The CMO Survey Blog

Who Has the Biggest Marketing Budgets?

Marketing budgets are rebounding. They are expected to increase 6.7% in the next twelve months according to the February 2014 edition of The CMO Survey. This is a sizable increase over projected increases of 4.3% in August 2013 and a massive boost over the 0.5% increase reported in February 2009. Bounce!

To put these figures in perspective, The CMO Survey reports that marketing budgets represent approximately 10.9% of overall firm budgets. These figures have hovered around this average since this question was first asked in February 2011. On the other hand, marketing budgets as a percent of firm revenues improved to 9.3% from 7.9% in 2013 indicating that marketing budget growth outpaced revenue growth. One question that survey users often ask about these figures is whether or not they include salaries for marketing employees. Analysis indicates that these marketing spend estimates include both employee and non-employee investments in marketing.

I examined all three marketing spending metrics across several firm and industry characteristics. These are summarized in Tables 1-3. As shown in Table 1 across these three indicators, B2C-Product companies have the largest marketing budgets (as a percent of budgets and revenues) and the largest expected growth in marketing budgets across the four economic sectors. I expected a large increase over the B2B companies which may be reaching customers with their own or their channel’s salesforce. However, I did not expect to find B2C-Product companies also dominating B2C-Service companies by 20-30% differences. Would love to hear from marketing leaders in this sector about this differential.

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Does Pressure to Prove the Value of Marketing Help or Hurt Company Performance?

Two-thirds of all top marketers feel pressure from their CEO or Board to prove the value of marketing according to August 2013 results from The CMO Survey. Of those, 60% describe that pressure as increasing. These numbers are consistent with the fact that most CMOs continue to find proving the value of marketing elusive. Survey results indicate that only 36% of top marketers report being able to prove the value of marketing quantitatively in the short-run and 31% in the long-run. Demonstrations of the value of social media are even more elusive with only 15% able to offer quantitative evidence for the value of social media spending.

A key question that needs to be asked is whether pressure on CMOs to prove the value of marketing helps or hurts company performance. These are reasonably good arguments on both sides. On the positive side, increasing pressure might make marketers work harder. On the negative side, increasing pressure could make marketers focus on strategies that are easily measured or that only provide short-term boosts so that proof is in hand when the CEO or board comes knocking. This means that instead of designing and selecting strategies that are optimal for company goals, strategies are selected to help marketers defend their spending decisions.
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Chief Marketing Officer Optimism at Four-Year High; Proving the Value of Marketing Remains Elusive

New results from The CMO Survey offer encouraging predictions about the future of markets and document ongoing challenges to marketing excellence and leadership. The 410 top marketers surveyed in August report their highest levels of optimism for the overall U.S. economy in four years. On a scale of 0-100, with 0 being the least optimistic, CMO scores came in at 65.7. This is nearly a 20-point increase over the same measure taken in August 2009 near the low point of the recession. Almost 50% of top marketers answered they are “more optimistic” about the overall U.S. economy compared to last quarter. Back in 2009, the optimists came in at just 14.9%. “Pessimists” went in the opposite direction with those reporting to be “less optimistic” dropping from 59.3% in 2009 to 13.2%.

Now for the rough news. Demonstrating the impact of marketing spending remains a challenge for marketing leaders. Only one-third of top marketers surveyed report their companies are able to demonstrate quantitatively the impact of their marketing spending. This percentage worsens when considering social media investments. Only 15% of CMOs surveyed report proven quantitative impacts from their social media marketing expenditures. Another 36% respond they have a good sense of the qualitative impact, but not the quantitative impact. Almost half of the CMOs surveyed (49%) have not been able to show that their company’s social media activities have an impact on their business (Figure 1). Despite this, marketers are expected to increase expenditures in social media from 6.6% to 15.8% over the next five years (Figure 2). (more…)

Do Marketers Know What They Want From Social Media?

