibility on what and where cash is being spent. Most brands normally don’t have that transparency because they have a bag of money to spend n promotions but don’t know what campaigns they’re going to spend it on.”
The prospect of a “culture of cost management” is one that has piqued the interest of FMCG companies, particularly those weakened by struggling sales in Europe and North America.
Building a culture of cost management
Heinz implemented a corporate-wide take on the process following its $28bn acquisition by venture capitalists 3G Capital last year. It spurred a restructure of the marketing unit that elevated UK and Ireland CMO Giles Jepson to oversee brand investments for its European business.
For companies with the size and reach of Heinz, marketing can only go far when it comes to extracting incremental gains from marketing using traditional budget frameworks. It is a situation Willems says is dogging many FMCG marketers, which is why many of those zero-budgeting adopters are consolidating their media accounts to seek out new efficiencies.
Heinz slashed its global media agency roster from 20 to two just months after it introduced the strict cost control budgeting system. While AB InBev, which has been using zero-based budgeting since it formed in 2004, consolidated its European and North American businesses earlier this month into two accounts in order to more efficiently scale up campaigns worldwide.
“Generally you get the first wave of cost reductions within the first six months of using zero-based budgeting”, says Willems. “Selling, General and Administrative Expenses (SG&A) costs are normally cut by around 15% within the first 12 months and then as you go through successive cycles you get another 10 to 15%. For marketing all those savings are usually reinvested.
Mondelez will be hoping for similar gains in the coming months after hiring Accenture in February to steer its own cost-control strategy. The snacks maker said at the time it wanted to build a more “cost-focused culture” that accelerate its switch to cheaper digital channels. It is likely the shift played a role in the creation of the chief growth officer role, which serves as a way to link the marketing department to the wider business.
Zero-based budgeting can enhance the performance of marketing but senior marketers need to nurture a culture of cost-management through improved cost visibility and accountability at all levels to grow their marketing muscle.