Spending on marketing technology is in sharp retreat, falling by 15 per cent in 2017, as CMOs pull back on high levels of spending amid concerns over their capability to acquire and manage technology effectively.
The figures — and the analysis — are contained in Gartner’s recently released CMO Spend Survey 2017-2018 (Subscription required), written by Ewan McIntyre and Anna Maria Virzi and , focussed on North America and the UK.
Once again, offered the opportunity to lead, marketing has shrunk to the occasion. Not all marketers, and not all companies, of course — some CMOs have genuinely grasped the mantle. But for too many, the technology challenge proved a bridge too far. As with digital leadership, many marketers overreached with the promises they made to the C-Suite, leaving them exposed when the expected ROI failed to materialise.
And that is reflected in spending this year.
Last year’s survey showed 27 per cent of marketing budget was allocated to martech, that dropped to 22 per cent this year. And overall spending on marketing as a percentage of total expense also declined.
CMOs last year came within striking distance of fulfilling the long-heralded promise that they would spend more on IT than IT managers. CMO spending on technology in 2016 was 3.24 per cent of revenue, compared to the CIO’s budget of 3.4 per cent of revenue.
These latest figures suggest that won’t happen this year.
In fact, it’s possible that the CMOs’ moment in the technology sunshine may be passing. The sheer complexity of the marketing technology ecosystem — and the huge wins to be derived by more fully integrating marketing into the wider corporate tech stack — suggest to us that IT will take an increasingly prominent role in martech decision making. How CMOs respond over the next 12 months will answer the question.
Melted wax to make my wings
“The challenge is that CMOs’ ascent to their lofty technology role has been swift, and the learning curve has been intense,” the analysts write.
Along with the constraints that accompany a smaller overall marketing budget, Gartner attributes the decline to marketing’s inability to demonstrate the technology capabilities in face of pressure from CFOs and CIOs.
“Poorly selected, underperforming or underused marketing technology forces marketing teams and agencies to rely on manual processes, which hurts marketing efficiency and effectiveness. Significant investments need to prove business value, or else they end up being considered costly vanity projects,” the report argues.
Gartner’s global analysis gels closely with all of the anecdotal feedback Which-50 has received from both industry insiders and marketers over the last year.
Marketing cloud vendors have done a good job convincing their clients of the value of suites. But brands have struggled to realise the promised return on investment, leading to poor retention rates.
Gartner’s latest study is based on a survey of 353 marketing executives in North America and the UK from June through August 2017.
Will Griffith, regional VP, APAC for Oracle Marketing Cloud, told Which-50 he wasn’t convinced martech spending had slowed in all markets. While unable to provide specific numbers, Griffith said the survey “is not a reflection of every market in the world”.
In terms of martech investments, Griffith said adoption cycles may play a role in the pace of technology spending.
“As marketing departments and technology they use are getting more mature, marketers are spending more time focusing on getting the most out of the technology they’ve already bought,” Griffith said.
“Whereas the iterations of technology cycles that they went through before might have been one or two years, now they are on to a more mature platform they are giving it a longer run before deciding whether or not they should increase or change their spending behaviour.”
Griffith recommends marketers use the investments to generate some quick wins and to communicate those to the rest of the business.
“Shining the light on a little win is more important than waiting to shine the light on the big win,” he said.
Gartner recommends marketers build a martech roadmap that demonstrates the value of the martech stack cosystem delivers against business goals.
Chris Connell, Senior Director of Marketing APAC at Marketo, said disconnect between marketers and CEOs means marketing departments will continue to struggle to get the budget, technology, and tools they need.
“With great power comes great responsibility. The same can be said for marketing budgets,” Connell told Which-50.
“If CMOs want investment in technology they have to draw a clear line between marketing activity and revenue growth. Step back from the stereotype, and move towards measurement.”
Choosing technology wisely will help marketers manage the growing complexity of their role, argues Kevin Doyle, Director at Salesforce for Advertising (DMP & Advertising Technology).
“With so much choice in technology platforms, marketers risk stacking various tools which often makes advertising, marketing, sales, service and analytics more complicated than they need to be; while disconnected data sources and departments make it difficult to get a complete picture of the customer and execute multi-channel campaigns,” Doyle told Which-50.
“Real-time data and analytics are a marketer’s best friend, leaning on the capability of machine learning and artificial intelligence to provide these insights and reduce the time spent developing them — freeing up marketers to focus on managing and creating meaningful, connected customer journeys.”
