The CMO Survey Blog

Strong Economic Outlook Spurs Marketing Spending

Marketing leaders report their most positive outlook since the recession hit six years ago, according to new results from The CMO Survey. When asked to rate how optimistic they are about the overall U.S. economy on a scale where 0 is least optimistic and 100 is most optimistic, current reports are 69.9 compared to February 2009 levels of 47.7.

This 46% increase is built on related reports that marketing leaders expect all customer indicators to improve in the next year. These include customer acquisition, customer growth (increased volume and increased purchase of related products and services), customer retention, and new customer entering the market. To top off this good news, price is predicted to be less important than superior product quality, excellent service, and a trusting relationship with companies.

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Marketers are spending against this positive outlook. Specifically, marketing budgets are expected to increase 8.7% in the next year. Compared to the half of percent marketing leaders reported in February 2009, their confidence in markets is very clear.

What are marketers spending on? This is a four part story. First, digital marketing is expected to grow by 14.7% next year compared to a negative growth rate of 1.1% for traditional advertising (outside of the web). Second, marketing spend on mobile is expected to almost triple from 3.2% to 9% of marketing budgets in the next three years. Third, marketing spend on social media is expected to increase 126% over the next five years, from currently 9.9% of marketing budgets to 22.4%. Finally, marketers will spend more on marketing analytics, which currently account for 6.4% of marketing budgets. This is expected to increase 83% to 11.7% in three years.

Interestingly, hiring in marketing is not growing at the same pace with marketing leaders reporting only a 3.5% increase in marketing hires. One reason for this is that companies are hiring outside agencies and consultants to do some of these marketing tasks. For example, companies currently use outside agencies for 19% of social media activities which is an increase over 17.4% from just one year ago.

Sponsored by the American Marketing Association, Duke University’s Fuqua School of Business, and McKinsey, Inc., The CMO Survey collects and disseminates the opinions of top marketers in order to predict the future of markets, track marketing excellence, and improve the value of marketing in firms and in society. For a complete set of results, visit cmosurvey.org/results/

Measuring the Impact of Social Media on Your Business

This post was co-authored with Becky Ross and Shannon Gorman, both MBA students at the Fuqua School of Business, Duke University.

Spending on social media continues to soar, but measuring its impact remains a challenge for most companies. When The CMO Survey asked marketers how they show the impact of social media on their business, only 15% cited they have been able to prove the impact quantitatively. This low percentage is not completely surprising given that social media is a recent innovation that companies are quickly trying to understand and direct to the most profitable ends.

Additionally, The CMO Survey asked marketing leaders to report on the metrics they are using to track and analyze their social media activities (see Table). The most common metric is “hits/visits/page views” which represents the beginning of the funnel—awareness—but is not very diagnostic of purchase. The metrics that show the largest increases over time, are “engagement metrics,” such as number of friends/followers (+88%), net promoter score (+71%), buzz indicators (+54%), product/service ratings (+71%), and other types of text analysis such as sentiment analysis or keyword analysis on Twitter or anywhere customers post text about companies (+77%). Although abandoned shopping carts also increased, in general, we observe fewer companies using actual purchase activities or financial outcomes, such as profits or revenues, as metrics to evaluate their social media programs which was discussed in a prior post.

Table. Frequency of Social Media Metrics Used by Companies

Given these findings from The CMO Survey, we interviewed social media experts to better understand the challenges of demonstrating the impact of social media and the types of metrics used to do so. Here are eleven insights gained from these interviews.

