The Fine Art of Reducing Marketing Expense in an AI World | Dwight Hutchins |Boston Consulting Group

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1:37Learn more at typeface.ai. Welcome marketers, advertisers, and those who love them to Chief Marketing Officer Confidential. CMO Confidential is a program that takes you inside the drama, the decisions, and the politics that go with being the head of marketing at any company in what is one of the most scrutinized jobs in the executive suite. I'm Mike Linton, the former chief marketing officer of Best Buy, eBay, Farmer's Insurance, and Ancestry.com, here today with my guest, Dwight Hutchins. Today's topic, the fine art of reducing marketing expense in an AI world. Now, Dwight is a senior partner and managing director at Boston Consulting Group and an adjunct professor at Northwestern.

2:25Previously, he was a managing director at Accenture, where he specialized in consumer products and health and public service. He started his P &G career. He started at P &G as a manufacturing engineer. So we have P &G in common and a lot of other things. So welcome, Dwight. Thanks, Mike. really excited to be here. So you're in a catbird seat of looking at a lot of companies and a lot of marketers and businesses all over the place. Let's start with what are you seeing in the marketplace today, both from a company perspective in general and then CMOs in particular? It's a great time to have that question, Mike, with all of the changes that are happening in the economy, all the different public policy things that are happening, tariffs, counter tariffs, concerns about inflation, interest rates.

3:21It's creating a lot of stress in the marketplace. And it's changing consumer behavior and buyer values at a record pace. And there's no stability anywhere, right? You can't count on anything. No, absolutely. And so the thing is that everything from purchases like homes, which then drives a lot of spend on furniture and other upgrades to small purchases for daily goods. You're just seeing shifting behavior. People are shifting down. People are delaying. People are making different choices. And so in a world like that, how does a marketer get the attention, make sure that their messages are resonating, and actually break through all of the concerns and clutter that's out there today?

4:07So that's what the CMO is really, really struggling with. And so I hear you saying, look, companies are dealing with massive uncertainty. The CMO still has to drive profitable growth almost always. There's usually some pressure on cost that goes with that, especially if people are nervous. And I think you've written that you see this as a tough market getting tougher. Yes. How does it get any tougher? You just described like a trip to the dentist. Let's talk about how it gets tougher than this. The dentist forgot the Novocaine. Oh, my gosh. You're just painting a great picture for what's coming next.

4:44Yeah, so the thing is that the market is tougher, and so to earn a buck is just getting harder. At the same time, the CFO's job has gotten a lot harder because they've got to account for all of these changing costs. And the first thing they do is they turn to the CMO and say, I need you to continue to keep the top line going, but I need to take a big pipe out of your budget. And that just comes rolling down. How do I maintain the commitment I've made to profitable growth and brand, but at the same time hand back hundreds of millions of dollars? Now, and you'd think written in that kind of or beneath that statement is it's always the CFO.

5:27It's always been on the I always want to get expense reduction across the whole company. Marketing is a big line item a lot of times, so they get it. But you're saying it's getting tougher. And is that getting tougher because people are banking for uncertainty or other stuff? Because the stock market's at record highs. There's decent earnings coming. What do you see behind all this? Let's say uncertain. So yes, right now, there's been worry. There's been bouncing around. The current numbers are coming strong. But if you listen to all of the earnings calls, there's still a lot of uncertainty out there and a lot of questions around when we will have a clear picture on everything from employment on one side to inflation on the other.

6:15Okay. And I think this is a really good summary you've done of what's going on in the businesses. It may look good on the top, but beneath the surface, everyone is paddling like crazy. Yes. Very nervous about how choppy the sea might get. And let's throw in some AI specifics on top of that. Because you have all this money going into AI infrastructure, everyone rushing to go AI. You're seeing all the people say, maybe this thing isn't going to pay out as fast as we thought. Tell us what you see there and then the pressure, the additional pressure that is putting on everything. We are taking a short break from our discussion for a word from our sponsor, Typeface AI.

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8:01And even before AI, the execution of marketing has only gotten more difficult. from influencers to the proliferation of various social media platforms, TikTok, is it going to stay in the U.S.? Is it not? So the choices a marketer has to reach the consumer just keeps getting spread out. So that's one angle I'm seeing being a challenge for execution because right now it's spreading the ad budget like peanut butter as opposed to really focusing on what works. AI complicates that, but also can help with that. What we're seeing is a lot of experimentation, particularly, I think, on the harder end, which is the ad production and creative.

