The CMO Survey Blog

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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Six Reasons Marketing Budgets are on the Rise

Marketing budgets as a percent of overall firm budgets and as a percent of firm revenues are both on the rise as noted in my prior post. Why are firms spending more on marketing? Here are six reasons I see in The CMO Survey™ data and in my research.

  1. New jobs: Marketing appears to be taking a leadership role in managing social media activities in companies. Given social media spending as a percent of marketing budgets is expected to rise from 7.6% to 18.8% over the next 5 years, this means new funds are flowing toward marketing.
  2. New skills: Companies plan to increase marketing training by 3.7% in February 2012 to 7.2% in August 2012. In particular, I see many companies in investing in programs to build marketing capabilities. A good example is GE’s Experienced Commercial Leadership Program, which develops cohorts of young marketers for the company. Another example is Becton Dickinson’s Marketing Excellence Initiative, which provides non-marketers with a big dose of training in key marketing tools and processes.
  3. New knowledge: Big Data has captured the imaginations of leaders in companies big and small. The ability to leverage information about customers in order to deliver and demonstrate value opens the door for marketers to fill the role as analysts and “data whisperers” as McKinsey calls them. As noted by McKinsey in its Chief Marketing and Sales Officer forum, “Data whisperers are those analysts who can coax meaning and insights from the increasingly sophisticated and massive data sets available today.” (more…)

Innovation, Cash, and Courts: The New Reality of Tech Growth

This post was co-authored with Matthew P. Manary, Ph.D. Candidate, Fuqua School of Business, Duke University.

In addition to studying product-market strategies for company growth, I have also been asking CMOs how they use a set of “firm boundary” strategies to grow. In response to the question to “Allocate 100 points to reflect how your firm will grow during the next 12 months,” The CMO Survey™ (August-2012) reports that the majority (68.9%) of growth is expected to be organic or from within the firm’s own boundary, 12.9% from partnerships (ranging from alliances to joint ventures), 12.2% from acquisitions, and 6.1% from licensing arrangements. Organic growth gives the firm more control because growth activities happen within the firm boundaries. It does not go to the “market” for goods or services and therefore does not have to manage a partnership or licensing agreement. It also does not extend the firm’s boundary (sometimes called a “hierarchy”) to include a new firm which gives more control, but is also more expensive and may dilute the firm’s focus. At the same time, organic growth is potentially more costly because the firm must learn to do things that potential partners or acquisition targets have already mastered.

Results show that organic, partnership, and licensing growth activities have not changed significantly in the last four years of The CMO Survey™, despite minor fluctuations. The use of acquisitions as a growth strategy, however, has steadily increased. Figure 1 shows this progression from 8.8% in February 2009 to 12.2% in August 2012. There may be many reasons for this—companies have cash on hand or can get low-cost loans to make acquisitions, acquisition targets are cheaper, or firms are engaging in riskier growth (new markets and new offerings). The latter appears to be true based on data from The CMO Survey™ as I noted in an earlier blog. (more…)

A Fast Boat to China: How U.S. Companies Are Navigating the Marketing Waters

The saying “a slow boat to China” means something that takes way too long to accomplish. More and more, however, that expression doesn’t match reality. The Chinese market is an increasingly attractive market for U.S. firms and the smart ones are moving there quickly.

Here is what I found in The CMO Survey (August-2012). In response to the question, “Which international market is your highest revenue growth,” 21.5% of CMOs responded with China. This is up from 16% reported just six months ago (The CMO Survey, February-2012). In response to the follow-up question, “Considering this international market, by what percent did your sales revenue increase in the last 12 months,” CMOs reported a whopping 51.5% increase! Here is a list of some of the strategies that seem to be paying off when selling to and in China.

