Reduced Marketing Budgets and their Impact on the Future
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The release of a report saying that marketing budgets had been cut in half in the last 12 months has sent a few shockwaves through the industry. Is this a Covid-induced blip or an acceleration of a long-running trend. And what does this mean for the future of marketing?
In this blog we'll examine the facts and then look at how digital innovations like video personalization could be the way forward in an era of reduced marketing budgets.
The Key Findings
2020 saw the first impact of the Covid 19 pandemic as all economies and industries took a major hit. The advertising industry was no exception as consumer confidence was rattled and agencies were unsure of the message to send out to their customers. There was expectation though, that the markets would rebound in 2021. However, the release of Gartner’s Annual CMO Spend Survey this summer quickly put a dampener on those hopes.
Here are the key findings of the report which was conducted among 400 marketing executives in developed markets in North America and Europe:
Marketing budgets as a percentage of company revenue fell on average from 11% in 2020 to 6.4%. This represents the lowest proportion allocated to marketing in the history of Gartner’s Annual CMO Spend Survey.
Practically no industries escaped major cuts in marketing budgets and no sector reached an average double-digit budget in 2021. The worst affected industries were in tourism & hospitality, manufacturing and technological products with some cuts even going above 15%.
Financial services companies were less badly affected than others. Their marketing budgets fell from 10.7% of revenue to 7.4%. Consumer product and healthcare markets fared a little better than financial services.
The budgets of the largest companies were hit the hardest.
In the last 12 months alone, 29% of the work previously carried out by the agencies has moved to internal teams. The focus of these internal activities is also shifting to areas like brand development strategy, innovation and technology and marketing strategy development.
The survey also shows that marketing directors have shifted their spending commitments across channels and programs. Investments in pure-play digital channels now dominate, accounting for 72% of total marketing budgets. Traditional platforms such as linear TV and printed media are rapidly losing ground.
But as the dust settles and the implications of these negative numbers sink in, it's important not to panic and think that the sky is falling in.
Marketing budgets ebb and flow with economic upturns and downturns and the last two years have been exceptional. History has shown that when there are economic troubles for companies, marketing budgets are always the first budget to be cut and the last to be restored. There are already predictions that budgets will come back in 2022 but the predictions for 2021 were wrong so who knows what the future holds?
From the Gartner figures, it seems that one of the key impacts of reduced marketing budgets is digitization which is simply following a trend as CMOs allocate their budgets to the most cost-effective channels.
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More Bang for your Buck
The last 10 years has seen a slow but steady shift in budget allocation from traditional marketing to digital and this trend is unlikely to stop. As consumers embrace the internet, marketing channels like social media, video, website blogs and email marketing look set to dominate.
Without sufficient funding, over time brands risk losing customer relevance, share of voice and the ability to reach customers with targeted and timely messages. So with reduced budgets and new channels, CMOs need to learn how to get innovative in the way they use their budgets to become more efficient and create better ROI.
New technologies are rapidly opening the door to new innovations and one of these is personalized video. This form of direct personal messaging has existed for a while but the technology now exists to do it at scale and offer a top quality experience, which is good news for medium and large-scale businesses.
“With significantly reduced budgets, every marketer needs to be as effective as possible. Well-executed video personalization delivers proven results. It can help with sales metrics and strengthen long-term relationships with customers”
Video personalization allows brands to maximize the use of these new channels through the application of technology and psychology. More people watch them because they are customized specifically for them and won't be lost in the ocean of ordinary advertising. The smart but safe use of data means the messaging information is more relevant and delivered in a way that will grab their attention.
Case studies from campaigns in which Motionlab has provided the personalization, show major increases in key metrics like videos opened, CTR, CTA click ratio and video completion.
“We’ve tracked and A/B tested several campaigns across industries. Even though personalized video comes with higher initial cost, the effect on direct & long-term conversions, and brand’s mental availability was up to 16x more (cost) effective compared to other channels.”
Conclusion
Covid has caused major upheaval to marketing budgets across all sectors and accelerated a shift towards digitalized marketing. In this new reality, CMOs need to adapt by doing more with less and reprioritize the allocation of their marketing budgets. Technological innovations like video personalization offer one positive solution to this.
Danny Holman, Motionlab