8:50There's a huge opportunity upstream in terms of measurement, in terms of understanding consumer behavior, understanding consumer insight, and doing a better job of targeting. So there's one piece of, you know, from a media execution standpoint and media buying of who should we be targeting? When should we be engaging them? How should we be engaging them? And then there's a downstream in terms of everything from developing brand briefs to developing the actual ads themselves. So a marketer has to think about all of those things and how to layer those in. And of course, they don't own a lot of the assets that are involved with that value chain.

9:34So they've got to pick the right agency and the right agency capabilities. And that is shifting dynamic in and of itself. We've had a couple of guests on the show that have said things along the lines of the CMO job is, if not the hardest, surely one of the hardest in the C-suite. And when you throw AI under the top of this, particularly if you have a large budget, you can make a case that you're at the front end of all this stuff while you are getting almost always expense reduction pressure. And that's kind of, I think that's the topic of this show. And now that we've set the stage, I think one of the concepts I want to talk to you about is your thinking is that really all companies, marketers in particular, should be preparing to reduce the expense line.

10:26Why they manage all this complexity, because that's just the way of the world. And that's Darwin at work in the marketplace. Tell us, set the stage for us about how you are looking at this across companies and then marketers, marketing in particular, but companies first, and then we'll dive into how to do it. Right. This reminds me of the also distant past of social media and the advent of social media. And the agencies and the value chain was much slower to pivot to social media than the consumer. So a lot of money was still being poured into traditional media when the eyeballs had massively shifted to social media.

11:13And it took years to catch up. And the ones who did it, the ones that did it first and best saw outsized gains with that. One client I worked with did both. They went through an exercise to get more performance and more cost effectiveness out of their marketing spend. And they took a billion out. But then they took and pivoted rapidly to social media. And so that was a game changer. Hey, Dwight, can we go? They took a billion out of what, like roughly, what percent of the budget was that? That they don't speak about. But it's double digits in terms of percentage. So we'll say way more than 10%.

11:59So that's a massive chunk. And then you run that, you take that money, and I hear you saying, then you take that money and you turn the marketers loose on new stuff that's working. So you're not stuck doing this incremental move. You are shifting immediately into the big story. Yeah, it lays out how they went through that. And there's a lot of media on it as well. There's a lot of news stories on how they radically transformed by pulling, finding, forensically finding money that wasn't performing anymore. It worked before, but it's not working now. And they had to do the analytics to find it and to extract it and then pivot it to new areas that were working really well.

12:44So let's talk about how do you do that? Because since the dawn of marketing time, everyone has been at the Wanamaker thing. 50 % of my budget is wasted. I just don't know if 50%. There's teams of people constantly looking at this marketing, analytical departments, CFOs and everybody. How do you recommend people do this differently? And we're not even talking about the cultural resistance yet. Right. That was what you did in that billion dollar thing. That's a massive shift in focus versus an incremental, we're going to tear this apart one thing at a time. This is, we are going to find this and then we're going to move all of it.

13:28And again, and again, that's, and if you move forward to in a world of AI, it's even more true back then. As always, it's about analytics, right? It's about taking the data and really tearing apart your campaigns all the way down to every 30-second act, quite frankly. And today, it's obviously every click, but also every exposure, every impression. You can measure it, but when I go in and ask a CMO or a brand manager, can I see last month's performance report? It takes them three weeks to get it to me. It tells me they're not using it to manage. They're using it to plan in some cases, but they're not using it to manage.

14:15Wow. That is super interesting because you would think in that kind of world, analytics are your best friend. But one of the things about analytics is everyone has their own version of there's last touch attribution. There's all the brand measures. There's a long-term spending and brand building. There's all this other stuff. How do you figure out where you really are on that efficient frontier? Because everyone thinks they are really efficient, but it's hard to believe anybody really is. How do you assess true efficiency? It comes across in a couple of buckets. One is you hold performance equal and you go, okay, how clean is my execution?

15:00And it's just basics, right? Oversaturation. You know, in TV, you can, you know, you can waste 50 % of your budget. In digital, you can waste 90 % of your budget. And what do I mean by that? We have seen situations where, and we've all experienced it as a consumer, where a target audience is getting hit by an ad 100 times a week. Yeah. And there's a diminishing return somewhere well before 100, right? And so we've calculated as much as 90 % of that money was wasted. And it was a significant percentage of the budget, right? And so when there's no science, art, nobody's theory that says 100 times a week is the right number, then if you cut it to 50, it has no impact on your performance.

15:55And it cuts your budget in half that you can reinvest somewhere else. So that's the efficiency piece. And we're seeing that from everything from the length of the ad to the quality of the ad to the free. Yeah, because if you could go to 15s, you can cut it in quarters. Tell me about you. You also mentioned 90 percent of your performance money can be wasted. Tell me where you're going with that one. So, again, that's on the efficiency side. And the flip side of it, though, should start with consumers, right? Consumer behavior and buyer values. And one of the things that we've invented or innovated with is first fast response, which is if I come up with a brand, what is your first fast response to, you know, that contextual situation?

