Marketing Investment: Critical for Company’s Value, Ahead of Leadership Quality and Tech Innovation

Are marketing efforts a priority in your organization? It turns out, the answer to this question is quite important. In fact, investment analysts fundamentally believe that it is critical to a firm’s success. 

The new IPA/Brand Finance Investment Analyst Survey, which was completed by over 200 financial analysts who cover publicly listed companies in the United States and United Kingdom, reveals that “Strength of brand/marketing” is the factor most frequently cited by analysts (at 79%) when asked how they appraise and analyse the companies they cover. This is cited ahead of leadership quality (76%), technological innovation (72%) and even reported profit (71%).

Intrigued? Here are some key takeaways on the subject to help you calibrate your strategy to ensure growth and success: 

• Advertising – more an investment than a cost. The IPA/Brand Finance Investment Analyst Survey findings reveal that more analysts perceive advertising as an investment (37%) than a cost (24%). While 38% state it is a mixture of both. Building on this, according to the findings, the analysts who examine Advertising and Promotions are significantly more likely to believe marketing is an investment and that it drives organic growth.

• Treat marketing as a Technology R&D expenditure, not accounting. Today, marketing is largely booked as an immediate cost. When asked whether they thought marketing spend should be treated like Technology R&D, where it is capitalised, nearly 90% of analysts said they believe marketing spend should be placed in capital expenditure either all (56%) or part of the time (33%). Two-thirds of analysts (67%) also want to see changes to how intangible assets as a whole are reported upon and accounted for. Those that stated they think it should be capitalised at least some of the time believe it would improve their ability to value the company and give them better understanding of future growth potential. This means analysts would prefer a change in the accounting treatment to reflect marketing’s investment nature.

• Marketing is the driver behind revenue increase. Marketing investments contribute to sales, brand equity, customer loyalty, and overall company value over time. According to a study by Deloitte, companies that invest in marketing see an average revenue increase of 10% compared to those that do not prioritize marketing efforts. Studies show that companies with higher marketing budgets tend to outgrow competitors in terms of market share growth and customer loyalty (Source). Also, considering that quality ads actually do not wear out over time, just the opposite, brand investment has a strong impact on price elasticity and boosts sales in the long term, making marketing a true investment aligned with strategic business outcomes. For further valuable insights on marketing effectiveness over time, you can check our previous articles here and here.    
• Marketing investment increases company’s value. According to Laurence Green, Director of Effectiveness, IPA, their latest survey “provides welcome news that investors are placing increasing interest and importance on investment in brands”. According to Annie Brown, General Manager, Brand Finance: “When companies spend money to change the way people see their brand, they are not doing it for a one-off result. They do it to build up the long-term value of their brand asset.” Studies have shown that marketing investments can contribute over 50% of a firm’s value when considering brand and customer aspects (Source). Furthermore, research has revealed a positive relationship between marketing investments and the financial indicator Tobin’s Q, which represents a company’s value. This relationship is particularly strong in developing countries compared to developed countries (Source). 
• More than half of marketing budgets are spent on digital. Strategic marketing investments are important drivers of long-term value for the organization. According to Deloitte’s latest CMO Survey 2023 – fall edition, marketing performance strengthens resulting in marketing optimism. Profit growth has strengthened to 8% in 2023 from 5.6% the previous year. Customer retention, customer acquisition, and brand value also increased, with brand value increasing dramatically from 6.3% growth last year to 9.7%. Furthermore, smaller companies (those with fewer than 50 employees) and companies with less than $10 million in annual revenue spend more on marketing budgets as a percentage of company revenue than their larger counterparts, according to the survey. Mobile marketing also appears to be increasing. Surveyed companies spend an average of 15.7% of their marketing budgets on mobile, and they expect to spend 26.9% on mobile in five years. On average, companies surveyed spend 53.8% of their marketing budgets on digital marketing. Among industries, the biggest digital spenders are education (75.5% of marketing budgets), technology (65.7%), and health care (64.6%). 
• Using AI in marketing: increased productivity and customer satisfaction, reduced overhead costs. Effective marketing strategies can lead to a higher return on investment (ROI), with research showing that businesses can achieve an average ROI of $42 for every $1 spent on email marketing (DMA, 2021). How about AI? Is a 21^st century marketing strategy without AI even eligible to be called a strategy? According to the CMO Survey 2023, 94.1% of marketers have begun to leverage this technology in the past three years and 60.4% for less than one year. The effect of AI adoption has been positive with marketing leaders reporting that sales productivity has improved by 6.2% and customer satisfaction by 7.0%, while marketing overhead costs have decreased by 7.2%. According to the fall edition of the CMO Survey 2023, 94.1% of companies have been using AI in marketing for three years or less, and 60.4% have been using it for less than one year. Marketing leaders say the top uses of AI are content personalization (52.8%), content creation (49.2%), and marketing content and timing optimization (36.6%). Companies also use AI for programmatic advertising and media buying (35%), predictive analytics for customer insights (32.9%), and marketing automation (28%).

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