Fast growth companies cut marketing budgets
During the past ten months, 32% of America's fastest growing companies have cut or deferred sales and marketing initiatives, having a predicted revenue growth of only 5.7% for the year (less than half their original 12.4% target), according to PricewaterhouseCoopers.
But while the fastest growing companies have cut back their marketing budgets, the remaining 68% have not done so, taking more comfort in their predicted revenue growth for the year, which averages 16.1%.
"Industry and momentum are differentiating factors for these two groups," explained Paul Weaver, PricewaterhouseCoopers' global technology industry leader.
A greater share of technology businesses (36%) than non-techs (27%) have been forced to pull back on their plans, and those with thwarted initiatives are not getting traction from their industry sectors. They expect that revenues for their sector will shrink by an average of 2.1% during calendar year 2002. In contrast, those with unaltered plans are anticipating positive sector momentum of 2.0%.
Because of their weakened condition, more of those with cuts and deferrals foresee major barriers to growth over the next 12 months, compared to their unaffected counterparts. Some 84% are concerned about weak market demand (up 15 percentage points), 47% are worried about a lack of capital for investment (up 22 percentage points), and 43% are concerned about profitability (up 15 percentage points).
"Companies with delayed or scaled-back plans seem to be caught in a downward spiral of cause and effect," commented Weaver. "Because of their greater vulnerability to the economy, they've been forced to do away with their growth initiatives. This, in turn, limits their ability to rebound and could ultimately lead to further cuts."
Degrees of cuts The initiatives most often cut include marketing and sales programmes (cited by 54%), and new product or service introductions (44%). Such efforts are often seen by management as business plan components that can be readily delayed or greatly reduced in times of trouble. In addition to saving or postponing the expense of a public launch, some or all costs of programme maintenance can often be salvaged.
Other scaled-back or postponed initiatives included: advertising programmes (39%), expansion of US operations (34%), expansion of distribution channels (32%), updating core product or service offerings (26%), and updating IT systems (24%).
The least affected initiatives included new merger and acquisition activity (cited by 14%), expanding use of the internet (11%), and expanding operations abroad (8%).
Reinstatements Over the next 12 months, only 39% of the CEOs who greatly reduced or completely delayed major new initiatives think it is likely that these programmes will be restored. Another 46% say reinstatement is only "somewhat likely", while 12% rule it out as a lost cause and 3% are not sure.
"Regardless of what the future brings, it is unfortunate that these companies have been precluded from achieving the revenue that their growth initiatives had originally called for in the calendar year 2002," said Weaver.