Social media spending as a percentage of marketing budgets will more than double over the next five years according to new results from The CMO Survey. Responses from 468 top marketers in February indicate that companies are spending 8.4 percent of their budgets on social media. Over the next year, that number is expected to increase to 11.5 percent, and in the next five years it will reach 21.6 percent.

Looking back to the first time I asked these questions in August 2009, the levels were 3.5 percent of current budgets and expected to increase to 6.1 percent over the next year and 13.7 percent over the next five years. The increase in current spending from 3.5 percent to 8.4 percent alone represents a 140 percent increase in the last 3 years. No other part of the marketing budget has grown so much in such a short amount of time. In fact, during the same time period, traditional advertising has continued to plummet. It was decreasing by 7.9 percent per year three years ago and continues to drop 2.7 percent in the current year.

The dramatic increases in social media spending were universal across different business sectors: B2B-product, B2B-services, B2C-products, and B2C-services. The B2C-product sector, which includes companies such as Procter & Gamble and The Coca-Cola Company, expects the most dramatic increase, from 9.6 percent to 24.6 percent (see Table 1). (more…)

In Search of Marketing Excellence: Ten Differences Between High-Performing and Low-Performing Companies

Marketing excellence—marketing leaders strive to attain it and marketing professors try to dissect it. For the first time, The CMO Survey-August 2012 asked top marketers “How would you rate your company’s marketing excellence?” on a 7-point scale where 7=one of the best in the world, 6=a leader but not one of the best, 5=strong, 4=good, 3=fair, 2=weak, 1=very weak. The mean score was 4.4 (standard deviation=1.4). Figure 1 contains the full distribution of responses.

Figure 1. Marketing Excellence Ratings in Companies

Over time, The CMO Survey will develop a longitudinal database and provide more definitive answers to the questions surrounding marketing excellence. However, using only the August 2012 data, I can share some of the performance, spending, strategy, leadership, and organizational choices/outcomes that are and are not correlated with marketing excellence.

To generate these insights, I classified companies participating in The CMO Survey according to whether they performed above or below the mean on the marketing excellence question. The high-performing group (n=184 firms) has a mean marketing excellence score of 5.52 (s.d.=0.66) and the low-performing group (n=170 firms) has a mean marketing excellence score of 3.22 (s.d.=0.88).
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Six Reasons Marketing Budgets are on the Rise

Marketing budgets as a percent of overall firm budgets and as a percent of firm revenues are both on the rise as noted in my prior post. Why are firms spending more on marketing? Here are six reasons I see in The CMO Survey™ data and in my research.

  1. New jobs: Marketing appears to be taking a leadership role in managing social media activities in companies. Given social media spending as a percent of marketing budgets is expected to rise from 7.6% to 18.8% over the next 5 years, this means new funds are flowing toward marketing.
  2. New skills: Companies plan to increase marketing training by 3.7% in February 2012 to 7.2% in August 2012. In particular, I see many companies in investing in programs to build marketing capabilities. A good example is GE’s Experienced Commercial Leadership Program, which develops cohorts of young marketers for the company. Another example is Becton Dickinson’s Marketing Excellence Initiative, which provides non-marketers with a big dose of training in key marketing tools and processes.
  3. New knowledge: Big Data has captured the imaginations of leaders in companies big and small. The ability to leverage information about customers in order to deliver and demonstrate value opens the door for marketers to fill the role as analysts and “data whisperers” as McKinsey calls them. As noted by McKinsey in its Chief Marketing and Sales Officer forum, “Data whisperers are those analysts who can coax meaning and insights from the increasingly sophisticated and massive data sets available today.” (more…)

Marketing Spend on the Rise – Three Trends Worth Watching

Results from The CMO Survey™ (August 2012) contain three indicators that marketing spend is on the rise in companies.

First and the weakest, CMOs reported that marketing spend is expected to grow by 6.4% in the next year. This number is positive, supporting my thesis, but the number is actually down from expected growth of 9.1% from August 2011. Given continued depressed firm growth and slow economic growth, this decrease is not altogether unexpected. It is positive nonetheless.

