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Survey finds CMOs face budget cuts amidst demand for results

Survey finds CMOs face budget cuts amidst demand for results

While the descent is not yet steep, it still poses difficult questions for chief marketing officers, says Ewan McIntyre, research director at Gartner.

The time has come for marketing to show its financial management credentials

Ewan McIntyre, Gartner

Gartner says its recent survey of chief marketing officers found marketing budgets have hit a plateau this year after three years of growth.

Budgets are falling from 12.1 per cent of company revenue in 2016 to 11.3 per cent in 2017, or a return to 2015 levels, says Gartner.

Thus, it says, chief marketing officers (CMOs) have modest expectations in 2018.

The analyst firm says it surveyed 353 marketing executives in North America and the UK at companies with more than US$250 million in annual revenue, in June through August 2017.

Only 15 per cent say they expect a significant increase in budget; 52 per cent expect a slight increase. One-third expect their budgets will be cut or frozen.

"While the descent is not yet steep, it still poses difficult questions for chief marketing officers," says Ewan McIntyre, research director at Gartner.

"Previous budget increases have come with weighty expectations, some of which have yet to be met,” says McIntyre.

“The time has come for marketing to show its financial management credentials, proving it can deal with financial constraints, assume accountability for business performance, build budgets based on future returns rather than past assumptions, and grow the business while making hard choices."

Gartner says 2017 has been a year of significant macro-environmental events, in both global politics and natural disasters. These include North Korea, Brexit and hurricanes Harvey, Irma and Maria.

Marketing is not immune to the business impact that stems from such incidents, it states.

There is also evidence that CMOs may have become distracted — either by a heavy focus on operational and tactical measures of performance, or by large, cross-functional initiatives such as customer experience (CX) programmes that have yet to provide hard economic benefits.

"The risk is that CMOs are either being too nearsighted to be strategic or too visionary to deliver against marketing's objectives," says  McIntyre. "The result is a lack of focus on the metrics that matter to CMOs and the business — how marketing activities deliver return on investment and profitability to the organisation."

Not all organisations have felt the same impact. Extra-large businesses have been shielded from cuts so far, and cuts differ across industries, with retail and manufacturing hit hardest.

While Gartner predicted these cuts, they will come as a surprise to many CMOs.

Only 14 per cent of respondents in last year's CMO Spend Survey anticipated cuts in 2017, meaning many CMOs will be ill-prepared for change. CMOs need to think and act fast, ensuring they continue to meet the growing business expectations or further cuts will be ahead.

Martech feels the squeeze

The survey finds CMOs are focusing budgets on existing customers.

Marketing logic dictates that it requires more resources to acquire a new customer than to retain or grow an existing one. Consequently CMOs' budgets have become heavily skewed toward retention, with budgets dwarfing acquisition budgets by a ratio of two-to-one.

However, this ratio can only be justified if it reflects the profitability existing customers bring to the business, says Gartner.

Valuable marketing budget may be diverted to nurturing the wrong customers — those that are a long-term drag on profitability because they buy low-margin products, buy only during promotions or have high servicing costs. Furthermore, discarding the value of acquisition may harm the long-term financial health of the business.

Spending on marketing technology (martech) has fallen by 15 per cent in 2017, as CMOs pull back on previous high spending commitments amid concerns over marketing's capability to acquire and manage technology effectively.

Martech continues to account for a significant proportion of CMOs' spending power, with 22 per cent of the total marketing expense budget allocated to technology. However, this is a significant drop year over year, as last year's survey reported that 27 per cent of marketing budget was allocated to martech.

Focus on analytics

The survey, meanwhile, found that two-thirds (67 per cent) of CMOs plan to increase investment in digital advertising, while traditional media faces budget losses.

More than half of respondents expect their investments in event marketing and partner/channel marketing to fall or flatline, with 63 per cent stating they expect flat growth or cuts in offline advertising investment.

At the same time, the survey finds investments are growing across a range of digital channels, including websites (61 per cent of CMOs expect to increase investment) and mobile (59 per cent expect to increase spending). CMOs also show a strong and continued commitment to social marketing, with 64 per cent planning to boost budgets.

"The shift to digital away from traditional media reflects changing media consumption habits of target audiences," says McIntyre.

"However, without capabilities like marketing mix modeling (MMM), CMOs risk cutting away at channels based on gut feel, irrespective of the journeys their customers and prospects actually take to buy, own and advocate their product and brand. These journeys likely include a range of digital and traditional touchpoints, which interplay and integrate with each other."

CMOs' focus on analytics reflects the need to demonstrate marketing and advertising performance and effectiveness to the business, says McIntyre.

“The multichannel journey demands that marketing leaders go further than channel performance metrics and challenges them to employ advanced analytics to answer the elusive total marketing ROI question.”

Extra-large businesses have been shielded from cuts so far, and cuts differ across industries, with retail and manufacturing hit hardest: Gartner
Extra-large businesses have been shielded from cuts so far, and cuts differ across industries, with retail and manufacturing hit hardest: Gartner

Send news tips and comments to divina_paredes@idg.co.nz

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