  1. Localize products (somewhat). In the fall, Häagen-Dazs sells ice cream moon cakes in order to celebrate the mid-Autumn Festival. Mid-Autumn Festival is an important day for the Chinese, marked by family reunions and gift-giving. Eating and gifting moon cakes is an important part of the tradition. Häagen-Dazs mooncakes can be eaten in shops or can be bought in gift boxes. The company also sells coupons, which many to companies give employees as gifts for the festival. Häagen-Dazs also offers an “ice cream hot pot” which is a special treat for small groups or parties. The hot pot is a big palette of different flavored ice creams and a pot of chocolate sauce. In another example, KFC derives almost a third of its total company revenues from China through its 2000 outlets across the country. KFC localizes by introducing dishes that match Chinese customers’ tastes. Two examples are the Beijing Chicken roll with sea food sauce (similar to Beijing duck, a traditional Chinese dish) and Spicy Diced Chicken (resembling a popular Sichuan-style dish). Both Häagen-Dazs and KFC are big global brands that bring status, quality, and exclusivity to Chinese consumers. At the same time, they have localized some of their offerings to fit Chinese consumers’ lifestyle, tastes, and preferences. The appropriate balance of standardization and localization should be thought through for each brand and its customers. A good example of a high level of localization is Home Depot. As reported in the Wall Street Journal last week, Home Depot learned that the slogan “You can do it, we can help” or more recently “You can do it” wasn’t selling among Chinese consumers who don’t embrace the do-it-yourself culture common among Americans. Instead, as noted by WSJ, Chinese consumers prefer “” which means different products (that require less work from the customer) and additional services (that are sold with home improvement products).
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Economic Pessimism and Strong Company Performance Promote Risk in Growth Strategies

The August 2012 CMO Survey finds that company growth strategies will take on more risk in the coming year. Looking at Table 1, we can see that there two types of risk familiar to marketers—targeting new markets and offering new products or services. Combining these two, there are four general types of strategies that range from market penetration, which is the lowest risk because the company targets current markets with current offerings, to diversification, which is the highest risk because the company targets new markets with new offerings.

Table 1. Types of Growth Strategies

Similar to past CMO Surveys, growth spending over the past twelve months reflects a dominant focus on market penetration with an average of 51.7% of spending focused on this strategy. This is followed by product/service development (22.8%), market development (15.7%), and diversification (9.7%). However, as shown in Table 2, these figures are expected to shift significantly in the next twelve months. Growth spending on market penetration is expected to drop by 11.6% to 45.7% while all three of the other strategies are expected to increase by nearly 10% or more! These changes are consistent with a longer-term trend The CMO Survey has observed during this post-recessionary period.
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A Fast Boat to China: Notes on Marketing

The CMO Survey reported that China will be the focus of the most dramatic increases in U.S. company sales revenues in international markets during the next 12 months. When asked to list the top three international markets for sales growth, approximately 20% named China. (more…)

A Passage to India: Notes on Marketing

The CMO Survey reported that India will be the focus of the most dramatic increases in U.S. company sales revenues in international markets during the next 12 months. India’s economic boom, growing per-capita income, and increasing liberalization of foreign direct investment (FDI) rules present opportunities for foreign exporters. Four sectors have attracted the most FDI in India over the last 10 years: services (21% of total), technology (17%), construction and real estate (15%), and automobiles (5%). (more…)

How and Where Do Your International Markets Grow?

The CMO Survey asks top marketers what percentage of their company sales comes from international markets.  Analysis of this question over time indicates that this percentage increased from 19.3% in August 2010 to 24.7% in August 2011. Exhibit 1 shows that this growth rate is unevenly distributed across sectors, though.  Product companies are showing big increases while services companies are flat.  (more…)

Why Companies Adopt Growth Strategies: The Good, the Bad, and the Ugly

After asking top marketers to describe the nature of their growth strategies (see 8/6 post), The CMO Survey asked them to “Rate the top three reasons why your firm is pursuing this growth strategy.” I gave marketers the following options: (1) opportunity to leverage brands; (2) opportunity to leverage existing customer relationships; (3) threat of domestic competitors; (4) threat of foreign competitors; (5) pressure from price-sensitive customers; (6) pressure from the stock market; and (7) ambition of company leaders. (more…)

How Does Your Company Grow?

The most recent CMO Survey asked approximately 500 top marketers to describe how their companies have grown in the past 12 months and how they will grow during the next 12 months. Marketers were asked to divide 100 points across four well-known growth strategies that are differentiated on two dimensions. The first dimension is whether the company is growing by deepening purchases from existing customers or entering new markets. The second dimension is whether the company is growing by trying to sell more of its current products and/or services or by offering new products and/or services. These two dimensions produce a 2×2 matrix of growth strategies called the Ansoff Growth Matrix which was first described by Igor Ansoff in a Harvard Business Review articles over 50 years ago!

