Tech Line

Where are Marketing Budgets Headed in 2023?

Marketing budgets are back on track in 2022 after a challenging 2021, when budgets dropped from 11 percent to 6.4 percent of overall company revenue. This was primarily due to the Covid-19 pandemic and related issues, such as like supply chain disruptions.

In fact, according to the Gartner 2022 CMO Spend and Strategy Survey, marketing budgets have mostly recovered, having increased from 6.4 percent in 2021 to 9.5 percent of overall company revenue in 2022. This is close to full recovery. Seventy percent of survey respondents report their budgets increased in 2022.

But where is all that money going and will it continue into 2023, or will economic headwinds and uncertain global political and public health conditions put a shade on the resurgence of marketing?

Digital Transformations Accelerate

As companies have accelerated their digital transformation plans to meet consumer and industry needs, they have modernized their strategies to be delivered in an omnichannel capacity. CMOs have already begun to make the shift to hybrid multichannel strategies.

CMOs’ top three investments in 2022 were:

  • Campaign creation and management (10.1 percent)
  • Brand strategy (9.7 percent)
  • Marketing operations (9.6 percent)

CMOs report that digital channels used 56 percent of their marketing budgets in 2022, with social media the top channel for spend. Digital spend shows social advertising in the lead, followed by paid search and digital display.

But it’s important to note that offline channels accounted for 44 percent of the total budget in 2022, so hybrid marketing models that deliver both physical and digital messaging should be a serious consideration for marketers as 2023 budget season looms if they want to stave off increasing consumer digital fatigue.

This is confirmed by the finding of a recent Forrester-PFL research report, Hybrid Experiences Bring Direct Mail into the Digital Age, which found that, “Digital fatigue drives marketers to increase spend on direct mail.”

Where are Budgets Headed?

With the increase in digital-centric behaviors from consumers, marketers will continue to put more of their money behind marketing technology solutions that will allow them to optimize and automate their operations, communicate with customers more effectively across multiple channels in real-time, and optimize the performance of marketing campaigns.

Marketing technology accounted for 26.6 percent of marketing budgets in 2021, and that number is only expected to increase over time.

Going forward, expect martech investments to focus on the deployment of artificial intelligence (AI) capabilities in a variety of software applications and industries. One of the more popular applications of this technology is for natural-language processing (NLP) to create more relevant and interactive chatbots that will expand their use.

Going forward, expect martech investments to focus on the deployment of artificial intelligence (AI) capabilities in a variety of software applications and industries.

Virtual, augmented, and mixed reality (VR/AR/MR) are currently being adopted into various marketing strategies and business initiatives as well, with AR being used for virtual products and clothes, and VR finally becoming more viable for gaming applications.

In 2021, 35 percent of marketers were leveraging AR or VR in their strategies; 42 percent plan to increase their investment in 2022, HubSpot Blog Research reported.

According to the 2022 CMO Survey, there was a 37 percent increase in the number of companies investing in data analytics, while companies currently use AI or ML about 12 percent of the time. Respondents predict that AI/ML use will triple to 38 percent over the next three years.

While it’s a major focus, it’s not all about marketing technology moving forward for marketing leaders. CMOs don’t forget about more traditional forms of marketing they are already very comfortable with, such as brand strategy and activation. The Gartner survey found that brand strategy and activation account for 10 percent of marketing budgets in 2022.

According to The 2022 CMO Survey, CMOs allocate 57 percent of their budgets to digital marketing activities and are planning to increase spending by another 16 percent in 2023.

Where Are the Gaps?

Marketing data and analytics was identified by 26 percent of CMOs as a top capability gap, followed by customer understanding and experience management at 23 percent. Marketing technology landed at 22 percent.

Overall, CMOs feel resource-challenged for the new business world that awaits them, with 58 percent of CMOs reporting that their teams lack the capabilities required to deliver on their strategy.

Due to the depreciation in third-party cookies, 44 percent of marketers have said that the change will result in significantly increased spending to achieve the same results in 2022 as in 2021.

Finally, 30 percent of marketers said that they are experiencing average-to-no returns on their marketing investments, which could create funding issues in the future if they cannot show ROI.

And, according to Forrester, today’s buyers have limited attention to spend on all these messages, making it more challenging for marketers to connect with their audience. The pandemic and resulting increased digital-centric behaviors have accelerated digital burnout, making hybrid marketing strategies to be more prominent in their planning and budgeting.

In fact, 76 percent of respondents agree that engagement with digital tactics is dropping, and 78 percent believe that analog touchpoints have seen a performance boost during the same time.

Direct mail usage is only expected to increase in 2023, as marketers look for more cohesive engagement across all touchpoints, both physical and digital. Fifty-four percent of respondents said they increased direct mail spend this year, while 69 percent expect to spend more next year—a 27 percent year-over-year increase.

Marketing Spend Across Industries

According to the Gartner survey, average marketing spend has increased across almost all the industries surveyed.

Industry-Specific Marketing Budget Increase Percentages

The Forward-looking Will Invest

As marketers head into 2023, there is no question that extreme economic, political, public health, and weather-based disruptions will continue to impact businesses and budgets. Brands that are forward-looking will invest in marketing technology to help make their operations more efficient, communicate with customers in an omnichannel capacity, and improve the performance and ROI of their marketing campaigns.

Marketing leaders do believe that there are significant gaps in the ability of their teams to execute on strategies. From increased cost of ad spend due to cookie changes to lower-than-expected returns on their investments, marketing leaders will have their budgets put to more scrutiny than ever.

But, with offline channels still accounting for a huge swath of marketing budgets, hybrid marketing strategies that leverage the best of both digital and physical might very well provide the best investment for companies that need to differentiate themselves from the pack, as well as to ensure full, successful communication across all channels.

This is further confirmed by the Forrester-PFL research report: “Three-quarters of survey respondents say the availability of hybrid experiences would lead them to increase their investment in direct mail, and 37 percent say they would substantially increase their direct mail spend by 20 percent or more if they could use that investment to execute hybrid direct mail.”