  1. Use goal-driven metrics. Set specific goals for each social media campaign and then develop metrics based on those goals. If a social media campaign is designed to generate brand awareness, then engagement is an appropriate metric. However, if a social media campaign is intended to drive purchase, then the conversion rate from visitor to buyer might be a more suitable metric. This insight may seem obvious but there is often a disconnect between goals and metrics.
  2. Demonstrate metric validity. Metrics must be vetted to ensure they are valid—meaning they measure what they are designed to measure. For example, at what point should marketers classify a consumer’s interaction with a company on social media as “engagement”? Is it when a consumer likes or shares a post? Proving metrics requires linkages to key outcomes, customer interviews, and managerial judgment.
  3. Uncover and verify leading indicators. Social media engagement, measured by the number of page views, click-throughs, comments, shares, and likes, is often used as a leading indicator of downstream sales outcomes. Identifying and tracking such leading indicators is valuable as companies can gain an early sense of how well their strategies will pay off.
  4. Create dashboards. Most companies with a social media presence track metrics from multiple sources. As a result, it is helpful to create a social media dashboard that aggregates these different sources and shows a comprehensive view of the company’s or brand’s performance. A dashboard saves monitoring time and ensures that marketers have real-time access to how important metrics are trending.
  5. Develop meaningful benchmarks. Comparing results to meaningful benchmarks provides important context when assessing the impact of social media campaigns. Building a database of social media campaigns and their corresponding outcomes enables your company to develop these benchmarks. Your agency may also be able to provide a broader view of these benchmarks if they have access to a range of campaigns from various companies.
  6. Conduct experiments. To truly understand the impact of social media, companies must be willing to conduct experiments. Small experiments such as pre- and post-tests that measure consumer activity before and after a social media campaign are a useful way of assessing performance. Even better, include a control group that is matched on observable characteristics for comparison to the treatment group. For example, use geo-targeted social media in one city and compare results to a control-group city in which the campaign did not run.
  7. Allocate funds to measurement. According to The CMO Survey, companies spend only 2.3% of their marketing budgets on measuring ROI. Measuring the impact of social media requires investing in metrics. This investment might include dedicated staff, agency partnerships, tools and technology, models, or customer databases.
  8. Consider the cost of ignoring social media. One social media expert we interviewed offered the insight that the inability to perfectly measure social media’s return on investment (ROI) should not limit investments in it. Instead, he encourages his organization to also consider the Cost of Ignoring (COI) social media – “What is the cost to our business of ignoring this new business platform?”
  9. Build predictive models. Metrics are often used to analyze what has happened, but they also can be used to predict what is likely to happen depending on the tactics employed, such as spending levels and media placement. To gain the most out of your metrics, leverage them to build predictive models and then plug in different inputs to simulate possible outcomes.
  10. Guide future actions. Measures should ideally be designed to offer developmental feedback. Ask yourself, if your social media campaign is not working, what information do you need to know in order to improve? Build your metrics or add additional metrics to capture this information so you know how to course correct and do better in the future.
  11. Stick with your metrics. Vendors are constantly developing new tools to measure the impact of social media. Nevertheless, marketers should focus on utilizing a handful of tracking tools that fit their goals and have passed important validity hurdles. Be careful not to flit between different metrics as doing so will hinder learning and waste valuable resources.

Although metrics are out there, debates about what these metrics mean and how they should be used can become both statistically and philosophically complex. At a recent conference, Tony Fagan, Google’s Director of Quantitative Research, noted that his staff was implementing propensity score matching in order to improve their ability to make causal inferences from observational data. His comment made it clear that marketers are not in Kansas anymore when it comes to social media measurement. We hope these insights offer a few signposts to marketers on this path.

Sponsored by the American Marketing Association, Duke University’s Fuqua School of Business, and McKinsey, Inc., The CMO Survey collects and disseminates the opinions of top marketers in order to predict the future of markets, track marketing excellence, and improve the value of marketing in firms and in society. For report downloads, visit cmosurvey.org/results.  

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.

table_1_1_1

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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?
Figure-1,-2-14

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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How Much Firms Spend on Marketing

The August 2011 CMO Survey reported that companies spend, on average, approximately 10% of their overall budgets on marketing. That figure is up from February 2011 where it was reported to be 8.1%. Using a 95% confidence interval, these numbers are not statistically significant from one another. This is important; but it is more important to note that marketing budgets did not decrease during this period of great economic turbulence. (more…)

Marketers to Spend Despite Tumultuous August: Smart, Crazy, Saviors?

While the general public can be accused of having short memories, it doesn’t take much for us to remember the volatility the financial markets experienced in the month of August. Standard & Poors’ downgrade of US credit and a tumultuous battle in the US Congress left many frazzled as their stocks moved in various directions. The words “double-dip recession” inundated the headlines and prognosticators’ outlooks. (more…)

The Marketing Ivory Tower Needs to Get a Grip

In the August 2010 CMO Survey, I asked top marketers the following question:  What is marketing primarily responsible for in your firm?

