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Read Professor Moorman’s analysis of key survey results.

Who Outsources Marketing?

There are good reasons to outsource marketing and many companies choose to do so. Let’s look at more CMO Survey results to get a sense of what types of firms are outsourcing marketing and what financial and strategic conditions appear to give rise to outsourcing.

In response to the question, “Do you outsource any of your marketing activities?” I find that the B2C-Service industry has the greatest percentage of firms that outsource (88%), followed by B2C-Product (80%), B2B-Product (75%), and B2B-Service (66%) sectors. When asked, “By what percentage will your firm’s outsourcing of marketing activities change in the next year?” I see a different pattern as shown in Figure 1. B2B companies plan to increase outsourcing significantly more than B2C companies. Perhaps it makes sense that those firms that outsource now will need to increase outsourcing less in the future.

Figure 1. Percentage Increase in Marketing Outsourcing in Next 12 Months by Sector

Expected change in marketing outsourcing is also higher among firms that have 0% of sales through the internet (14%), lower for firms with 1%-10% of sales through the internet (8%), and lowest for firms with >10% of sales through the internet (2.8%). Here is my story about this result—firms that are already culling greater than 10% of their sales from the internet have built internal groups to do this work. Firms that are not yet deriving sales from the internet need help to get there.

Figure 2. Percentage Increase in Marketing Outsourcing in Next 12 Months by Company Internet Sales

How does the company’s growth strategy influence its marketing outsourcing level? Logically, when the growth strategy relies on existing knowledge and skills, such as in market penetration strategies, there is probably less need for outsourcing. The firm presumably can do this work based on its experience. However, as the company expands into new markets with existing products (Market Development), new products for existing markets (Product Development), or new products and new markets (Diversification), we should see the level of outsourcing increase. Correlation results offer some support for this view. If I correlate the level of investment in each of these four growth strategies with the level of marketing sourcing, I find the relationship is negative and significant for Market Penetration. This means as the level of investment in Market Penetration strategies increase, market outsourcing decreases. I find the opposite for Product Development, which is positive and significant. This means as the level of investment in Product Development increases, so does the level of marketing outsourcing. There is no relationship with the other two growth strategies.

One view of outsourcing is that firms do it when they cannot afford to build their own activities. If so, I should find that recent financial success is negatively related to marketing outsourcing. I do not observe that relationship in The CMO Survey data. I find no relationship between current financial performance in terms of sales revenue or profits and expected change in marketing outsourcing over the next 12 months. Another view of marketing outsourcing is that it reflects strategic direction—firms that are increasing spending will tend to outsource more, on average. Results indicate support for this view: Companies that reported increases in sales revenue, profit, and customer acquisition goals also report the largest increases in marketing outsourcing. Together, these results indicate that it is not about where you have been but where you are going that determines your marketing outsourcing level.

A last factor that might influence outsourcing levels is the respect, longevity, and value of marketing within the company. If marketing is not valued, firms may not want to build internal groups of any scale. I examined the relationship between the tenure level of the CMO, the CMO’s number of direct reports, and the number of strategic responsibilities marketing controls in the company and the firm marketing outsourcing level. I see no relationship between any of the three predictors and outsourcing level.

Together these results indicate that marketing outsourcing is more about a company’s strategic direction and spending and not its wealth or the power and stature of marketing within the company. Why does your company outsource marketing?

  1. What I love about outsourcing is that the companies can focus on their priorities and let the outsource companies do the half of their activities. For example, if they will hire an offshore staff, this staff will only perform what they agreed to do. This is one of the reasons why the productivity of companies which hire outsource companies rises.

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