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Tech budgets continue to rise—slowly

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Continuing a cautious recovery, tech marketers will increase their marketing budgets by an estimated 3% in the first half of this year, according to a report released last week by IDC.

Last year, tech marketers increased marketing spending by an estimated 2.1% in the first half and by 5.8% for the full year, IDC reported.

The report, titled "Technology Marketing Spending and Resource Priorities for 2005," was prepared by IDC's CMO Advisory Research. It was based on interviews with 66 senior marketing executives at technology companies representing more than $200 billion in annual revenue.

The report found that tech marketers will increase their spending by an average 3% during the first half of the year, with spending expected to accelerate in the second half.

Global IT spending worldwide is expected to climb 6% this year, IDC projected.

According to the report, 45% of marketers plan to keep their budgets flat or increase them by up to 5% in the first six months of this year; 25% plan to increase their marketing investment 5% to 15%; 20% will increase their spending by more than 15%; and 10% will decrease their marketing budgets in the first six months.

When asked to characterize their company's marketing investment activity during 2005, 47% of executives said they were "cautiously optimistic"; 27.2% said they were "risk averse"; 15.2% said they were "aggressive"; and 10.6% said they were "highly risk averse."

Programs over people

Regarding where money will be invested, 66% of marketers' total budgets will be spent on programs, and 34% will be spent on people. IDC will break down the marketing spend further in its Tech Marketing Benchmark study, expected out later this year.

"Although there was significant growth in marketing investment in 2004, there is much slower growth in the first half of 2005," said Michael Gerard, research director of IDC's CMO Advisory Research.

Gerard said the slower growth is driven by a few key factors.

"A number of companies are still struggling from a marketing perspective as they get their houses in order and develop marketing performance measurement processes," he said.

Also, he said, the 6% increase in 2004 may have been a "rebound effect" after the significant drop in marketing spending in the previous years. Between 2002 and 2003, marketing investment dropped by 1.7%. "The slower growth [in the first half] may be a result of budget pressures in a slower-than-expected recovery," he added.

Rich Vancil, VP of the CMO Advisory Research, said tech marketers face an increasingly difficult competitive environment and need to work harder to differentiate themselves.

"The business of marketing and selling IT is getting harder," he said.

"Marketers need to find and exploit narrower niches and segments to find new sources of revenue."

IDC identified several characteristics of marketing "leaders" and "laggards."

Marketing leaders are those companies in which the marketing function reports directly to the CEO, represents the voice of the customer, initiates dialog with engineering and sales, and spearheads marketing performance measurement efforts.

Marketing laggards are companies that are still driven by engineering or sales, and in which marketing is still seen as a "marginal" activity.

In its survey, IDC asked marketing executives to rank their top marketing priorities. The top three were increasing brand awareness (cited by 48% of respondents); optimizing marketing strategy and execution (34%) and improving demand generation (31%). Marketers could select more than one response.

In an earlier report released in January, titled "Aligning IT With CEOs' Agendas in 2005," IDC asked CEOs to rank their top business priorities for the year.

Improving marketing effectiveness was the No. 3 priority, cited by 27.4% of executives. The top two business priorities were customer care and customer service enhancements (37.6%) and improving sales productivity (36%).

"The marketing charter needs to increase," Vancil said. "The good news is, this is also shared by executives in the C-level suite."

Others increasing budgets

While the tech industry struggles to bounce back, companies in other sectors are increasing their marketing budgets at a higher rate.

According to the Blackfriars Marketing Index, released last month, planned marketing budgets are 20% higher this year than in 2004, and 34% of companies plan to raise their budgets by 20% or more.

The Blackfriars report was based on interviews with 100 senior marketing executives across a range of businesses in the U.S.

The Blackfriars Marketing Index was 128 for the first quarter of 2005, which means companies expect to spend 28% more on marketing this quarter than they spent in an average quarter in 2003, the year for which the benchmark was set.

The report also examined how measurement processes at companies affect marketing budgets.

Blackfriars found that companies that measure marketing will increase their marketing budgets by 27% this year, while companies that don't measure marketing will increase their marketing budgets by only 3%.

Last year, companies that measured their marketing results spent 90% of their planned budget for the year, while companies that did not measure marketing results spent only 67% of their planned budget.

The report also found that 50% of executives at companies that measure marketing are "very" or "extremely" satisfied with their companies' marketing efforts, while only 35% of executives at companies that don't measure their marketing are "very" or "extremely" satisfied with their companies' marketing efforts.

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