Navigating Marketing Costs in High Inflation. | Kadence

As inflation continues to surge globally, its ripple effects are being felt acutely by brands, particularly in their marketing operations. Rising media buying, production, and consumer outreach costs have placed marketing budgets under unprecedented pressure. What once was possible within a fixed budget now demands recalibration to maintain effectiveness. This is not a regional issue; from the US to Southeast Asia, brands face the challenge of allocating resources at a time when inflation is reshaping cost structures and consumer behaviour alike.

Strategic budgeting has, therefore, become critical for marketers navigating this new reality. Traditional approaches to budgeting, often rigid and reactive, are no longer sufficient. 

Senior leaders in market research and branding must embrace more agile, data-driven strategies to maintain competitiveness and seize new growth opportunities. These shifts are not merely defensive tactics but proactive measures that can position brands for success amid economic uncertainty.

From rethinking channel allocation to leveraging automation and AI, marketing leaders can adopt strategies to maximise ROI and ensure long-term growth.

How Inflation Affects Marketing Costs Globally

Inflation’s broad economic impact has compelled brands to rethink their marketing strategies. Rising production costs, increased media buying rates, and higher consumer engagement expenses are forcing marketers to reassess their budget allocations. This dynamic is particularly pronounced in key global markets like the US, UK, China, and Japan, where inflationary trends have sharply influenced marketing spend.

In 2023 and 2024, inflationary pressures have continued to impact marketing costs globally.

• United States: The U.S. inflation rate was 3.4% in December 2023. 
• United Kingdom: In December 2023, the UK’s inflation rate was 4.0%, up from 3.9% in November 2023. This increase could have influenced the costs of traditional media channels, potentially affecting marketing budgets.
• China: The National Bureau of Statistics of China reported that the producer price index rose 8.1% in 2022 due to supply chain disruptions. This increase likely impacted sectors heavily reliant on physical product advertising, potentially squeezing marketing budgets.
• Japan: According to the Ministry of Internal Affairs and Communications, Japan experienced its highest inflation in decades, with prices rising by 3.7%. This inflationary trend may have affected retail industries that depend on consistent advertising to drive consumer engagement.

Common Budgeting Challenges for Marketers During Inflation

Marketers are navigating several key challenges as inflation continues to drive costs upward:

• Rising media costs: Traditional media, such as television and radio, have become less affordable as inflation pushes up ad rates. 

The average cost-per-click on Google Ads rose by nearly 15% in 2023, making digital advertising more expensive for performance marketers. - Source: Wordstream, 2023

• Supply chain disruptions: The rising cost of raw materials and logistics has also driven the expense of producing marketing materials, forcing brands to seek more cost-efficient strategies, particularly in digital marketing.
• Fluctuating consumer demand: As inflation reduces consumer purchasing power, brands must adapt their messaging and spending to target consumers who are now more price-sensitive. A 2023 McKinsey report found that 35% of US consumers cut back on discretionary spending in response to inflation.

In Vietnam, brands have embraced digital platforms, particularly social commerce and influencer marketing. A 2023 Nielsen report revealed that Vietnamese brands cut television ad spend by 12% while increasing their investment in platforms like TikTok and Facebook. This digital shift allowed brands to remain cost-effective while continuing to engage younger consumers. 

In Indonesia, co-branded campaigns have emerged as a cost-sharing strategy. Gojek and Unilever Indonesia collaborated on digital promotions, using shared app-based campaigns to maximise reach while splitting the costs. This partnership allowed both brands to expand their audience without overspending. 

Prioritising High-Impact Marketing Channels

In an inflationary environment, selecting the right marketing channels is paramount. Brands must focus on performance-driven channels such as digital marketing and SEO, which offer greater flexibility and more measurable results than traditional media.

For instance, in the Philippines, brands have embraced a digital-first approach, reallocating budgets from television and radio to more cost-effective digital platforms. According to Hootsuite, in 2023, digital ad spending in the Philippines increased by 21% as brands turned to mobile and social media advertising, allowing for real-time tracking of consumer engagement and more efficient spending. 

A recent Neilson study found digital channels like social media and search advertising delivered an ROI of 2.45x compared to television’s 1.53x in 2022. This higher return makes performance-driven channels more attractive during inflationary periods. 

Leveraging Data-Driven Insights for Smarter Spend

As inflation drives up costs, brands can no longer afford to make uninformed spending decisions. Data-driven insights, powered by predictive models and AI, have become essential for optimising budgets in real-time.

In India, brands are using AI-driven algorithms to reduce customer acquisition costs. Many e-commerce companies have employed machine learning to optimise ad targeting, reducing CAC during rising inflation. 

In Singapore, brands have embraced predictive analytics to forecast the impact of inflation on consumer behaviour. A campaign by Singtel, one of the leading telecommunications companies, effectively used AI and programmatic advertising to drive better targeting, improve cost-per-lead (CPL), and increase campaign effectiveness. The campaign used AI to optimise ad spend and performance, resulting in a 14% improvement in average CPL year-on-year. This example illustrates how predictive analytics and AI are being used to optimise marketing spend under budget constraints.

US and UK: Strategic Shifts in Media Buying

Brands in the US and UK are responding to inflation by shifting to programmatic advertising and co-branded campaigns, which offer more efficient media buying.

• This year, US programmatic digital display ad spend will increase 15.9% YoY, growing three times the rate of nonprogrammatic digital display ad spend, according to eMarketer’s December 2023 forecast.
• Unilever UK partnered with Tesco to launch a joint sustainability campaign in the UK. Both companies maintained a strong brand presence by sharing the cost of media placements while reducing individual expenses. For example, a recent campaign focused on tackling hygiene poverty, where Unilever worked with Tesco and other partners to donate essential hygiene products. The campaign utilised in-store and online media to raise awareness while sharing the costs of media placements to keep expenses low​.

