Posted by Michael Fassnacht, Global Chief Strategy Officer
The slowly ending recession in North America can’t hide the fact that the last year has dramatically changed consumer’s behavior and therefore all marketing efforts by any marketing organizations. Any projection in regards to Marketing Spend in North America over the next few years assumes an overall spend decline which will hurt especially agencies very hard, independent of how fast the recovery is coming. Marketing Investments are a declining category in North America.
A declining category should always bring up the critical question: How much do we invest in R&D to steal market share in our declining category? Surprisingly, most marketing organizations don’t even enter this discussion. They are not used to be thinking about client non-specific R&D, very different from any software company that spends between 2 and 10% of their revenue against R&D, not to mention Drug companies who are spending on average 12% on R&D. Even large service organizations like IBM or Accenture have a separate R&D Budget by department that can reach close to 4% of overall fee revenue.
Why do marketing organizations don’t think R&D? A few reasons:
- Most marketers are living only by solving the problem right now in front of them. Probably more than 90% of marketing organizations don’t have a three year plan that would justify and explain the value of any R&D investments. The thinking and planning in every shorter time frames hurts any serious R&D discussion.
- Agencies are used to be working only on client specific challenges and tasks. It is a very foreign concept to invest against something that no client has asked for. The concept of scale and impact beyond one single client is a rather unusual one that most agencies are not able to understand. Similar, brand marketers in large organizations associate R&D with the product department, not with initiatives within the marketing team.
- The major advertising holding companies don’t ask for real innovation from their agencies, they demand a good profit. Some of the holding companies are trying to encourage R&D projects on a holding level but it is extremely difficult to develop something unique and competitively worthwhile for them, since the entities in the holding companies are often far away from a particular client need. And good R&D is always driven by attempting to solve a particular very well understood need that can be identified across multiple clients.
I believe the weakening of marketing organization will only be accelerated by not understanding the value of R&D projects. Any marketing executive should ask “Where are the key areas that we should put R&D projects against?” and “How much should we be spending on R&D?” Most likely we will never reach R&D investments in even single digit percentages of revenue but any marketing organization can define three to five projects that could pay significant dividend in case of a success.
Today’s young talent will demand such thinking, they are not interested in just executing against a narrowly defined work scope. A R&D budget is not just a bet onto the future to create a competitive advantage but it could be the best retention tool for outstanding talent, too.