What should you spend on marketing in 2018?

In our strategy practice, we have worked with over 50 Vistage members. We have observed that client acquisition tactics and marketing investment vary greatly, from sector to sector and from one business to the next. Marketing spend is like a box of chocolates.

2018 marks a tipping point, as powerful market dynamics are changing how companies deploy their sales and marketing investments. As companies finalize their 2018 budgetary cycles, recent studies from the American Marketing Association, Deloitte and Duke (CMO Study), as well as from Forrester, provide useful context.

Read How much should you spend on marketing in 2017?

While B2C (business-to-consumer) businesses (especially product based companies) spend freely on marketing, B2B companies often undervest. However, given the efficiency offered by digital assets such as web and SEO (search engine optimization), the tide is turning. Even B2B service companies are expected to spend 11% more on marketing than they did in 2017.

Some sectors that have historically been underweighted in such investment (such as banking) are dramatically shifting their budgets. In some cases, more budget may indicate greater confidence, but our interpretation of the data suggests a more fundamental shift: companies are realizing the potential of digital assets, CRM (customer relationship management), marketing automation, and other activities that enable sales productivity at relatively low costs:

Motivations for why companies spend on marketing are also changing. Within software, the shift to SaaS (software as a service) has driven up marketing spend, as companies’ long tail in the form of reoccurring revenue changes the underlying economics. The majority of marketing spending is to expand existing products in existing markets:

Perhaps lost in these numbers is that companies spend 10% on diversification, as their organizations seek ways to mitigate sector or customer concentration risk. 72% of respondents in the CMO Survey believed they will face “more intense rivalry for customers” than in the prior period, and 57% expected “more competitor price cutting.” To stem the tide and remain competitive, companies will have to improve their sales and marketing productivity.

Other key takeaways from the study include:

• As marketing has become more complex and specialized, companies are outsourcing specific functions (up 5.1% next year).
• Average online revenue is 11.8% of sales.
• Domestic marketing represents 80.5% of marketing investments
• Traditional advertising spend continues to slide (about 2%), while every sector is increasing digital spend between 11-19%
• CRM spending will increase 7% as companies continue to realize its many benefits
• As marketing has become more specialized, many companies are outsourcing specific activities
• 71% believe they will acquire more customers, while 69% believe their current customers will buy more
• Social media is 19% of marketing spend and is growing at 10%, albeit at a slower progression than in prior years
• In the prior 12 months, the average company (in the CMO Survey) increased 4.2% in sales, 3.7% in profits and had increased marketing ROI by 2.8%
• B2C product companies will allocate about a third of their marketing spend to social media. Yet, only 16% of companies can prove the impact of their social media spending (39% indicate an intuitive ROI, and 16% a proven ROI)
• Current spending on mobile is 6% of investment, but will double in the next three years. Even B2B service companies will dramatically increase mobile spending to 10.6%
• Marketing analytics continue to explode on the scene, expected to grow 229% (as a percentage of spend) in the next three years, as companies attempt to substantiate their ROI
• Companies are spending more on “testing” as the internet provides an opportunity for real-time feedback for campaigns, pricing strategies and promotions
• Companies are also investing more in training, as the rate of change requires marketing teams to remain current on trends

The influence of ecommerce, even in mature B2B industries, cannot be understated. Within our firm, we have observed an uptick of Vistage companies attempting to disrupt their markets online. Others are just realizing the potential of SEO, and are beginning to build out the content necessary to compete online.

In B2C, many of these trends are being driven by the adoption of technology and shifts in demographics. According to Accenture, there are 80 million U.S. Millennials consuming $600 billion a year. By 2020, they are expected to represent 30% of retail sales, and much of that will be done on their mobile phones.

Forrester reports that online video spend has increased by 114% since 2014. In 2009 the average American spent three minutes a day watching videos online. In 2016, it was 67 minutes a day! Research reveals that consumers are far more attentive to video than other forms of media.

Companies are finding ways to integrate technologies to affect specific client acquisition and retention outcomes. Companies will move from quantity to quality as they become better at capturing data on their investments, and ensure they are driving better customer experiences. Marketing automation is enabling specific targeting of customers with content relevant to them, delivered seamlessly in real time.

There are significant changes in marketing underfoot. Be thoughtful of how you spend your money in 2018, and ensure you have a comprehensive marketing plan supported by CRM, marketing automation, video and mobile solutions.

See The CMO Survey

Sources:

Highlights and Insights Report: The CMO Survey, August 2017

How to Plan the Right Level of Marketing Spend for 2018 by Venus Tamturk, CMS Connected

Rethinking Your Marketing Calendar by Paul Koulogeorge, Forbes

Disclaimer: The CMO Study was conducted in August of 2017, and results reflect the “Next 12 Months of Spending.” While study participants report as “marketing companies” that may have slightly higher marketing spending, their results are apples to apples from year to year.

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