Marketing budget growth stalls as CMOs fail to prove ROI

Marketing budgets hit a plateau in 2017 as CMOs “became distracted” by a heavy focus on operations and tactics or large cross-functional initiatives, such as customer experience, according to a new study.

budgeting

Growth in marketing budgets has stalled in 2017, with spend hitting a plateau this year after three years of growth.

According to a survey of 353 marketing executives in the US and UK at companies with more than $250m in annual revenue, budgets fell from 12.1% of company revenue in 2016 to 11.3% in 2017 – a return to 2015 levels.

And CMOs are not confident growth will return next year. Just 15% say they expect a significant increase in 2018, while a third expect budgets to be be cut or frozen.

The research comes amid an increasing focus on marketing and effectiveness, as well as difficult economic conditions. The big agency holding groups have warned that brands, particularly in FMCG, are spending less on advertising.

Meanwhile companies including Unilever and Procter & Gamble have been outspoken in their plans to focus on cost-cutting as they look to overcome issues including sluggish global economic growth, as well as disruption from big players such as Amazon and small startups.

While Gartner doesn’t think the declines are a major problem yet, it warns of issues on the horizon if marketing cannot prove its “financial management credentials”. According to Ewan McIntyre, a research director at Gartner, this includes marketing proving it can deal with financial constraints, assume accountability for business performance and build budgets based on future returns rather than past assumptions.

This is something major brands are already working on. Companies such as Unilever and Diageo have moved to zero-based budgeting in marketing, where budgets are based not on what has happened previously but recalculated every year.

READ MORE: Zero-based budgeting – Critical to growth or a distraction?

Meanwhile, there does seem to be a growing focus on marketing effectiveness. Recent research from the IPA found that three-quarters of the brands it spoke to have increased the resource they put into marketing effectiveness, while a third have set up their own specialist marketing effectiveness units.

The risk is that CMOs are either being too nearsighted to be strategic or too visionary to deliver against marketing’s objectives.

Ewan McIntyre, Gartner

“The improvement of marketing effectiveness culture and practice is now a business imperative. It is about moving from a ‘justification’ culture to a ‘learning’ culture. While the maturity of the approach varies by organisation and sector, over the last three years substantial additional resource and focus has been invested to better understand which marketing levers are driving the outcomes desired by the organisation,” says Fran Cassidy, who wrote the IPA report.

CMOs becoming ‘distracted’

Another issue identified by Gartner is CMOs becoming “distracted”, either by a heavy focus on operations and tactics or on cross-functional initiatives such as customer experience 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,” explains 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 organisation.”

This lack of focus on the “metrics that matter” is one the industry is all too aware of. In fact, Thinkbox, the TV advertising industry body, has this morning (15 November) released figures that attempt to quantify the business case for advertising.

Using data compiled by Ebiquity and Gain Theory, it found that all forms of advertising create profit to varying degrees in both the short and long term. And that, on average, advertising creates a total profit ROI over three years of £3.24 per £1 spent.

Nick Pugh, director at Ebiquity, says: “This study demonstrates that advertising drives significant profitable growth and provides the business case for investment. It is crucial that businesses now see advertising as an investment rather than a cost.”

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