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Growth in marketing budgets stalled in 2017

Growth in marketing budgets has stalled after continued increases over recent years, according to a survey by Gartner, Inc. The survey found that marketing budgets hit a plateau in 2017 after three years of growth, with budgets falling from 12.1 per cent of company revenue in 2016 to 11.3 per cent in 2017, representing a return to 2015 levels.

Chief marketing officers (CMOs) have modest expectations in 2018. 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. Previous budget increases have come with weighty expectations, some of which have yet to be met. 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,” said Ewan McIntyre, research director at Gartner.

2017 has been a year of significant macroenvironmental upheaval, in terms of both global politics and natural disasters — North Korea, Brexit and hurricanes Harvey, Irma and Maria, for example. Marketing is not immune to the business impact that stems from such incidents. 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) programs 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,” said Mr 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 organization.”

Not all organizations have felt the impact to the same extent. Extra-large businesses have been shielded from cuts thus far, and cuts have varied 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 surveyed 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.

The survey 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 CMOs expect their investments in event marketing and partner/channel marketing to fall or flatline, with 63 per cent of marketers stating they expect flat growth or cuts in offline advertising investment. At the same time, 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. 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,” said Mr McIntyre.

Measurability is a contributing factor to digital media budget growth. CMOs’ focus on analytics reflects the need to demonstrate marketing and advertising performance and effectiveness to the business. 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.

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. 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.

Marketing technology (martech) spending 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.

Gartner’s 2017-2018 CMO Spend Survey was conducted from June through August 2017 among 353 marketing executives in North America and the U.K. at companies with more than $250 million in annual revenue.

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