New Insights from The CMO Survey on Major Marketing Trends

With the beginning of the fourth quarter less than a month away, many B2B companies have already started planning for 2019. Over the next several weeks, marketing leaders will be evaluating how well their existing marketing programs have performed and developing plans for the coming year.

To plan effectively for 2019, marketing leaders need a solid understanding for the overall economic and competitive environment and the major trends impacting B2B marketing. The CMO Survey is a valuable resource for information regarding these important issues. The CMO Survey is a joint effort of Duke University's Fuqua School of Business, the American Marketing Association, and Deloitte. The primary objective of the survey is to capture the opinions of senior marketers about important trends in marketing spending and practices.

The August 2018 edition of The CMO Survey generated responses from 324 senior marketing executives at U.S. companies. Two-thirds of the respondents (66.0%) were affiliated with B2B companies. What follows is a brief description of some of the major findings from the latest survey. Unless otherwise indicated, the survey results discussed in this post are based exclusively on the responses of B2B marketers.

View of the Economy

Survey respondents were generally optimistic regarding the health of the U.S. economy. When asked to rate their optimism about the economy on a scale of 0 to 100, the mean of the ratings given by respondents was just over 65. When survey respondents were asked about the level of their optimism compared to the preceding quarter, 35% of the respondents said they were more optimistic, 32% said they were less optimistic, and 33% reported no change.

Note:  Both the Federal Reserve and the Conference Board have recently estimated that real GDP growth in 2019 is likely to be between 2.0% and 2.5%, which most economists would consider good, but not great. So, the level of optimism expressed by the survey respondents seems to be about right.

Drivers of Future Growth

The CMO Survey also asked survey participants to rate the importance of five "drivers" of future organic growth in their business. The following chart shows the percentage of respondents who rated each driver as the most important. As the chart shows, a plurality of respondents ranked having the right talent as the most important driver of future growth.

What is interesting about these responses is that having the right technology received only the fourth highest number of first-place votes (out of five possible choices). So in spite of all the hype that now surrounds marketing technology, it appears that marketing leaders understand that while technology is undeniably important, other factors play an even more significant role in driving growth. In fact, when both first-place and second-place votes are considered, having the right technology still ranks fourth.

Marketing Spending

The CMO Survey found that overall marketing spending increased by about 7% in the 12 months preceding the survey, and that respondents expect marketing spending to grow by about 9% over the 12 months following the survey. Respondents expect spending on digital marketing to increase 13%-14%, while spending on traditional advertising will be essentially unchanged.

The latest survey also shows that marketers expect their spending on social media and mobile marketing to increase rapidly, even though they do not currently see those tactics/channels as having a major impact on company performance.

Respondents from B2B product companies expect social media spending to increase from 9.7% of the marketing budget currently to 18.8% five years from now. Respondents from B2B services companies put the increase at 13.9% of the current marketing budget to 21.6% by 2023. However, 70.9% of respondents from B2B product companies, and 58.5% of respondents from B2B services companies rated the impact of social media on company performance at 3 or less on a 7-point scale.

Mobile marketing shows a similar pattern. Respondents from B2B product companies expect spending on mobile marketing activities to grow from 6.9% of the marketing budget currently to 13.7% in three years. Respondents from B2B services companies put the increase at 7.5% of the current marketing budget to 14.9% by 2021. However, 76.0% of respondents from B2B product companies, and 71.7% of respondents from B2B services companies rated the impact of mobile marketing on company performance at 3 or less on a 7-point scale.

Marketing Analytics

Another aspect of marketing spending that looks similar to social media and mobile marketing is marketing analytics. Survey respondents expect spending on marketing analytics to increase from a little over 6% of the marketing budget today to about 19% of the budget by 2021. It appears, however, that marketers are still challenged to maximize the potential value of analytics.

When survey participants were asked, "In what percent of projects does your company use available or requested marketing analytics before a decision is made?" respondents from B2B product companies reported about 32% of projects, and respondents from B2B services companies said about 29% of projects. In addition, fewer than 20% of respondents reported that the use of analytics made a significant contribution to company performance (a 6 or 7 rating on a 7-point scale). This suggests that being "data-driven" remains more of an aspiration than a reality for many marketers.

Top image courtesy of Marco Verch via Flickr CC.

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Use the 70-20-10 Formula for Better B2B Marketing

The most important and difficult decisions that marketing leaders must make inevitably involve the allocation of marketing resources (money, people, time, etc.).

Regardless of company size, the resources available for marketing are rarely sufficient to enable marketing leaders to do everything they'd like to do. Therefore, resource allocation is an intrinsic part of every significant marketing decision, and the challenge for marketing leaders is to use their finite resources for programs and capabilities that will produce maximum results.

Deciding where and how to invest limited marketing resources has never been simple or easy, but these decisions have become more complex and challenging because today's marketing leaders have more options than ever before. Over the past several years, the number of marketing channels and techniques has grown dramatically, and the explosive proliferation of marketing technologies has been well documented.