It is not all grim reading, however. Marketers are still investing strongly in innovation, with the Gartner study finding that up to ten per cent of marketing budgets are being set aside for new opportunities.
“Despite budgetary pressures, innovation remains a spend priority for CMOs, securing ten per cent of total marketing expense budget. Furthermore, almost a quarter of CMOs (23 per cent) now have a fixed annual innovation budget.”
The changing role of the CMO
There is also evidence that CMOs may have become distracted — either by a heavy focus on operational and tactical measures of performance or by large, cross-functional initiatives such as customer experience programs that have yet to provide hard economic benefits.
“The risk is that CMOs are either being too nearsighted to be strategic or too visionary to deliver against marketing’s objectives,” said Ewan McIntyre, Research Director at Gartner.
“The result is a lack of focus on the metrics that matter to CMOs and the business — how marketing activities deliver a return on investment and profitability to the organisation.”
They also serve
While the tide may be rolling back on marketing technology investments, the shift to digital campaign spending continues unabated, according to the report.
Marketers are increasing their digital media budget and it’s coming at the expense of traditional media channels. Two thirds of CMOs plan to increase their digital advertising spend, while 63 per cent will lessen or flatline their offline advertising.
The increase in digital ad spend comes despite concerns around ad fraud and ad blockers, which are making investments “more exposed to waste”. It’s become a billion-dollar problem for marketers.
“It’s likely that $6.5 billion will be diverted from the advertising ecosystem due to fraud in 2017,” the authors write.
However, the challenge hasn’t dampened marketers’ appetite for digital channels. Sixty-four per cent of CMOs are planning to increase their social budgets, “proving that reports of its death have been greatly exaggerated”, while over half (59 per cent) are planning to increase their mobile budgets. Overall, 61 per cent of CMOs are planning to boost spending in digital channels.
Offline advertising has been “hit hardest” by the increase in digital media spend, according to the report. Over half of CMOs expect to decrease or flatline their investments in event marketing and partner/channel marketing, and nearly two thirds expect a similar slump for offline advertising.
It’s a reflection of changing media consumption habits as users continue their migration to digital media, according to the report. Measurability of digital advertising also emerged as a major attraction for marketers and a contributing factor in the digital media budget growth, the authors write.
“Digital channels are purpose-built to feed CMOs’ metrics requirements, facilitating easy calculations in marketing program performance in terms of reach, engagement and conversion.”
However, leaders go beyond performance metrics and employ advanced analytics and modeling in an effort to answer “the elusive total marketing ROI question.” The tactic helps link customer journey touchpoints, including the non-digital.
“Without capabilities like marketing mix modeling (MMM), CMOs risk cutting away at channels based on gut feel, irrespective of the journeys their customers and prospects actually take to buy, own and advocate their product and brand,” according to the authors.
The evolving relationship between CMOs and their agencies looks no closer to settlement. CMOs are increasingly looking at taking control of the adtech stack — or at least building greater accountabilities into it, as evidenced by the number of large brands bringing programmatic and attribution programs in-house.
The reason is simple: data. In order to build end-to-end connected experiences, the brands need to get integration across all their data assets. That doesn’t necessarily require seizing back adtech from agencies, but brands are increasingly careful about defining the scope of relationships.
However, outside of the largest companies many businesses struggle to find the ROI necessary to justify the extra headcount required to cover a wide array of skills covered by their partners.
According to the Gartner report, getting the optimal balance between in-house and agency resources remains an enduring organisational design challenge.
“Together, labour costs and services constitute more than half (53 per cent) of the total marketing budget, with 25 per cent spent on services (up from 22 per cent last year) and 27 per cent spent on labour (down from 28 per cent last year).”
The authors caution, “Managing the mix between your people and your partners is one of the most important investment decisions a CMO will make. Of late, there has been a trend toward in-sourcing, evidenced by Gartner’s CMO Strategy survey. Strategically important capabilities are being brought into the marketing organisation, and agencies and third parties are playing a supporting or executional role.”
In fact the report goes even further, warning that the gap between desire and reality is stark. CMOs are struggling to acquire and retain the talent central to their marketing organisation vision.
“For proof, look to Gartner’s Organizational Design and Strategy Survey. CMOs report that the most important roles that are central to achieving their strategy, such as marketing analytics and digital commerce, are the hardest to acquire and retain. The inability to attract these roles means that agencies and third parties step in to fill resource and capability gaps.”