Tech marketing budgets rise, outpace spending

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Research shows correlation between sustained marketing investment and revenue growth
Demonstrating that the tech recovery is well under way, technology companies will increase their marketing budgets by an average 6.4% in 2005 over 2004, according to new research from IDC's CMO Advisory Research service.

The study, "Planning Your 2006 Marketing Budget," was based on interviews with 95 senior marketing executives at technology companies, representing $300 billion in revenue and $9 billion in marketing spending.

Companies participating in the research included Adobe Systems, Cisco Systems, IBM Corp., Intel Corp., Novell, SAP AG and Siebel Systems.

"Tech marketing investment has now grown to the highest rate of increase we've seen in the last four years," said Rich Vancil, VP of IDC's CMO Advisory Research service, during a conference call with clients on Aug. 23 to discuss the findings.

In 2004, tech marketing spending was up 6% over 2003, while marketing spending in 2003 was down 1.7% from 2002.

IDC's research also found that the rate of growth of tech marketing spending is outpacing that of global IT spending, which is expected to grow by 5.3% in 2005.

"The rate of marketing investment will continue to grow," Vancil said, pointing to IDC's forecast of a 7% increase in marketing investment in 2006.

The research found that companies will spend 49% of their marketing budgets this year on awareness and 51% on demand generation.

IDC also asked marketers how they are allocating their marketing program dollars. Excluding personnel costs, program budgets make up 63.5% of total marketing budgets.

The research found that 23.2% of tech marketing program budgets will be spent on advertising; 19.3% on events; 16.8% on marketing support and sales tools; 12.9% on direct marketing; 6.5% on PR; 5.1% on collateral; 4.6% on research; 4.0% on the Web; 2.3% on analyst relations; and 5.3% on other activities.

A key finding of the report was a correlation between sustained marketing investment and revenue growth.

Companies that maintained a marketing investment increase of at least 6% over the past three years realized an average 5% revenue growth over the same period.

"This is further confirmation of the ROI of marketing investment," Vancil said. "The good news is that more companies seem to be in that category."

In 2003, only 31.7% of respondents said they planned to increase their marketing budgets. In 2004, 57.7% of companies planned marketing budget increases, and this year that number has grown to 63%.

IDC also examined companies' marketing priorities for this year and beyond. "For the remainder of 2005 and in 2006, CMOs will focus a lot of time and dollars working on building a more responsive, more professional and more powerful marketing function," Vancil said.

One of their key priorities is developing organizational charts that move toward more market-facing functions, Vancil said.

IDC asked CMOs to rank the extent to which marketing input drives product/service design or corporate strategy development on a scale of one to six. A score of one indicated that marketing does not drive use of market and customer data, and a score of six indicated that marketing provides strategic insight to drive product and corporate strategy. Marketing executives had an average response of 3.8.

To help achieve more market-facing organizations, tech companies will spend 24% of their new marketing investment this year on staff. On average, CMOs will increase staff spending by $2.5 million this year and increase staff by 8%. An important role that CMOs will seek to fill is the marketing operations director or equivalent position.

Tech companies will also invest in programs to measure marketing effectiveness and operations.

In the next 12 months, 38% of companies plan to deploy marketing measurement processes; 19% plan to deploy marketing resource management (MRM) systems; 15% plan to put in place campaign execution processes; 12% will launch ne w marketing operations teams or roles; and 9% will invest in internal alignment processes.

IDC also asked marketers to rate the maturity of their marketing performance measurement program on a scale of one to six, with six being "a comprehensive marketing performance measurement program is in use" and one being "marketing provides limited or no performance metrics."

The average score was 3.6.

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