Marketers were then asked to check from a list of strategic, tactical, and financial activities in firms. What I found is in the table below.

At least a couple worrisome thoughts arise from these results. First, while marketing is playing an important role in brand and social media in most organizations, marketing’s contributions to the key strategic activities of the firm are sadly absent.  This includes marketing’s weak contributions to key strategic activities such as market entry, innovation, CRM, sales, distribution, and targeting.

Ask any top business school marketing professor what marketers do and they will likely respond with something like the 4Ps (price, promotion, place-distribution, and product) and the 3Cs (customers, competitors, and company).  This leads to the second worrisome thought. I think it is pretty clear that marketing is NOT doing what ivory tower marketers think it is doing or would like it to do.  This little fantasy that marketing does important things contributes to a problem among many marketing academics, which is that they don’t contribute to building knowledge about successful marketing.

What’s happening in companies that keeps marketing professionals from making the contributions we train them to believe they should be making?  Or is the problem that academic marketing research and training need to change to increase the value of marketing to companies?  If not us, who?

What is Marketing Responsible for in your Firm? (n = 332 responses)

Activity Number of people checking Percentage of
total
Positioning 261 78.6%
Promotion 256 77.1%
Brand 255 76.8%
Marketing research 240 72.3%
Social media 231 69.6%
Competitive intelligence 208 62.7%
Public relations 193 58.1%
Lead generation 192 57.8%
Market entry strategies 190 57.2%
New products 170 51.2%
Customer relationship management 147 44.3%
Targeting/market selection 136 41%
Sales 123 37%
Pricing 119 35.8%
Innovation 111 33.4%
Customer service 83 25%
Stock market performance 4 1.2%
Distribution 0 0%

Managerial Discretion and CMO Value

You know the stats:  CMOs are reported to have an average life of just over 2 years.  You also know the gripe:  Marketing has an unproven effect on the firm’s performance in capital markets.  I intend to help shed light on these ideas throughout this blog at various times.  Academic colleagues Boyd, Chandy, and Cunha recently published a paper in the Journal of Marketing Research (and a much easier to read version in Advertising Age) addressing the stock market impact of a CMO. The specific questions they asked were whether, and under what conditions, hiring a CMO contributes to firm performance.

The study used new CMO announcements collected from major newspapers and wire services (such as the Wall Street Journal, PR Newswire, and Dow Jones Newswire) from 1996-2005 and included a variety of industries.  It may not be surprising that the results were mixed—some CMOs contributed substantially to stock price movements and others did not.  In fact, in 46% of the cases in the sample, the stock market response to the appointment of a CMO was positive, whereas in 54% of the cases, the response was negative. Given these results, the next logical question is why the CMO effect differs across firms.

As it turns out, a CMO’s “managerial discretion” is a critical factor in determining his or her impact on stock values.  Discretion can come from a variety of sources, including the CEO.  This study examined the effect of the firm’s own customers as a factor limiting the CMO’s freedom to decide or act in accordance with what a CMO judges best for the firm.  In short, powerful customers can constrain a CMO’s discretion.  The authors explain that this finding extends to both end customers and intermediate customers (such as Walmart, a P&G customer or American Express, an Oracle customer).

How do powerful customers limit the managerial discretion of CMOs?  They can force price concessions and product modifications, they can demand extra service or special deals, and perhaps worst of all, they can resist innovations that cannibalize products in inventory, that require new training or expensive new infrastructure investments.

One piece of good news is that customer power does not influence all CMOs alike.  Individual and firm factors affect the contribution a CMO makes to the firm value.  Experienced CMOs—either previous CMO experience or experience from outside of the firm—mitigates the degree of customer power.  CMOs that head large firms, CMOs in firms with strong performance records, and CMOs of firms operating across a broader scope of markets also tend to escape these problems.

The authors state that “Marketers often play an important role in developing strong economic ties between firms and their customers, but the results from this research ironically show that a move toward strong economic ties with a few customers may actually limit the effectiveness of top marketers in driving firm value.”  That’s a tough tightrope to walk.

If you are a marketing leader in your firm, how do these findings resonate?  How do you serve your customers while also ensuring they are not challenging your discretion beyond what is reasonable?