It’s that time of year again. Later this year marketers at companies across the country will begin developing their plans and budgets for budget year 2016.
Two key questions to be resolved during this exercise are (1) how much to spend on marketing, and (2) where to spend it.
The most recent findings from The CMO Survey™ sponsored by Duke University and the American Marketing Association might offer some insight and guidance.
Don’t Be Timid – Budgets at U.S. companies are expected to increase by 6.4% over the next year, marking a continuation of 6%+ budget growth going back to 2010 when the economy was in the early stages of emerging from recession. If 6.4% sounds healthy, it is. Given that inflation is expected to run 2%-3% next year, depending on whose forecast you embrace, this translates to approximately 4% real growth in marketing spending. Not bad, when real GDP growth is running about 2%.
Further, marketing expenditures as a percentage of overall corporate budgets are increasing significantly. They’ve gone from 8.1% to 11.4% just 18 months, a remarkable 40% increase! (see chart)
What’s underlying this aggressive increase in spending? Marketing is being recognized as the currency for success in today’s economy. Coming out of the recession, firms focused on cost cutting efforts to improve profitability. By now the benefits from these strategies have largely run their course. Future profit lift will need to be driven by improvement in top line revenue. Marketing, and sales, investments are the means to grow revenue and corporations are backing that up with their pocketbooks.
Strategies: A Focus on New Customers and New Markets. There is a shifting focus towards new products/services and new markets in 2013 for achieving growth targets. As one would expect, existing markets and existing products/services will still receive the greatest amount of marketing support. But, the proportion of total spend allocated to “existing” is expected to decline for want of seeking riches among new customers and through new offerings. As the table below shows, the greatest emphasis next year will be on cultivating new markets, with spending increasing about 15% in this area. Even with the additional support, spending on new markets is expected to total about 30% of total, versus about 70% for existing markets.
Making bolder commitments to “new” growth strategies is understandable in the current economy. Given that overall economic growth is still so tepid, companies are feeling compelled to “push the envelope” and reach outside their comfort zones to achieve their revenue goals.
Marketing Spend Pie: Analytics and Social Media Take Larger Share. The greatest increases in marketing spending next year and beyond, by category, are projected for analytics and social media. Marketing analytics spending will increase by 60% over the next three years, from 8% to 13.5%. More research to better understand evolving markets and behaviors, coupled with greater usage of big data tools to glean insight and meaning out of ever larger volumes of marketing data will be the key growth drivers. When firms are committing more resources to marketing initiatives, it’s nice to have good intelligence for guiding the journey.
Spending on social media will grow even more rapidly. This is really no surprise given the ever deeper penetration of smartphones, now over 50% of all cell phones and still in ascent. From a current level of 7.6% of budgets social media should more than double to 18.8% in five years, a growth rate of almost 20% per year!
Want to Improve Your Overall Marketing Impact Next Year
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We are confident you will find our perspective quite refreshing.