16:42And that is where you're trying to get to. For a particular demand space, what is the first brand that you think of for that moment? Whether it's what car you want to buy. Yeah, so if I do call. And I say, what car do you want to buy? That's the first response. Or what car do you need if you have a family? Is that what you're talking about? Yeah, no, absolutely. I want a fancy sports car. What's the first thing that comes to mind? Or I want a safe car. What's the first thing that comes to mind? Or I want a refreshing beverage. That's a brand that's a new top of mind, essentially. And so then you're finding where is that, again, demand space that is important to the mind lens of the world.

17:28And you're driving towards where am I vis-a-vis the competition in that demand space? And if I'm not first, then that has a huge impact on my brand power and market share. So you start there and go, how am I executing against the right brand space? Where do I have the right to win? And then how am I executing against that? Not how am I executing against three demographic levers. So if I said best marketing podcast, I know what you would say. So when you start getting this data, how do you know you're cutting the right stuff? because in my career, I have managed to reduce budgets significantly in a bunch of places, but there's always a hue and cry that you're going to destroy the company.

18:22Oh, yeah. You're going to destroy this thing. Deer uncertainty and doubt is a great defense. Yes. And a lot of times, sometimes it's right, too, or at least it's been right sometimes. So how do you know you're cutting the right stuff? because you're not going to do it without some analytics that say this is right. How do you know you're doing it right? And then how do you overcome this? It's a multi-part question. How do you overcome the naysayers in that who have already looked at the data and are saying, no, that's totally wrong? You're cutting the right costs when the CMO says you're cutting the right costs.

18:59And how you get there is that you have the data and you ask the simple question, what brand value am I driving by showing a small segment of my target audience the same ad 100 times a week? And do you think we could do it 50 times a week? And can we run an A-B test in a very short period of time in a small slump of the market at 50 times a week? And maybe 25 times a week. I used to have this thing, find them in, find them in. So, yeah, you've got to use the facts and work with the brand managers and the CMOs to test the hypotheses to get to some places comfortable. Two things I would say to that.

19:50One, that assumes the CMO is on board with, I got to cost, I got to expense reduce. And a lot, some CMOs are never on board with that because they think all the money is perfect. And so I want to talk about that. That was, so that's CPG. And you're the first person to speak Dutch on the show, by the way. So non-CPG, where it might be a little harder to understand some of the brand stuff. And then CMOs that actually don't buy in to the expense reduction story we started this whole show with. I haven't met, I've only met one CMO that has bought into it in my 20 years of doing this. Starting. Most CMOs buy into it by the end.

20:31A few obviously do not. But it depends on what the mission is. If you've been told by the CFO to go find this, and it is about doing the least harm possible. When we've gone in, we have been able to do it in ways that takes out very low performing spend. Yeah. And so that's one. Two is we find more low performing spend than the CFOs ask for, and we found places to reinvest it. And so, again, we get the CMO fresh cash and they always have unfunded projects that they want to go execute against. And that's if the CFO is pushing. Even if the CFO is not pushing, the more forward-leaning CMOs who want to do, for instance, big things in AI are looking at this as a way.

21:34They know they can't go to CFO and ask for more money, especially the sums that we're talking about. So the opportunity is to look within your own budget, proactively go find the lower performance and pivoting it in such a way that you both are able to continue against your execution objectives, as well as have the R &D funds to go try some of these new things. Yeah, I think there is always an advantage to being ahead of the game versus change. And the way to make your CFO love you is to be ahead of that curve. But I want to talk about, so we have a lot of audience out there that maybe can't hire a top-notch company to come in and do this for them.

22:17How should they get started on this? If you can't use any outside help and you've decided, gosh, I got to move my marketing team into the space right now where we are more expense conscious. Where? Give us some tips. Give our audience some tips on how to do it. Okay. First of all, I would say that your audience, I would imagine the first thing is that they actually can afford the help. We are so confident in our ability to help that we are willing to put our performance at risk and put our money where our mouth is. We will go find you the performance improvements. And if we don't, then that's on us, not on you.

23:07And so we can do a very quick diagnostic to see what is the size of the prize and the levers that have to be pulled. And then get into a commercial conversation that says we can go deliver that. And you get to pay us out of money that you wouldn't have had otherwise and still have money to reinvest. Now, if you're at, and I've been able to do that with budgets below$100 million. And again, I think your audience is going to be at or well above$100 million. We've got a bunch of big, a bunch of small, a bunch of B2B. We cover the gamut. Okay. Yeah. And so if you're talking about smaller brands or smaller marketing budgets, then again, I would come back to the basics of brand execution.

