Digital marketing budgets: How can marketing leaders meet rising expectations for growth?

30-second summary:

• Digital marketing budgets as a portion of revenue were halved in 2021 and spend levels are not predicted to recover in 2022.
•  CMOs need to stake their claim in transformation programs.
• Digital marketing leaders can maximize their spend by capitalizing on enterprise-wide investments in digital and data and focusing on valuable customer segments.

Deborah Womack, Associate Partner, Marketing Transformation Ernst & Young LLP, offers five actions for Marketing Leaders to take now – plus a bonus that will help unlock investment potential through internal strategic alliances

For those CMOs and marketing leaders that find themselves with almost half the budget compared to 2020, squeezing maximum value from every customer interaction while providing customers with the experiences they desire is this years’ biggest challenge.

Shrinking marketing budgets + growing demands

As brands seek to recover from two years of uncertainty, marketing leaders are facing some of the sharpest budget cuts in years – some as high as 15% of the total marketing budget according to Gartner’s CMO Spend Survey. Marketing budgets as a proportion of company revenue have fallen from 11% in 2020 to 6.4% in 2021, their lowest point in history according to the same study.

During times of business uncertainty marketing budgets come under pressure and scrutiny, often leaving marketing teams scrambling to adjust their plans to allow for shrinkage while still delivering the revenue growth the business demands. Industries that were impacted the greatest by the challenges of 2020 saw the greatest cuts – and the least amount of budget recovery in 2021. Very few saw budgets bounce back to 2019 levels. Understanding why there is a steep decline in marketing budget allocation will help marketing leaders not only survive the trend, but also protect the future of marketing investment as a critical driver of value and growth.

Beyond global pressures

Beyond the obvious pressures the global economic crisis is placing on spend, several other factors are contributing to marketing budget cuts. First, portions of marketing budgets are being reinvested elsewhere in the business such as large-scale, enterprise-wide digital transformation programs that promise to deliver everything from best-in-class customer experiences to reimagined commerce and business models.

According to EY research in 2021:

• Almost half (44%) of corporate companies said they are making good progress with their digital transformation plans and are starting to embed them across their businesses.
• In 2022, two-thirds (66%) of corporates expect to be making good progress, and 17% expect their transformations will be fully embedded across all of the business.

Marketing must stake its claim in digital transformation programs and in turn demonstrate through better customer outcomes that the organization’s investment strategy is going in the right direction.

While portions of marketing budgets go toward digital transformation, the obvious companion to all digital transformation programs is data: only 4% of corporates claim to have a “highly sophisticated” approach to leveraging customer data according to EY research. And so, at least a portion of traditional marketing spend is being reallocated toward data development projects.

Talent drain

It is not only the cash that is flowing out of marketing budgets. It is also the depletion of highly skilled digital marketing talent, repurposed for big digital transformation projects high on the CEO’s and CIO’s priority – and an attractive career-building prospect for ambitious marketing execs. As marketing leaders plan to move more strategic marketing functions in-house, leaders need to consider how to structure in-house teams effectively to promote cross-functional collaboration, to provide the best employee experience, and to manage career progression opportunities. Marketing must reengineer its in-house, agency, and tech partner ecosystem to gain agility, collaborate effectively with other functions and bring in new skills and thinking when needed.

More and more we are seeing CMOs weave purpose, experience, and service into top-funnel digital marketing activities, investing heavily into insight-led customer journey transformation via advanced analytics, and funding it not from digital marketing budgets but by forming alliances across the organization with tech and data leaders. Marketing must allay its own marketing spend habits by diverting attention away from creative endeavors that deliver little business value and focus on improving the customer buying experience overall.

Five (and a half) things CMOs need to focus on now:

1. Redirect brand and marketing strategies toward capturing longer-term customer value and away from creative pursuits that are unlikely to deliver growth
2. Analyze the full customer buying funnel – top to bottom – to identify performance improvements that will deliver better ROI
3. Build the business case for future marketing investment by using customer LTV (Lifetime Value) as a key metric and relating results back to business goals
4. Maximize digital marketing spend by ensuring enterprise-wide digital transformation projects are equally focused on marketing use cases such as real-time analytics, personalization, and hyper-targeting capabilities
5. Accelerate first-party data capture at every touchpoint with customer-centric design principles guiding omnichannel communications such as nurture and lifecycle programs

One more action for marketing leadership – 5.5 on the list – is to form funding alliances with the CDO and CIO who can use brand and digital marketing KPIs to measure the effectiveness of their data mobilization strategies, digital platform implementations and technology upgrades.

Conclusion

The last two years have required CMOs to constantly pivot to respond effectively to the constant change in customers’ constantly evolving experience, buying and servicing expectations. One thing is certain that focusing spending solely on cool creative short burst campaigns without understanding the long-term value it delivers does not present a robust case for increasing marketing spend in the future. Forming strategic, collaborative partnerships across the C-suite maximizes and extends marketing investments and allows for faster innovation and more agility.

Essentially, marketing must take its seat at the table from the very start of digital transformation projects to extend its budgetary reach and become a beneficiary of tech, data and digital development programs.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.

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Deborah Womack is Associate Partner, Marketing Transformation at Ernst & Young LLP.

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