Large B2C Brands Are Struggling to Optimize Their Marketing Budgets

August 1, 2018

The majority (60%) of budget decision-makers at B2C brands with at least $1 million in annual marketing spending report not being very confident in their team’s ability to determine the most effective way to allocate their marketing budget. That’s according to a new survey report [download page] from Nielsen, which also found most respondents agreeing that it’s difficult to determine marketing spend allocation across tactics in a way that will drive maximum ROI.

This appears to be an ongoing problem for marketers: last year, a report from Kantar Millward Brown revealed that just 43% of advertisers were confident in their media mix.

Nielsen’s report identifies a major reason why B2C brands are struggling: few are using advanced models to help allocate and optimize their spending.

For example, respondents said that the top factor they use to decide how much to spend on their most recent year’s marketing budget and where to spend across media vehicles is simply an adjustment from their prior year’s budget. That may be fine in some cases, but as the analysts note, “these marketers take a chance that whatever was done in the prior year might not have returned the best result.”

Moreover, few budget decision-makers appear to be estimating the impact of their budget allocations in confidence-inducing ways. The most common way of predicting the performance of budgets is by an internal spreadsheet-based analysis. Yet only 43% using this approach are very confident in their team’s ability to determine the most effective marketing budget allocation.

By contrast, a majority (56%) of marketers who use internal simulation software to predict budget impact on performance are very confident in this approach. Yet this approach is used only sparingly: fewer than one-quarter (23%) of respondents use internal simulation software to forecast the impact of their budget allocations.

Within this context, it makes sense that almost two-thirds (65%) of respondents agree that it’s difficult to estimate the impact of possible marketing spend scenarios.

Most Don’t Make Use of Marketing Mix Models

The study notes that it’s not just simulation software users that have greater confidence in their allocation decisions: those using marketing mix models also report heightened confidence.

Indeed, a slight majority (52%) of those who use marketing mix models to inform their budget decisions are confident in their ability to determine the optimal mix to drive ROI, compared to just 30% of those not using those models.

And yet… here it comes… slightly more than half (52%) of decisions-makers aren’t using marketing mix models to measure the impact of marketing activities on product performance, and many don’t even know what they are.

There does appear to be a correlation between marketing budget size and propensity to use marketing mix models. Specifically, and segmenting by annual marketing budget, the report notes that:

  • 58% of those with $1-5 million in spend don’t use a marketing mix model, and 25% don’t know what a marketing mix model is; down to
  • 51% of those with $5-20 million in spend who don’t use one, with 23% not knowing what they are; and down again to
  • 47% of those with $20+ million in spend not using one, and 15% not knowing what they are.

These results suggest – somewhat logically – that the larger the marketing budget, the more likely the company is to make use of a sophisticated model to measure the impact of spend.

Nielsen provides a handy definition of marketing mix modeling, part of which follows:

“Marketing mix modeling refers to a statistical modeling approach that uses summary-level data to measure the effectiveness of digital and offline channels while accounting for exogenous factors (seasonality, interest rates, competitive spend) and company knowledge…

This approach looks at the historical relationships between marketing spend and business performance in order to determine business drivers. Insight into these drivers enables marketers to allocate budget effectively across products, markets, and marketing programs.”

One interesting point about the above: these models account for “exogenous factors” such as seasonality. That’s worth noting in light of separate results from the report indicating that most (57%) agree that it’s hard to know what adjustments to make and how they will impact marketing performance when budget changes happen during the year. Given that the vast majority (80%) change their budgets multiple times per year (and almost one-quarter do so at least 5 times a year), having some clarity about how different factors can affect spend could provide some assistance.

Beyond implementing marketing mix modeling – a strategic approach – Nielsen also recommends the more tactical approach of multi-touch attribution, which is a more user-level, granular approach.

Using scenario planning tools and obtaining support from external experts are also recommendations included in the report, which can be downloaded here.

About the Data: The report describes its methodology in part as follows:

“Nielsen partnered with Research Now to conduct an anonymous third-party survey of marketing budget decision-makers at large B2C companies with over USD $10 million in revenue and USD $1 million in annual marketing spend in the U.S. The median annual revenue of respondent companies was USD $1 billion to USD $10 billion and the median marketing spend was USD $5 million to USD $20 million.

Companies in the survey included a wide range of B2C brands in the retail, financial services, travel, insurance, consumer products, health, automotive, food and other industries. Respondents work primarily in marketing and sales (45%), executive (20%), and analytics and finance (14%) and other functions.

All of the respondents were either the primary decision-maker for the marketing budget or involved/consulted in the decision. In all, 186 respondents involved in the budget allocation completed the ten-minute survey.”


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