23:51I've seen in small budgets, out of kilter ratios of non-working to working, where you've spent so much money on ad fee, on agency fees and production, you don't have enough money to actually buy the media. Everybody in the audience who might not know the difference between working and non-working, working dollars is money that the consumer sees. And non-working is money that is used to get that stuff to the consumer, like producing an ad, like driving your CRM system, et cetera. And one of the things I think Dwight's talking about here is the ratio between working and non-working is really a good place to start, especially if you're small.

24:33And I think, I didn't mean to interrupt you. I just wanted everybody to know what you're talking about. So let's talk about how you would attack working and non-working dollars. Yeah. Thank you for that. Sometimes we get into too much inside baseball. The money that you spend to produce the ad can't be so much that you don't have any money to actually show someone the ad. You can only run it one time. You can't show enough, can't show it to enough people enough times to make a difference. And so that's the other piece is the first question is, do you have enough money to make a difference? And if you don't have enough money to make a difference, then, you know, you're probably wasting your entire budget.

25:13Yeah. And so if you don't have enough money to cover the entire market, you really need to pick a subset of the market where you can move the needle because showing the entire market you're at once a year is the equivalent of showing at zero, right? So pick a subsegment and be able to reach sufficiency. One. Two, make sure your ratio of what you spent to produce it is less than, I would say a generous spend is$1 to produce for every$5 you've got to show it. Best in class, drive that number even further down. Yeah, you can get to 9 to 1 if you're really... And I think I hear you saying two things here, correct me if I'm wrong.

25:59The first is you have to have a threshold of spending that makes a difference in terms of consumer impressions somewhere. Right. And even if you don't have that, it doesn't matter how great your creative or your search word buying is or CRA, you're not going to move the needle in a significant way. And the second thing is don't over-index on making it beautiful if you can't make it reach everybody. 80 % of the value, we've seen this. And again, this is even with the biggest brands just, of course, only work with billion dollar brands. and in-store promotions, for instance, 80 % of the value is just the brand and the message.

26:39It could be in black and white. But instead, they make the joke that they've hired Steven Spielberg to direct. They've got Taylor Swift's mission to make the song. They've got Tom Hanks and Tom Cruise starring in it. And there's got to be a helicopter and a volcano. And so there's all of this money on production that doesn't drive any more value then black and white that says our product is great buy it here same thing it's the same thing with promotions which is if a dollar off is really good then three dollars must be great and i should go to ten dollars and i'm like that is probably not the greatest thinking yeah i also want to talk about zero-based budgeting something i'm personally not a fan of but a lot of people are tell me your thoughts on zero-based budgeting?

27:30And zero-based is everybody starts from zero and you have to justify everything you spend. Full disclosure, I've run some of the biggest zero-based budgeting programs that's ever been run. And what I've learned is just like a lot of things in life, there's goodness in moderation and there's really bad stuff if you become a fundamentalist and sell it about it. But really sell us on, do we need a tax department? Really? Yeah. So the core principles apply. And really what I've seen is if you apply it in a way that pushes the company and stretches it, but doesn't either break it or bog it down. First thing is, do you have the data to support it?

28:23I've gone into places and said, let's stop now. You do not have the data. So this will, it will take your entire organization the rest of the year just to collect the data. And that's not the highest and best use of time. So let's pull it back a level. Other places, I was able to get 200 million transaction records in a week. Yeah. And then feed that into our systems and be able to come back with precision analysis of where money was working and not working against their brand objectives. There's also that sell us thing, which is do we really have to justify that we need like a call center and stuff like that?

29:02Do you always go to zero on everything? Or can we just stipulate that this part is there and we're going to make it more efficient, but let's not go to zero on everything. Yeah, you've got to start just like brands, right? You've got to start with your brand objectives and think long-term about where you're trying to take brand equity and then get into what is the best way to invest to get that done, not should we have brands, right? That's for business schools and other places of luxury. I'll let all the business school professors that have been on the show opine on that. Before we get to our traditional last question, I'm going to ask you too.

29:43What are the biggest mistakes marketing leaders are making right now? When we were talking about sufficiency, it sounded like we were just talking about smaller brands and smaller marketing budgets. I have looked at multi-billion dollar marketing budgets of many companies. And I would say that in some cases, up to half of their spend was not in where I would call the sufficiency range. And so it was a lot of little campaigns that didn't add up to any master plan or master brand strategy. It was all tactical, local execution. So one of the challenges that CMOs have is in a matrixed organization, global, multi-brand, country-led, is that you've got 10 ,000 flowers blooming and not enough control, particularly in a world in which, again, digital creates many opportunities for success as well as waste.