Navigating Tariffs: How Brands Can Approach Budgets Wisely
Greg Dolan, CEO, Keen Decision Systems.
The swirling headlines about tariffs are the new reality for brands. With concerns about costs rising and margins shrinking, the potential for budget cuts is looming on the horizon.
As chief financial officers take a closer look at media spend and sales teams are asking for pricing relief, marketers are facing tremendous pressure. Instead of aimlessly guessing how to plan their budgets for the year ahead, marketing teams can use data to guide their decision-making.
Below, we'll explore how brands can properly prepare themselves for potential tariffs and how they can retain their budgets through the uncertainty.
You first need to understand how tariffs are likely to impact your brand's product category. Tariffs won't hit all categories equally, so you need to know where you stand and how far you can push your budget. For instance, demand for staple goods, like toilet paper and toothpaste, likely won't fall off the cliff, but pricing wars and brand differentiation could intensify. Instead of splurging for name-brand products, some consumers might opt for private labels or cheaper alternatives to offset price increases.
On the other hand, discretionary goods like snacks, soft drinks and premium items may take a hit as cautious consumers pull back. A March survey by CivicScience found that if tariff-driven prices impact their favorite brands, many consumers will be less likely to continue purchasing them as normal. In fact, 23% of respondents said they'd buy from their favorite brand less often, and 44% said they'd choose a more affordable option altogether. Additionally, they reported being less likely to make big-ticket purchases, which could threaten the bottom line of premium brands.
By understanding where your brand stands and how it could be impacted, you can then identify your brand's best path forward to maintain a steady customer pipeline.
While it might be tempting to pull back on brand investments or go heavy on promotions, it's important to realize you shouldn't sacrifice your brand's future to survive the quarter. In my view, deep discounts now may train consumers to wait for deals later, which could potentially harm long-term gains for short-term profits.
Additionally, cutting ad spend today can put brands at risk for becoming invisible in the future. Brand loyalty is already on the decline, with 63% of brands believing customers are less brand-loyal than five years ago, according to a Bloomreach and Emarketer survey of 154 marketing professionals (registration required for full report). So, cutting your budget during a time of shifting loyalty risks losing relevance with your existing customer base. Once trust and perception erode, it's extremely difficult to rebuild.
To make more informed decisions about ad and marketing budgets, brands can use data to see how changes in spending could impact the brand. One tool many companies use is marketing mix modeling. (Full disclosure: My company provides this type of tool, as do many others.) For example, if a snack brand that imports certain ingredients from a region subject to higher tariffs is looking to offset rising costs, it could model the short- and long-term impacts to its bottom line to help identify the best path forward. Brands can use these models to simulate a range of tariff-driven scenarios, like adjusting pricing and demand elasticity over a 6-, 12- or 36-month period. By looking at these scenarios beforehand, marketers can react to tariffs with clarity, not just a gut instinct.
However, it's important that leaders thinking of investing in a marketing mix modeling tool find the right one for their business. Consider factors such as cost, adaptability and the timeliness of the insights it can provide. Some tools can be expensive, lack flexibility and offer outdated reports, which could limit their usefulness for reacting quickly to any tariff changes. Ask about capabilities such as real-time reporting and using historical data for forecasting, as these can provide marketing teams with timely insights.
If you're considering a tool that uses AI and machine learning, keep in mind that you will need as much of your brand's own time-series data as possible to maximize the tool's effectiveness. This can help teams create the most relevant marketing plan and allow for a more seamless process. If your brand lacks this dataset, consider whether the tools you're exploring are capable of leveraging previous analyses from similar companies, price elasticity studies and multi-touch attribution to create as accurate a plan as possible.
Changing tariffs represent a new landscape for marketers. While supply chain issues have become more common in recent years, this current moment isn't business as usual. We're in a period of high-stakes decision-making. By understanding how tariffs could impact different categories, approaching ad budgets strategically and evaluating potential scenarios in advance, brands can successfully steer themselves through the uncertainty.
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