As commodity prices continue to rise, mainly on the back of high oil prices, companies are adjusting their budgets for marketing, an area traditionally seen as one of the most malleable, according to a new report from Kline Group : Personal Care: US Competitor Cost Structure 2012.
Rather than cutting costs for packaging and ingredients, the research highlights that in the obervation period, from the beginning of 2009 to June 2011, most companies responded that they have chosen to reduce advertising expense.
“The companies we tracked have in general reduced advertising expenditures over the time frame in order to maintain margins and offset increased COGS (Cost Of Goods Sold),” Laura Mahecha, Kline group research manager, told CosmeticsDesign.com USA.
Declining spend on marketing
Underlining the reduction in marketing spend, the report shows that marketing costs represented 48.3 percent of total net sales for the first six months of 2009, compared to 50 percent of total net sales in the full financial year 2009.
However, the report also highlights the fact that the reduction in marketing expenditure is not exclusively being driven by the need to cut costs in an effort to close up the margins gap, as it also reflects changes in the mediums used to advertise products.
This is underlined by the fact that advertising budgets are increasingly being channelled into new-media marketing methods, including e-commerce platforms and promotional using social media such as Twitter and Facebook.
Big players play with marketing budgets
In recent months all the big players have stressed how rising costs are putting pressures on margins, with company’s such Avon Products all alluding to lower marketing expenses in their most recent financial reports.
However, contrary to this, some of the big players are also trying to 'spend their way out' of the economic decline by increasing their marketing budget, a trend that has been underlined by both Beiersdorf and Procter & Gamble.
In its most recent first quarter P&G announced that its net profits were stagnant at $3bn, a figure that was impacted by rising costs, but counterbalanced by increased retail prices. The company also stressed that its margins were compromised by increased marketing and R&D expense, as part of aims to maintain a new pipeline of products.