Marketing investment decisions are further complicated by the need to maximize performance in the present, while simultaneously laying the foundation for success in the future. Because customer expectations and preferences are constantly evolving, marketing techniques that are highly effective today may become less effective in the future, while marketing techniques and capabilities that aren't very important today may become key to future marketing success.

Fortunately, there's a good rule of thumb called the 70-20-10 rule that marketers can use to address this particular aspect of the resource allocation challenge. The 70-20-10 rule is used for a variety of business purposes. Many companies, including Google, use it to manage innovation resources. Coca Cola has reportedly used a version of the rule for years to guide marketing investment decisions. Here's how the rule works.

The 70%

The marketing version of the 70-20-10 rule states that about 70% of your marketing budget should be spent on capabilities and programs with a well-established track record of acceptable performance. These will include marketing channels, techniques, and technologies that your company is currently using successfully.

The 70-20-10 rule does not mean that companies should simply "keep doing what we're already doing." It means that marketers should evaluate how well their "bread and butter" programs are performing and continue to invest in those that are delivering acceptable results.

Your primary goal with these capabilities and programs is to drive incremental performance improvements.

The 20%

According to the 70-20-10 rule, about 20% of your marketing budget should be invested in "new," but promising capabilities and techniques. This category will typically include channels and techniques that a growing number of other companies are using successfully. In many cases, these channels and techniques will be approaching mainstream adoption.

Investments in this category are not quite as safe as those in the 70% group, but they often relate to capabilities or technologies that will become critical to your success in the near-term future.

The 10%

The remaining 10% of your marketing budget should be invested in truly new capabilities and techniques that have just emerged on the scene. Obviously, these are high-risk investments that aren't likely to produce short-term benefits.

For small and mid-size companies, the investments in this category may consist primarily of learning about the new techniques of capabilities - e.g. sending members of the marketing team to conferences or other educational events. Larger companies may also decide to launch small pilot projects to experiment with a new capability or technique.

Caveats

As with other rules of thumb, marketers should view the 70-20-10 rule as a guide rather than a precise prescription. The specific percentages in the rule may not be appropriate for every business in every competitive situation. The benefit of the rule is that it leads marketers to give appropriate consideration to both current and future needs.

Image courtesy of Vall d'Hebron Institut de Recerca VHIR via Flickr CC.

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How Will You Grow in 2018?

With the fourth quarter of 2017 now underway, many B2B companies have already started their planning for 2018. Over the next several weeks, senior company leaders will be evaluating how their business is currently performing and setting goals for the coming year. Some of those goals will inevitably relate to revenue growth, and one thing is clear:  Marketing leaders are squarely on the growth hotseat.

In a 2016 global survey of CEO's and CMO's by Accenture Strategy, 50% of the CEO's said their CMO is primarily responsible for driving disruptive growth in their organization. About a third of the CEO's also said that the CMO is the first to go when growth targets aren't met.

To set realistic growth objectives for 2018, and to implement marketing programs that will effectively support those objectives, marketing leaders must have a clearly-defined revenue growth strategy. One critical - but often overlooked - step in developing a sound revenue growth strategy is identifying where growth will come from. Specifically, marketing leaders need to answer three basic questions during their planning process:

1. What are the structural sources of revenue growth in our business?
2. How much growth is each source currently producing?
3. How much growth can we realistically expect to generate from each source next year?

I described the most common structural sources of revenue growth in an earlier post, so I won't repeat that discussion here. The following diagram depicts the sources of growth that exist in most companies:

How Much Growth is Each Source Currently Producing?

In this post, I'll discuss how to answer Questions 2 and 3. When I work with clients on business or marketing strategy projects, I use sales data from the client's ERP/accounting system to answer the second question. Here's a simplified example of how the analysis works.

Suppose that your company had total sales of $110 million for the 12 months ending on September 30, 2017. In this example, I'll call this 12-month period "2017." You had total sales of $100 million for the 12 months that ended on September 30, 2016. We'll call this 12-month period "2016." So, your company grew sales by $10 million during 2017.

For this example, let's suppose that your company did not acquire another business or introduce any new types of products in 2017. During 2017, your company did begin selling in a new geographic market. Under these circumstances, your primary sources of revenue growth in 2017 were base retention, increased sales to existing customers, sales to new customers in existing markets, and sales to new customers in new markets.

To quantify how much revenue growth each of these sources produced, you would use "sales by customer" data from your ERP/accounting system.

Base retention (revenue churn) - To measure the impact of revenue churn, identify the customers who bought from you in 2016, but did not buy from you in 2017. The total sales made to these customers in 2016 is the amount of revenue that was "lost" in 2017 due to revenue churn. For this example, let's say the amount of lost revenue was $1 million.

