Twice a year for the last three years, The CMO Survey (of which McKinsey is a sponsor) has touched base with marketing executives from all over the US to ask what they are seeing, planning and doing. Some questions and topics are addressed each time; others are introduced on a single occasion to address pressing concerns. The result is unique – both a snapshot of a moment in time and, as the surveys accumulate, a longer-term look at how marketers are coping with fast-changing competitive, technological, and economic conditions. ( See the findings from this and previous surveys at The CMO Survey site.)
The seventh and most recent survey was conducted via the Internet in August – a period that coincided with the S&P downgrade of the U.S. credit rating and the political battle over the debt ceiling. Given this context, it is perhaps heartening to report that the 249 executives – more than 80% of them V.P. level or above – who responded, plan both to spend more on marketing (9.1%) and to hire more marketers (7.2%) in the next year. They also reported that, relative to the previous 12 months, company sales and profits had improved. Business-to-business firms reported particularly strong results.
Even so, the respondents were not exactly brimming with animal spirits. Asked “How optimistic are you about the overall US economy?” only 14.9% said they were “more optimistic” than they were in the previous quarter while 57.4% are less optimistic. And the average optimism score (on a scale from 1-100) decreased from 63.3 in February to 52.2, the lowest since February 2009.
To explain these and other interesting points, McKinsey sat down with Christine Moorman, the founder and director of The CMO Survey, and a professor at Duke University’s Fuqua School of Business; Professor Moorman also reflects on the survey on her blog.
1. McKinsey: What makes The CMO survey distinctive?
Moorman: Several things make this effort unique in the marketplace. First, it covers a range of strategic marketing questions, not tactical issues. Second, the survey is forward-looking. If marketers are going to influence companies, they need to know where markets are going and what companies will spend in the future. Third, The CMO Survey is objective. I am not selling services. I am simply interested in the truth about marketing. We need an honest assessment of marketing if we are going to improve its value to companies and to society.
2. McKinsey: Where does social media fit in?
Moorman: The rise of social media spending is one of the findings that stands out. The CMO Survey asked about social media for the first time in August 2009. Since then, the gains in spending have been impressive. In the most recent survey, executives reported their companies are spending 7.1% of their overall marketing budgets on social media. They expect this percentage to increase to 10.1% over the next year and to 17.5% in the next five years!
The jury is still out on whether companies know what they are doing with these expenditures. Adopting and leveraging an innovation as complex and potentially disruptive as social media will take time. According to the respondents to The CMO Survey, at the moment, companies have not integrated social media into their overall strategies (average 3.4 on a 1-to-7 point scale) or their marketing strategies (4.0 average) very well. For this integration to occur, companies need to think about the skills, organization and strategy required by social media. The CMO Survey suggests that doing so is still very much a work in progress for most companies.
3. McKinsey: What surprised you most about the results of the most recent survey?
Moorman: The disconnect between marketer pessimism and marketing spending. You might expect these numbers to work in tandem – that is, pessimism would correlate to lower spending and optimism to higher -- but they do not. I think the key is that executives report their companies are holding onto the profit, revenue and ROI gains of the last six months. Combining these facts with the reported intentions to spend and hire, I conclude that these executives may have good private information about their companies or they may be spending counter-cyclically. The CMO Survey will have better information on this question in six months. However, in the meantime, I caution that the doomsayers operating in financial markets may not have a complete view of market conditions. Paying closer attention to executives especially in revenue and demand-generating activities such as marketing offers a useful counterpoint.
4. McKinsey: The survey indicates that marketers believe that customers are increasingly focused on price and less so on innovation. Are marketers responding to those priorities? Should they be?
Moorman: Lowering price is rarely the best strategy for adding value. Even when customers are clamoring for lower prices, marketers should continue their efforts to improve other sources of value to beat the competition. Customers have pain points for which solutions can be offered; they have unmet needs that can be served; and they seek benefits that they are willing to pay for. Focusing on price teaches customers to focus on price. That’s not a good thing because most companies cannot win by competing on price. There is nothing distinctive or differentiating about it. Unless you have really big scale or very low costs, it’s a hard way to go. Improving other sources of value for the same price is likely to be a better approach.
5. McKinsey: What are the biggest changes you have seen in the survey in the three years it has existed?
Moorman: First, marketing executives are being retained longer than many reports indicate. The CMO Survey reports retention rates for top marketers around 4.3 years and these figures have not changed across years. Second, marketers are taking on fewer strategic roles within companies. Fewer marketers play a role in innovation, market entry, and customer relationship management. Third, more firms are outsourcing marketing activities, from 4.3% a year ago to 9.3% now. These last two trends worry me: Who is now the firm’s guardian of the voice of the customer?