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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The Riddle of Marketing in Russia

This post was co-authored with Evgenia Barkanova, Irina Kudryashova, and Irina Melnik, all MBA students at the Fuqua School of Business, Duke University.

Winston Churchill said, “Russia is a riddle wrapped in a mystery inside an enigma.” This becomes clear when thinking about U.S. companies marketing in Russia (more properly called the Russian Federation). Results from the last CMO Survey indicate that Russia is the international market with the highest sales growth rate. Sales are reported to have grown an average of 57% for U.S. companies that designate Russia as their largest international market. This compares with India at 38%, China at 26%, and Brazil with 19% growth.

Where is the enigma inside the Russian marketing mystery? Consider these facts. Russian is the world’s 6th largest economy. A member of G8 and G20, identified among the BRIC economies, and a recent entrant to the WTO, Russia is an emerging economic powerhouse. Strong earnings from the oil/natural gas industry have grown the overall economy and allowed the country to diversify its economy while retaining an above average GDP growth rate of 4.1 % from 2010-2012 according to the World Bank (compared to 2.4% for the USA). Even with these impressive credentials, Russia remains a difficult market for many foreign companies for a variety of reasons. What should U.S. marketers know about this Russian riddle? We collected the following case studies involving non-Russian and Russian companies as well as several interesting facts to offer these insights.

1. Sochi 2014: All eyes on Russia: The 2014 Winter Olympics in the Black Sea resort of Sochi promise a wealth of opportunities for foreign firms and investors. An estimated $50 billion will be spent on more than 40 transport, housing, stadiums, and other modernization projects along with upgrades in telecom, energy, and environmental protection to convert Sochi into a winter sports wonderland. Participating in this important international event could help non-Russian firms make inroads for future projects. Official sponsorships as well as using the Olympics for independent marketing events that piggyback on individual events and athletes could help build brand awareness among Russian customers. One threat is that the games may not go off as well as sponsors hope. The opening ceremony glitch with the Olympic rings is well-known by now and public perception of the games is so bad that @SochiProblems has already racked up ten times the followers compared to @2014Sochi—the official Twitter account for the games. The Olympic experience may serve as a metaphor for doing business in Russia … full of opportunities, but one is wise to prepare for more than the usual amount of the unexpected.

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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?
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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.
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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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Why Companies Should Compete on Privacy (and What Customers Can Do to Help)

The CMO Survey reports that 40 percent of companies use customer information collected online for targeting purposes and 88.5 percent of chief marketing officers expect this practice to increase over time. At the same time, CMOs have very low levels of concern about how the use of online customer data infringes upon privacy. Specifically, when asked, “How worried are you that this use of online customer data could raise questions about privacy?” on a scale where 1=not at all worried and 7 is very worried, the average response was 3.5. The Figure shows the full distribution.

Figure. CMO concerns about use of online customer data and privacy questions
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At the same time, a recent by the Pew Internet & American Life Project found that 86 percent of Internet users have taken steps to remove or mask their digital footprints — ranging from clearing cookies to encrypting their email. Fifty-five percent have gone even further to avoid being observed by specific people, organizations or the government.
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Big Data’s Big Puzzle

Companies are spending big dollars on big data. Approximately 5.5% of marketing budgets currently are spent on marketing analytics and this is expected to increase to 8.7% in the next three years as reported in The CMO Survey. Expectations are running high and many companies are trying to figure out how to crack the code to generate good strategic insight from the data.

I’m in favor of the trend to capture and use data to drive decisions. However, that is where the problem lies. As the stash of data grows, companies are using a smaller percentage of it. I first asked the question, “In what percent of projects does your company use available or requested marketing analytics before a decision made” in February 2012 and the result was 37%, which I thought was the bottom. However, when asked that same question in August 2013, the percentage dropped to 29%. Figure 1 shows the continuous decline over the last 18 months.

Figure 1. Percent of Projects Using Requested or Available Marketing Analytics
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This finding is not completely unexpected, however. Reviewing the thirty-year history of research on this topic, usage rates have always been low for many types of marketing information—marketing research, advertising research, and, now, social media research. This marketing analytics utilization gap is a challenge to big data’s contribution to the bottom line.
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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…)

Overcoming the Marketing-Sales Turf War: Six Strategies to Integration

Marketing needs sales and sales needs marketing. Unfortunately, “need” does not equate to a “successful partnership” between the two groups. Conflict and distrust are more common. Such a dynamic can hurt the bottom line, especially in companies that use sales groups to interface with their customers. The CMO Survey® asked top marketers to describe how their companies structure the marketing-sales relationship. 7% stated that sales is within marketing (marketing has the power), 10.3% noted that marketing is within sales (sales has the power) and 72% indicated that marketing and sales work together on an equal basis. These data from the February 2013 issue of The CMO Survey have not changed much over the last five years. Bottom line: As equal partners, marketing and sales must find a way to work together.

It is easy to blame stereotypes of these two powerhouse functions as the reason for the well-documented sales-marketing turf war. Marketing is analytical and sales is interpersonal. Sales has a short-term focus and marketing has a long-term focus. Marketing is more strategic and sales is more tactical. Marketing is pull and sales is push. However, these stereotypes obscure the truth. In reality, the roles that sales and marketing play and their subsequent relationship depend on how the company chooses to manage and structure these two functions. (more…)

Measuring Social Media ROI: Companies Emphasize Voice Metrics

The influential economist Albert O. Hirschman argues that customers can have a disciplining effect on companies and markets through their exit and voice behaviors. Instead of simply “quitting” a product, Hirschman urged customers to voice their complaints so companies could improve and learn. Hirschman would be a happy camper these days because social media puts a megaphone on the voice of the customer. Results from The CMO Survey® show that companies, in turn, are also starting to see the value of emphasizing voice-based metrics.

The CMO Survey investigated which metrics companies are using to measure the impact of social media investments. In August 2010 and then again in February 2013, top marketers were asked to share which metrics they use to evaluate social media. Looking across the results, we can see which metrics companies most often use. The survey did not, however, ask respondents to rank or rate each metric in terms of importance. (more…)

The Utilization Gap: Big Data’s Biggest Challenge

Big data’s the buzz. It’s in the press, all over the web… heck, it even has its own hashtag– #bigdata. CMOs recently reported that the percent of their companies’ marketing budgets devoted to big data will increase from 6% to 10% over the next three years. Multiply this 66% increase across all of the other areas Big Data is showing up in companies (e.g., supply chain management) and you have a sizable strategic expenditure. The bigger the company, the larger this increase. In data collected from The CMO Survey, companies with sales revenue of $10B or more will spend 13.7% of marketing budgets on marketing analytics in three years while companies with sales revenue of $25M or less will spend 9.2%.

Despite this big spend, there are reasons to worry that Big Data is not delivering its full strategic wallop. When asked to report the percentage of projects in which their companies use marketing analytics that are available and/or requested, CMOs report a dismal 30% usage rate. This number has decreased from 37% a year ago. So while companies are spending more on Big Data, less of it is being used. (more…)