The American economy has been sluggish for approximately the past five years and pari-mutuel wagering has been under increasing pressure from gaming competition for decades. Under these foreboding conditions, racetracks, farms, auction houses, and other equine businesses are tempted to curtail marketing budgets. But the wiser action is often to boost outlays for revenue-enhancing activities once sales begin to stagnate.

A business’s revenue levels are to varying degrees a function of the amount of money it allocates to marketing. Yet when sales begin to decline, executives are tempted to cut back in such areas as advertising and personal selling in order to trim expenses. However, doing so may be counterproductive because the reduced spending will likely exacerbate the deterioration in revenues.

Curtailing marketing in the face of economic adversity is usually explained by the reasoning “we can’t afford the expense right now.” This implies that a firm’s marketing expenditures are ineffective, meaning that a dollar spent does not lead to more than a dollar in additional revenue.

In some cases, decreasing marketing expenditures is justified—for example, when the economic headwinds are so severe that no amount of demand stimulation will produce much revenue. However, this is the exception rather than the rule. If marketing and advertising expenditures do not more than pay for themselves, then something is wrong with the underlying strategy or tactics to begin with.

The pioneering marketing and advertising merchant John Wanamaker famously commented: “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.” What Wanamaker lamented has crossed the mind of anyone attempting to determine how much to spend on revenue-enhancing activities, particularly advertising, as well as where to allocate the dollars.

But today’s techniques for measuring and enhancing results are much better than in Wanamaker’s day and are dramatically improved over even a decade ago. For instance, free tools like Google Analytics are available to the smallest of businesses, search engine optimization is not an expensive undertaking, and simple experiments can be conducted for non-Internet types of promotion.

An organization that cuts promotional expenses in reaction to a decline in sales is reversing the normal cause and effect relationship between marketing and revenues.

Copyright © 2013 the Blood-Horse. Used with permission.