Increased sales to existing customers - Identify the customers who bought from you in both 2017 and 2016, and compare the 2017 total to the 2016 total. For this example, let's say that sales to existing customers increased by $3 million in 2017.

Sales to new customers in existing markets - Identify the customers who  bought from you in 2017 but did not buy from you in 2016. Then eliminate those customers who are based in the geographic market that you entered in 2017. The sales made to the remaining customers are sales to new customers in existing markets. Let's say this source accounted for $5 million of the 2017 revenue growth.

Sales to new customers in new markets - This is the total 2017 sales made to customers in the geographic market that you entered in 2017. Let's say this amount was $3 million.

The table below summarizes the results of this analysis and shows where growth in 2017 came from:

How Much Growth Can We Generate from Each Source in 2018?

Once you know where your current growth came from, you can use these insights to set more realistic and achievable growth objectives for the coming year. The key is to analyze why the current growth happened.

In our hypothetical company, for example, sales to new customers in existing markets produced $5 million, or 50%, of the total sales growth in 2017. One possible explanation for this growth is that the overall market for the company's products or services expanded in 2017. In other words, the growth may have resulted from being in "the right market at the right time." It's also possible that this growth occurred because the company took customers from competitors and increased its market share.

Either way, the important questions is:  How much future growth can the existing markets provide? If the existing markets still have substantial growth potential, the company will probably want to focus a significant amount of demand generation efforts on acquiring more new customers in these existing markets.

On the other hand, if those existing markets do not have significant future growth potential, the company will need a different strategy to drive growth. It may, for example, want to focus more demand generation efforts on acquiring new customers in the geographic market it first entered in 2017, or it may need to consider expanding into new geographic markets.

This type of analysis should be done for each source of revenue that contributed to current growth and for any new sources that are expected to contribute next year. Once this analysis is completed, you should set revenue targets for 2018 for each source of revenue that applies to your company. And once these revenue targets have been established, marketing leaders can begin to design marketing programs to achieve those objectives.

Top image courtesy of ccPixs.com via Flickr CC.

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Cracking the Code on Revenue Growth

Marketing leaders are increasingly on the hook for growth, and to meet this demand, they must understand how growth happens and where it originates. This post describes the wellsprings of revenue growth that any company can tap.

Today more than ever, marketing leaders are expected to develop strategies and execute programs that will drive revenue growth. In a 2016 global survey of 535 CEOs and 847 CMOs by Accenture Strategy, 50% of the CEOs said their CMO is primarily responsible for driving disruptive growth in their organization. CMOs were ranked ahead of all other C-level executives, including the CEO, the chief strategy officer, and the chief sales officer.

But this responsibility comes with a downside. About a third of the CEOs said the CMO is the first to go when growth targets aren't met.

Since marketing leaders are clearly on the growth hotseat, it's critical for them to understand the dynamics of revenue growth - how it happens or, more accurately, where it originates. There are, in fact, several distinct sources or wellsprings of revenue growth. These structural sources of growth are not dependent on the way a company is organized or on the types of products or services it sells. Instead, they are based on the business and marketing strategies that a company uses to tap into each source.

As you might expect, this topic has been discussed in management and marketing circles for a long time. In a 1957 article for the Harvard Business Review, Igor Ansoff identified four structural sources of revenue growth and four related types of growth strategies:

1. Sales of existing products in existing markets (market penetration strategy)
2. Sales of existing products in new markets (market development strategy)
3. Sales of new products in existing markets (product development strategy)
4. Sales of new products in new markets (diversification strategy)

In a 2004 article in the Harvard Business Review, Michael Treacy and Jim Sims identified five structural sources of revenue growth:

1. Continuing sales to existing customers (base retention)
2. Sales won from the competition (market share gain)
3. New sales in an expanding market (market positioning)
4. Sales from expanding into related markets (adjacent market expansion)
5. Sales from expanding into new, unrelated lines of business (diversification)

Both of these models are insightful, and I've used both when working with clients on business and marketing strategy projects to frame our discussions about how to grow. But over the years, I've expanded on these models to create a more detailed framework of the alternative ways to generate growth. The current version of my framework is depicted in the following diagram:

This framework can be a good tool for stimulating your thinking about how to grow your business. When using the framework, however, it's important to keep a couple of things in mind. First, no single source of growth is likely to provide all of the revenue you need to reach your growth objective. And second, you'll need a distinct game plan to extract the maximum volume of revenue for each source of revenue you choose to pursue.

Producing consistent revenue growth is always a difficult challenge. The good news is that these structural sources of growth are always present. Their existence isn't dependent on the market conditions a company is facing at a particular moment in time, although the volume of revenue that a company can get from each source is greatly influenced by the market and competitive environment. The job of business and marketing leaders is to combine these sources of growth to fit their unique situation.

Illustration courtesy of Paul Lancaster via Flickr CC.

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