Second and more telling is the fact that marketing budgets as a percent of firm budgets increased 40% from 8.1% in February 2011 to 11.4% in August 2012. The Figure shows that this percentage has increased steadily over the last 18 months, pointing to the fact that companies are placing a greater emphasis on marketing spend relative to other types of strategic spend.

Figure. Marketing Budgets as a Percent of Firm Budgets

Third, marketing spending as a percent of firm revenues increased 30% from 8.5% in February 2012, the first time The CMO Survey™ asked the question, to 11% in August 2012.
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How Does Your Company Grow?

The CMO Survey has been tracking company growth strategies for four years. Respondents allocate 100 points among four well-known growth strategies to reflect what their companies have done over the last year and plan to do in the next year.

The four growth strategies are differentiated on two dimensions. The first dimension is whether the company is growing by deepening purchases from current customers or entering new markets (new from the standpoint of the company’s portfolio). The second dimension is whether the company is growing by trying to sell more of its current products and/or services or by offering new products and/or services. These two dimensions produce a 2×2 matrix of growth strategies (Table 1) called the Ansoff Growth Matrix.

Table 1. Types of Growth Strategies

Table 2 shows the percent of company expenditures for each strategy for the past 12 months and for the next 12 months. Most companies continue to grow through market penetration. This low-risk strategy usually yields more certain but lower returns. However, this number is expected to decrease. Companies are expected to take on more risk by increasing use of the remaining three growth strategies with an emphasis on product/service development (developing new offerings for existing markets) and diversification (targeting new markets with new offerings).

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Using Marketing Analytics: I Do, Therefore, I Think

I recently reported that The CMO Survey found companies expect to increase the marketing analytics portion of their marketing budgets by 60% from 5.7% to 9.1% in the next three years. This is a monumental increase especially given that marketing budgets overall have grown only 8.3% over the last two years. While impressive, the true mark of whether marketing analytics is going live up to its expected role as a critical strategic asset cannot be measured by spending. Instead, we have to consider how marketing analytics affects what managers do and think and how well they perform.

To gauge this impact, the February 2012 CMO Survey asked top marketers to answer this question: “In what percent of your projects does your company use available or requested market analytics before a decision is made?” The average score was 37.2% (95% confidence interval: 31.5%-43%). This means that 62.8% of the time, managers are not using marketing analytics! By this measure, marketing analytics must do more. If not, its funders will place bets on other strategic weapons they believe will allow the company to serve customers better and to pull ahead of competitors.

Company Use of Marketing Analytics in Decision Making

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Spending on Marketing Analytics

I added a special section focusing on marketing analytics to the February 2012 issue of The CMO Survey. With all the talk about “big data” and the billions of dollars companies appear to pouring into capturing, processing, and leverage customer data, I thought it would be a good idea to examine where companies are on a few key issues and also where they expect to be over time on this strategic investment.

I asked top marketers to report what percentage of their marketing budgets they spend on marketing analytics. I think this is a reasonable request given that 70% of all top marketers state that the marketing analytics group reports to them. Results indicate that companies currently spend an average of 5.7% of their marketing budgets on marketing analytics and that this number is expected to grow to 9.1% in the next three years. This 60% increase represents a sizable shift. To put it in perspective, marketing budgets overall have grown 8.3% over the last two years. This growth varies by company size and industry sector. Looking at Table 1, we can see that, in general, current marketing analytic spending levels and expected growth levels correlate with company size (measured as revenues). There is a trough near the middle for companies between $500M-$999M, but otherwise the relationship is positive and significant. Examining sector differences in Table 2, we see that services companies, overall, spend more on marketing analytics now and will remain ahead of product companies in the next three years. From these figures, service companies appear to understand the “big data” opportunity and believe they can leverage it to create more value for their customers.
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