by Nikhil Gharekhan, Managing Partner, Presciant
With the strategic planning season underway, marketing executives around the world are busy building their cases for next year’s marketing budget. Substantial amounts are on the line. On average, companies will spend about 10% of revenues on marketing. Globally, marketing spend will add up to more than $1.5 trillion.
Here are ten principles to ensure that a marketing budget generates incremental financial returns.
1. Set clear marketing budget goals
This may seem like an obvious first step, but a quarter of all marketers do not establish goals. Those that do establish very clear goals are 4 times as likely to achieve success in their marketing efforts.
Marketing budget goals should be set in the context of the company’s business strategy objectives. Is your company striving for certain financial objectives? Is it trying to grow revenues or maximize profits? Is the focus more operational, such as internal efficiency? Is it focused on innovation? Is it more on improving the product quality? Is it trying to expand into a new industry? Relevant marketing investment metrics can be found for any of these business strategy objectives.
Marketing goals must be clear and specific–tied to a target number and a timeframe within which to achieve it. Marketers should ask themselves what they want their investment to achieve within their company’s business context. Attract new customers? Retain existing ones? Shore up the current offering? Or launch new products and services? Investment objectives should be framed using quantifiable metrics. Marketers should select 2-3 metrics and targets, ideally with a brand, customer, and financial dimension.
2. Segment the market
The impact of marketing investments is the greatest when it is tailored to the audience it is targeting. It may be tempting to try and reach the entire available market—after all, why not drive as much demand as possible? But marketing budgets are not infinite, and not all customers are the same. Marketers should identify a clear target and tailor the investment and content to this audience.
Market segmentation techniques have evolved with the availability of data, advancement of analytics, and introduction of machine learning. From basic demographics, to psychographics, location, behaviors, and engagement levels, to big data, hyper-personalization, and AI-powered approaches, marketers have more dimensions and tools than ever before to segment their audiences.
Tapping into scientific approaches, sprinkling in common sense, and keeping the business strategy context in mind, marketers should divide customers into distinct groups with shared characteristics. For example, a financial services company segmented its market based on customers’ business goals, a confectionary brand divided its consumers based on need, a cleaning products company split its customers based on usage occasion, and an energy corporation divided its buyers based on geography. In each case, the company narrowed down one or two segments to market to, and was able to develop highly relevant content for each target, thereby maximizing the effectiveness of its marketing budget.
3. Consider the competitive context
A marketing budget should not only align with the company’s strategy, but also consider the competitive context. Understanding how competitors are marketing can inform not only how much and where to invest, but also what to communicate and how.
For example, marketers should compare a company’s share of voice versus its market share (simply put, how much it spends versus how big it is). This determines whether marketing is under-performing. Evaluating competitors’ use of marketing channels can help you optimize spend allocations. Understanding competitors’ spending trends over time (is one of them suddenly spending more?) can identify threats early so you can shape marketing strategies to respond to those challenges. Analyzing competitors’ content and messaging can reveal positioning white spaces and differentiation opportunities.
The competitor list should include not only direct competitors, but also startups and competitors from other industries. Tech brands, with their ever-broadening portfolios, are a threat for all traditional companies. For example, a hospital marketing executive we worked with despaired that the brand growing the fastest in consumers’ minds was Amazon Health. A payments company found that PayPal was the most appealing brand among its customers. The future competitive context is critical to helping shape today’s marketing investment strategies.
4. Invest the marketing budget for the future not the present
Marketers should allocate money in the marketing budget to grow future stars, not just to feed current cash cows. Come budget season, it is very easy for the largest business units and brands to grab the greatest share of available funds. But this strategy risks locking the company into an endless status quo, preventing it from achieving its full potential.
For example, the annual marketing budget process for a global hospitality company’s large portfolio of brands and markets had become highly politicized. Executives themselves described the process as a “snake-pit,” with larger business units and regions hissing the loudest and getting most of the budget. We helped replace this random process with a rational, transparent, data-oriented approach, with metrics that included growth objectives and strategic priorities. Budget distribution shifted towards smaller brands with the greatest potential, helping the company get back on track to achieving its longer-term business goals.
This is not to say that smaller businesses should always get more of the investments just because they need to grow. Larger businesses could also need more investment if, say they are threatened with new competition. Whatever the allocation strategy in the marketing budget, marketers should focus on what’s ahead, and constantly be looking at what investment strategy will achieve the desired future state.
5. Use data to drive investment decisions
Marketers have plenty of external data for making their investment decisions. All marketing practitioners today are familiar with all flavors of market research, social media, web traffic data, first party data, competitor reports, industry reports, government and economic data. And marketers are increasingly using advanced tools to process all that data, such as AI, predictive modeling, big data analysis.