Southeast Asia: Embracing Agility Amid Inflationary Pressures

In Southeast Asia, brands are becoming more agile to cope with inflation’s unpredictability. They increasingly turn to local partnerships and digital innovation to mitigate rising costs.

In Thailand, CP ALL, the parent company of 7-Eleven, has been focusing on digital strategies to cope with rising inflation. One such initiative involved partnering with LINE MAN, a popular delivery platform, to co-promote food and beverage products through in-app discounts. This collaboration allowed both companies to share marketing costs while driving customer engagement through digital channels. By leveraging the strength of their partnership, CP ALL managed to enhance its digital sales without significantly increasing marketing expenses. 

In Indonesia, Tokopedia adapted to inflationary pressures by shifting its focus from traditional advertising to influencer marketing. This strategic pivot enabled the e-commerce giant to reach a broader audience through social media platforms like Instagram and TikTok while keeping marketing costs in check. By collaborating with local influencers, Tokopedia was able to engage younger consumers and drive higher levels of interaction. 

Managing Marketing Budgets During Inflation

In an inflationary environment, strategic agility is key to managing marketing budgets effectively. Senior marketing leaders must anticipate changes, respond dynamically, and leverage advanced tools to optimise spending. 

Here are three actionable steps that can help:

• Implement Scenario Analysis to Anticipate Budget Changes
  Inflation introduces a degree of uncertainty that makes scenario analysis indispensable. By simulating different economic conditions—ranging from mild inflation to severe cost surges—marketing leaders can plan and allocate resources based on various outcomes. AI-driven predictive models can also help forecast the impact of inflation on media buying, consumer demand, and campaign performance. This enables proactive decision-making, where leaders can prepare for worst-case scenarios without reactive budget cuts. 
• Adopt a Flexible Budget That Allows Reallocation Based on Real-Time Data
  A rigid budget structure is a liability during inflationary periods. Instead, marketing teams should employ dynamic budgeting—a flexible framework that allows the reallocation of funds based on real-time data. For instance, if consumer demand shifts toward lower-cost products due to inflation, marketing spending can be adjusted toward performance channels (e.g., paid search), highlighting value propositions. An agile budget also enables marketers to double down on high-ROI channels and quickly scale back on underperforming ones. 
• Invest in Automation to Improve Cost Efficiency in Campaigns
  Automation has emerged as a vital tool in managing marketing costs during inflation. By automating campaign management, ad bidding, and customer segmentation, brands can reduce the operational burden while achieving greater precision. For example, automated media buying through programmatic platforms ensures bids are optimised based on real-time market conditions, preventing overspend. Automated Workflows are designed to enhance cost efficiency while driving high-impact results. 
• Aligning Marketing Strategy with Long-Term Business Goals
  Inflationary pressures often lead companies to focus solely on short-term cost control, which can be a strategic misstep. Leaders must balance immediate budget concerns with maintaining brand equity and long-term growth. A forward-looking marketing strategy should not compromise on investments that sustain brand visibility and consumer loyalty, even when inflation drives up costs.
• Balancing Short-Term Cost Control with Long-Term Growth
  Cutting back on essential marketing investments can weaken a brand’s market position. Instead, marketers should focus on optimising spend rather than merely reducing it. This can be achieved by prioritising high-ROI activities and reinforcing the brand while making surgical cuts to lower-performing areas. For instance, performance marketing and digital channels offer immediate returns, but maintaining brand-building activities like public relations, content marketing, and customer engagement is crucial for long-term growth. Research on the Great Recession found aggressive companies outperformed those that hunkered down. 

China’s Market Leaders Focusing on Brand Equity Despite Rising Costs

In China, several market-leading companies are adopting strategies that balance short-term marketing budget adjustments with a focus on long-term brand equity. One example is Alibaba, which has continued to invest heavily in brand-building initiatives despite rising operational costs due to inflation. In 2023, Alibaba launched its “New Retail” strategy, which merges online and offline retail experiences while maintaining a strong digital presence across e-commerce and social media platforms. This dual focus allows Alibaba to engage with consumers continuously while reinforcing its brand in a highly competitive market. 

Similarly, Tencent, another market leader, has balanced the inflationary pressure by diversifying its marketing spend. Rather than cutting back, Tencent reallocated budgets to focus on emerging channels like social commerce and gaming sponsorships, ensuring its brand remains top-of-mind even as traditional advertising costs rise. This long-term brand focus, combined with strategic media spend, has allowed Tencent to maintain market dominance in China despite rising inflationary pressures. 

By adopting these practices, brands can ensure that short-term budget adjustments do not undermine their long-term growth potential. The goal should be to sustain brand relevance and loyalty while navigating inflation’s immediate financial challenges.

Final Thoughts

With agility and data-driven foresight, marketing leaders can navigate rising costs and fluctuating consumer demand. By prioritising high-ROI channels, leveraging AI and predictive analytics, and adopting flexible budgeting practices, brands can mitigate inflationary pressures without sacrificing long-term growth. 

Market research guides these decisions and offers insights into shifting consumer behaviours, competitive dynamics, and emerging trends. Accurate and timely market data empowers brands to make informed choices about where to allocate resources, ensuring their strategies align with both short-term market conditions and long-term brand objectives.

Ultimately, strategic budgeting is a proactive, ongoing process. Brands that embrace agility, automation, data-driven decision-making, and the actionable insights provided by comprehensive market research will emerge stronger, more resilient, and better prepared to face future challenges in a shifting economic landscape.