Here are the results for each strategy for the past 12 months and for the next 12 months:

  • Existing products or services in existing markets: Market penetration (54.1% to 48.7%)
  • Existing products or services in new markets: Market development (15.3% to 17.0%)
  • New products or services in existing markets: Product/service development (19.8% to 22.5%)
  • New products or services in new markets: Diversification (10.8% to 11.8%)

Most companies continue to grow through market penetration. However, this number is expected to decrease. Taking on more risk, companies are expected to increase the use of the remaining three growth strategies. This is pretty impressive during such tough times. If you can grow and take on more risk, you should. When your competitors may be sitting on their hands, there may be an opportunity to leap ahead and enter markets or solidify relationships with customers.

A study published in the International Journal of Research in Marketing shows that only some firms view recessions as opportunities to strengthen their businesses. Those companies that “see” recessions in this proactive way invest aggressively and establish advantages over weaker competitors. Companies that don’t tend to cut back and hunker down until the recession passes. This study also describes characteristics of the companies with a proclivity to see the opportunity in a recession more than others. Firms that have a strategic emphasis on marketing, an entrepreneurial culture, and slack resources (cash on hand) are more proactive in their marketing activities during a recession. Most importantly, firms that have a proactive marketing response in a recession achieve superior business performance even during the recession.

Back to the growth strategy results. It is important to note that these figures vary considerably by different economic sectors. In the next 12 months, B2C services companies will use market penetration more (59.6%) than B2B product companies (42.4%). Product companies that are either B2B or B2C will use market development strategies more (27.3% for B2B and 24.4% for B2C) compared to B2B services (20%) or B2C services (15.3%) companies.

I also observed big differences in industry sectors with energy showing the greatest willingness to diversify (20.8%), consumer packaged goods with the highest levels of product/service development (32.9%), consumer services (72.5) with the greatest levels of market penetration, and mining (30%), consulting (19.6%), and healthcare (19%) the most focused on market development.

Complete survey results can be found at www.cmosurvey.org/results.

 

The most recent CMO Survey asked approximately 500 top marketers to describe how their companies have grown in the past 12 months and how they will grow during the next 12 months. Marketers were asked to divide 100 points across four well-known growth strategies that are differentiated on two dimensions. The first dimension is whether the company is growing by deepening purchases from existing customers or entering new markets. The second dimension is whether the company is growing by trying to sell more of its current products and/or services or by offering new products and/or services. These two dimensions produce a 2×2 matrix of growth strategies called the Ansoff Growth Matrix which was first described by Igor Ansoff in a Harvard Business Review articles over 50 years ago!

Here are the results for each strategy for the past 12 months and for the next 12 months:

· Existing products or services in existing markets: Market penetration (54.1% to 48.7%)

· Existing products or services in new markets: Market development (15.3% to 17.0%)

· New products or services in existing markets: Product/service development (19.8% to 22.5%)

· New products or services in new markets: Diversification (10.8% to 11.8%)

Most companies continue to grow through market penetration. However, this number is expected to decrease. Taking on more risk, companies are expected to increase the use of the remaining three growth strategies. This is pretty impressive during such tough times. If you can grow and take on more risk, you should. When your competitors may be sitting on their hands, there may be an opportunity to leap ahead and enter markets or solidify relationships with customers.

A study published in the International Journal of Research in Marketing shows that only some firms view recessions as opportunities to strengthen their businesses. Those companies that “see” recessions in this proactive way invest aggressively and establish advantages over weaker competitors. Companies that don’t tend to cut back and hunker down until the recession passes. This study also describes characteristics of the companies with a proclivity to see the opportunity in a recession more than others. Firms that have a strategic emphasis on marketing, an entrepreneurial culture, and slack resources (cash on hand) are more proactive in their marketing activities during a recession. Most importantly, firms that have a proactive marketing response in a recession achieve superior business performance even during the recession.

Back to the growth strategy results. It is important to note that these figures vary considerably by different economic sectors. In the next 12 months, B2C services companies will use market penetration more (59.6%) than B2B product companies (42.4%). Product companies that are either B2B or B2C will use market development strategies more (27.3% for B2B and 24.4% for B2C) compared to B2B services (20%) or B2C services (15.3%) companies.

I also observed big differences in industry sectors with energy showing the greatest willingness to diversify (20.8%), consumer packaged goods with the highest levels of product/service development (32.9%), consumer services (72.5) with the greatest levels of market penetration, and mining (30%), consulting (19.6%), and healthcare (19%) the most focused on market development.

Complete survey results can be found at www.cmosurvey.org/results.