Marketers should also incorporate internal data sources that capture the operations of the company. This can include sales, inventory levels, production, employees, and so on. And ultimately the analysis should be taken down to money—to revenues, profits, cash flows, share price and shareholder value.
Using data for marketing investment decisions of all kinds—levels, allocations, content—will help marketers not only make the most informed decisions, but also get those decisions accepted within the rest of the organization.
6. Invest in building your brand
Unfortunate jargon has crept into the marketing profession—performance marketing (focused on driving immediate actions) and brand marketing (focused on building long-term brand equity). This implies that brand has no role in driving immediate actions. In fact, studies have shown that long-term value driven by brand represents 60% of marketing value, and half of the remaining 40% immediate impact. Companies are deepening the divide between the two types of marketing, pitting them against each other in a destructive spiral that usually results in performance marketing getting most of the budget.
Two decades after Les Binet and Peter Field’s seminal report, The Long and The Short of It, woke up the industry to the dangers of short-term marketing, the industry is at it again. Why? Because it is easier for a marketer to claim success by pointing to things that are easy to measure such as instant clicks.
This non-brand approach does a disservice to marketing. Brand represents a significant portion of customers’ decision making, from 10-15% for commodity industries to more than 70% for luxury goods purchases Marketers should allocate fund in the marketing budget to strengthening the brand in every marketing activity, even if it is intended purely to drive immediate action.
7. Leverage other brands
Marketers responsible for a product should look into tapping into the power of other brands, both within and outside their company. The product brand may not have to do all the work alone.
For example, product marketing activities could feature the corporate brand. Our proprietary research in pharma has shown that not only does the corporate brand generate significant financial value in its own right, it also has the potential to provide as much as a 15% uplift to the value of the product brands and businesses.
Or the marketer could piggy-back the brand equity of another company through a brand partnership. There are many examples of this—BMW and Louis Vuitton, Microsoft and Adobe, GoPro and Red Bull, Apple and Mastercard, Beyonce and Democratic Party, Balenciaga and Crocs, and so on.
Partnering with other brands can make the marketing budget and spending much more efficient and effective. This approach can help not only by co-opting its brand equity, but also by leveraging the other brand’s budget, reaching new audiences, gaining missing brand attributes, and spurring customer interest.
8. Quality not quantity
It’s not just about quantity of marketing investment, quality matters too. Marketers can achieve a lot with a little if they spend the marketing budget carefully. Smart marketers should identify the right marketing channels to reach their target audience.
Above call, quality means marketing creativity. The Marketing Accountability Standards Board (MASB) research has shown that marketing content must balance originality with effectiveness. It must create a strong emotional response, which captures the attention of its intended audience. It must deliver on a clear purpose and realize the intended objective. And it must stand out, do something new, take risks, be memorable.
Quality marketing results in improved brand perceptions, more engaged customers, and more money. Low quality marketing annoys customers and drives them away, damaging the brand and wasting money.
9. Don’t limit spend to one year’s marketing budget
Marketing investment should be a multi-year commitment. Too often, organizations focus the marketing budget on the 12 months to come, but stop spending in subsequent years. Our analysis shows that while some brand metrics such as awareness can be grown within one year, it takes 5 years to build brand equity and lasting value.
When Microsoft launched Bing, it planned to invest in marketing it for only 1 year, then go dark. To compete against Google!? They must have been crazy. Our analysis shows that the most successful companies have a 5-year marketing investment horizon, typically starting smaller with a narrow influencer target, then increasing spend year-on-year to reach larger audiences.
Companies that stick with their longer-term plans when economic conditions are rough are more likely to be successful. Data shows that brands that upped marketing spend in a downturn, increased market share 4 times more during the recovery phase.
A multi-year perspective helps marketers prioritize objectives more realistically versus trying to cram it all in one year’s marketing budget. The first year can focus on awareness. Future years should focus on building the brand by creating brand preference, reaching wider audiences, and expanding the geographical footprint.
10. Measure financial results
No matter how impactful a marketing investment is, it will be under-valued and each future marketing budget won’t be approved if marketers don’t communicate results in the language of CEOs, CFOs and Boards. That language is money.
For marketers it is intuitive that marketing activities are critical to financial success, creating pull, influencing choice and generating revenues. But marketers’ costs are very visible in Board rooms while their impact on the business is not.
Marketers must articulate marketing budget impacts in the language that CEOs, CFOs and Boards understand—revenues, profits, cash flows, share price, and shareholder value—to gain the recognition and support that marketing rightfully deserves.
There are no silver bullets when it comes to successful marketing budgets. We hope that these principles will make marketers think about strategy not just tactics, and put measurement systems in place to get them the marketing budget that will generate the highest returns.