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Read Professor Moorman’s analysis of key survey results.

CMO Optimism, Confidence, and Company Growth Strategies

Results from the February 2014 edition of The CMO Survey, a biannual survey of marketing leaders, offer strong evidence that markets are on solid footing. CMO optimism for the U.S. economy reached its highest point in five years. Asked to rate their optimism about the overall economy on a 0-100 scale where 100 is most optimistic, CMOs reported an average score of 66.1 which is nearly 20 points higher than a low score of 47.7 in February 2009 (see Figure 1). This optimism occurred across all sectors, ranging from manufacturing to biotech and consumer packaged goods.

Figure 1. How optimistic are you about the overall U.S. economy on a 0-100 scale with 0 being the least optimistic and 100 the most optimistic?

Underlying this optimism are improvements in key customer metrics such as increased entry of new customers into the market, increased customer acquisition, increased purchase volume, and increased customer retention. These top marketers also predict that customers’ top priority over the next twelve months will be a focus on product quality, not on low price. This shift indicates a belief that consumers are ready to spend again and are less interested in cost savings.

This five-year high and its corresponding customer insights are excellent news for the economy. We have heard analysts and policymakers talk about an economic recovery. However, it is much more reassuring to see evidence from CMOs because they are business leaders actually interacting with customers making purchasing decisions.

Another indicator of optimism worth mentioning is that CMO optimism indicators for the overall economy and for their own organizations are at their closest point in five years. CMOs tend to be more optimistic about their own companies, owing, in part, to private information and perhaps a bit of the Lake Wobegon effect (we all think we are above above). The difference between CMOs’ optimism for the economy and their own companies was 16.5 points (64.2 for own company and 47.7 for the economy) in February 2009. Here in February 2014, the difference is 7.1 (73.2 for own company and 66.1 for the economy). This narrowed gap, and higher levels for both measures, points to a more confident view of the economy that I take as a strong signal of recovery.

With optimism comes more risk taking. Over the next year, CMOs report their companies will spend 11.1% more on market development strategies (sell existing products/services to new customers), 11.5% more on product/service development strategies (sell new products/services to existing customers), and 15% more on diversification strategies (sell new products/services to new customers). These three strategies are riskier than a market penetration strategy (i.e., selling more existing products/services to existing customer) which is projected to decline by 11% (see Table 1 for details).

Table 1. How growth spending is expected to change*

In terms of other growth strategies, CMOs report their companies will allocate 71.8% of their budgets to organic growth—where the company innovates using its own resources— compared to 12.8% on growth via partnerships, 10.2% on growth through acquisitions, and 5.2% on growth from licensing. The implication here is increased confidence in tackling innovation and developing markets in-house rather than buying it.