Marketing budgets. For some reason, this is a popular topic among news organizations. And I wonder why.
Why do reporters and research organizations spend so much time talking about how much money marketers are spending, with the potential implication being that more spending is somehow better. Consider Gartner’s comment below. While reporting a fact, it is possible that one could take away that a return to 2015 spending is a good thing.
- A recent Gartner study reports “…marketing spending started falling … from 12.1 percent of company revenue in 2016 to 11.3 percent in 2017, representing a return to 2015 levels.”
- In January, Marketing Week indicated that “marketing growth slows as marketers face a challenging 12 months”
- According to MarTech Exec, 2018 will be “bad news for marketing budgets”
I am fascinated by the interest in aggregate spending reports, because one reading of it could be that marketers care about budget levels and not the results. This is concerning because a common indictment leveled at marketers is that they seem to care more about the size of the budget than the size of the impact. And in my work with marketers, I know this to be wrong. However, the perception persists and the focus on how much marketers spend (at the expense of reporting the impact on the spend) is a contributing factor.
To make this point vivid, I have been communicating regularly with a gentleman who sells marketing measurement products primarily to CEOs and CFOs. His shtick is basically the following: “Marketers don’t measure performance. Therefore, much of what they spend is wasted. I can help you measure the impact of your marketing investment and hold your CMO accountable”.
Inherent in his sell is a belief that all marketers have what I call a “staff” mentality. Because they don’t have any idea about their impact on firm results, the goal is to consistently increase the budget. A “win” is often defined as growing your budget. Functions that are held accountable for delivering specific projects within a budget—and not held accountable for direct business outcomes—are typically staff functions. And this can unfortunately breed the mentality that focuses on growing the budget rather than impact.
I understand this type of staff thinking—with the goal being to keep or increase marketing’s budget. When I worked for the Bureau of the Budget (ironically) for the State of Illinois during college, my colleagues were intelligent, capable, well-meaning public servants. But there was no clear metric for output. We wrote position papers for the governor and Congress. So, at the end of every fiscal year, success was defined as “growing the budget”. Input was the surrogate for output.
In my research of marketers, however, there are a number who are actually P&L leaders. These individuals are responsible for delivering profitable growth, held accountable for business-impacting outcomes. A P&L mindset means that the goal is to achieve better results often at a lower investment. In fact, a lower budget is quite good as marketers drive efficiency and learn how to deliver greater impact with less investment.
What this means is that marketers can reduce budgets, cut unproductive spend, and reinvest a portion of the savings in the programs and approaches that have been proven to drive profitable revenue.
The shift from traditional TV advertising to digital advertising is just one example why less can be more. Why spend $100 million on TV when $20 million on digital actually reaches consumers lower in the funnel and drives better conversion? As companies migrate from high cost investments (e.g., TV) to more customized, bottom-of-the-funnel, higher ROI investments, it would be expected that budgets would decline.
Consider the news that P&G cut its ad spend by $200 million. The real news behind the P&G cuts and similar ones at Unilever is that the cuts were made to reduce ineffective and arguably brand damaging spend, and were partially reinvested in ecommerce, TV, audio, etc.
The Department of the Interior, the FTC, or the Department of Transportation may be forgiven for using input as a substitute for output. But we marketers have no such excuse: Our job is to increase revenue profitably, not to grow our budgets.
In this spirit, my hope would be that more reporters and researchers would focus on outcomes and reduce the fixation on the size of marketing budgets. While measuring the size of marketing budgets is popular sport, the emphasis does a disservice to the marketers who are valiantly fighting to measure and report impact.
How CMOs Can Build Trust – Frank Grillo and Kimberly Whitler
Why Are CMOs In Trouble? – An Interview with Kim Whitler
Kimberly A. Whitler is a former CMO who has worked both in the U.S. and overseas for a variety of companies, such as P&G, PetSmart, and David’s Bridal. After nearly 20 years in industry, she is currently an Assistant Professor at the University of Virginia’s Darden School of Business, conducting research that addresses contemporary CMO challenges.