Question

Companies spend millions, if not billions of dollars on marketing every year. Pick a company that does significant marketing and is a public company. You will need to look up the company’s annual report to find the total amount spent on marketing for the last calendar year (20XX). Once you find the information from the company’s website and annual report, explain the number and what the company reported spending the money on. Do some mathematical comparisons, total revenue as compared to marketing budget, total liability as compared to marketing budget to determine the percentages the company plans to spend just on marketing. ROI (Return on Investment) is also a calculation that can be conducted. Assume that any gain from the year prior to your current year selected is due to increased investment, what would be the percentage ROI that the company achieved by this increased investment. (estimated numbers are okay, as long as you show your work, calculations, and explain your answers.

Answer 1

Overall Changes In Total Marketing Budgets

First, a look at how marketing budgets are changing.

For ten consecutive years, top marketers were asked how their marketing spend was expected to change in the upcoming year.

Since 2009, marketing budgets remained relatively consistent or increased compared to the previous year for the majority of participants.

With no evidence to suggest differently, 2019 marketing budgets are expected to remain consistent with 2018 levels or increase.

The report above from cmosurvey.org shows the variation in the expected rate of increase in marketing spend, not the actual increase. The largest increase in projected marketing spend occurred shortly after the recession of the late 2000’s, but continues to fluctuate between 4 and 10%.

You can download the full report here.

Marketing budgets as a percent of the overall firm budget has remained even more consistent, as shown in the chart below. On average, marketing budgets made up 11.1% of total company budgets in 2018, with some variation depending on the industry and who they're marketing to. Not surprisingly, those companies in the B2C product space allocate the largest portion of their total budget to marketing, averaging 16%. B2C services increased their marketing budget share substantially as well in 2018, moving from 9.3% of firm budget to 14.9%

Marketing spending as a percentage of revenue tends to fluctuate, but generally hovers between 6.5% to 8.5%, with the highest percentage again coming from B2C service companies followed by B2C products. Again, B2C services increased marketing budgets as a percent of revenue quite a bit in 2018 over the previous year, rising from 7.3% to 11.8%. One of the difficulties in providing a general budget recommendation is that not all companies are consistent with what they include in their marketing budget. While some companies include any marketing, and even sales related expenses, others would categorize some of those expenses separately as a part of their total budget. The chart below illustrates these inconsistencies, and shows the marketing expenses most commonly included.

A 2018 study by Gartner reported that marketing leaders planned to spend 29% of their marketing budget on marketing technology (up from 22% in 2017), making it the single largest area of investment for marketers, followed by labor, agencies and paid media. Email marketing platforms, web content management and digital marketing analytics platforms were the highest martech priorities.

How To Allocate Marketing Budgets Across Channels

The next question to answer is how to allocate marketing budgets across channels – offline and online - and how to spread the online investment across the various online/digital channels.

Reports from Forrester Research and eMarketer show the estimated allocation of marketing funds offline vs. online and across the digital channels.

Here are some conclusions from that report:

• In 2018, the average firm was expected to allocate 42% of their marketing budget to online, and this rate is expected to grow to 45% by 2020
• Search engine marketing will capture the largest share of online spend with online display (banner ads, online video, etc.) taking the second largest share
• Online video will represent the highest growth category, with the anticipated investment more than doubling 2016 numbers by 2021
• Social media advertising investments will continue to grow, with a 17% compound annual growth rate from 2016 to 2021, and is expected to represent 25% of total online spending in 2018.
• Mobile marketing has grown to a point that it’s no longer tracked in the forecast and it’s presumed to be considered across all channels
• Digital marketing is pacing at an 11% compound annual growth rate between 2016 and 2021 with the biggest growth occurring in online video.
• Investment in paid search, display advertising, social media advertising, online video advertising and email marketing is predicted to account for 46% of all advertising by 2021.

How marketing funds are ultimately allocated is driven by the nature of the business, the competitive marketplace, and how target customers behave through the buying funnel.

Which Marketing Strategies & Tactics Are Getting The Best Results?

In a recent survey of 2,500 digital marketers, respondents reported on what marketing activities generated the best ROI.

Email marketing still leads the way with the highest percentage of Excellent and Good ROI results reported, with social media marketing following closely behind.

Marketing technologies and automation are proving effective at bringing together the most effective marketing tactics (email marketing, organic search, social media marketing and content marketing) to achieve better results.

Which Social Media Channels Should I Invest In?

An August 2016 report from eMarketer shown below projected social media penetration by social platform through 2020.

While there are no direct investment assessments associated with this particular study, it does show noteworthy trends among the major social channels.

Facebook was expected to remain king, with 90% of social media users utilizing the platform. Instagram was expected to grow, from 32% penetration to 47% by 2020.

Other social channels with baked in advertising features, such as Pinterest and Twitter, will continue to have relatively low penetration, peeking around 33% of users by 2020.

This data suggests an emphasis should be made on Facebook and Instagram channels for social advertising.

A more recent study from early 2018, still shows Facebook leading the way, with 68% of adults using the platform. While growth there has leveled off, it remains an important channel for many marketers.

YouTube, while not a traditional social channel, is used by 73% of US adults, and a whopping 94% of 18-to-24 year olds.