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.

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 Kanskje stikker du av med jackpoten…?Gratis bestenorskecasinos.com spill med bonusNoen casinoer kjorer en ganske omfattende og morsom bonus uten innskudd. 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?