Marketing at the Speed of Light while looking through the Rear View Mirror?

Why Corporate America’s Budgeting is Stuck in the Past

By César M Melgoza, Founder & CEO of Geoscape

The pace of change in today’s corporate world is astonishing. A quick glance at the most highly valued comp anies of 2017 compared to those in 1990 will make obvious how rapidly things have changed on Wall Street and board rooms across the nation. In 1990, the most highly valued companies in the U.S. included mostly petroleum, automotive and prior generation electronics whereas today, companies like Apple, Comcast, Tesla, Facebook, Google and Amazon have quickly taken prominent positions as employers, innovators and highly sought-after blue chip stocks.

This pace of change affects the entire organization and no position has been more dramatically impacted than that of the Chief Marketing Officer (CMO). In fact, today’s CMO is increasingly intertwined with the role of Chief Information Officer (CIO). The acceleration of CMO’s migration towards the CIO is driven by data – increasingly plentiful and complex metrics that require analytics, modeling and integration with both strategy and execution.

When it comes to business planning, budgets often lag far behind the evolution of consumer base composition. Historically, CMO’s have been driven by branding, creative and media. Key among their objectives – it seems – was hiring an award winning agency to produce clever and entertaining ads running in prominent places and garnering recognition from the likes of Cannes Lions, ADDYs, Clios, Effies and the like. Regardless of the wit and visual appeal of the ads, board rooms and institutional investors are perennially unimpressed unless these efforts result in the five things that really matter:

1. Greater market share

2. Higher revenue growth

3. Strong profit growth

4. Impressive long-term forecasts

5. Superior enterprise value

Because CMO’s are driven by branding which is often guided by pop culture, the consumer targets in the creative loop tend to resemble what marketing executives deem exemplary of the brand – witty, “hipster” mainstream consumers who are in the middle of the bell-curve of popularity. It’s simple to see how this type of thinking can cloud the analytics of priority ranking consumer groups. If you look at the Emmy Award winners, you would find a high degree of correlation with the CMO budget deployment. However, if you look at the data on anticipated future spending across consumer segments, you would find that the Emmy’s only show part of the picture – the rest of this mosaic would only be visible by looking at alternative channels such as Spanish language networks and digital media consumption and influencers across life stages and cultural groups. This analysis would result in a very different ranking.

The table below ranks Emmy winners and their related consumer targets. This analysis reveals that primetime TV is still very much an Anglo mainstream programming. Nonetheless, it is a well-known fact (as published in Geoscape’s AMDS report) that the Anglo population is flat (nearly no growth) while the Hispanic and Asian populations represent three-fourths of the growth since 2010. More bluntly, that CMO’s are following pop culture instead of following the growth in population, consumer spending and their anticipated trajectory. It’s easy to see how this could happen. Spanish and other alternative networks along with the myriad of digital and social media channels result in a vastly complex consumer segmentation that is exponentially more diverse than when most CMO’s started their careers – and the CMO is usually not the target of the brand’s loyalty quest. Instead it’s a younger, more culturally diverse set of consumers.

There is a saying that art and music are the universal language. When you look at today’s music consumption, you’ll find that certain cultures really resonate. Conspicuously at the top of the charts, especially within major metropolitan areas are Spanish and English/Spanish bilingual songs as well as Hip Hop and variations thereof – including Latin genres like Reggaeton which these days is fused heavily with Hip Hop and it’s Trap sub-variety. The chart below shows top hits and over the air radio in large metro areas

How can strategic planners bring clarity to the rapidly evolving view of the opportunity? It’s actually quite simple, focus on the five things that really matter to upper management and follow through with the tactics that lead to long-term engagement, loyalty and value. But first, the CMO needs to identify which consumer groups will fuel the five things most efficiently. That is, which consumer groups are growing, spending and represent more long-term contributions to revenues, profits and market share.

So, which consumer groups represent the biggest contribution towards the five things? Said more precisely, which consumer groups will spend more over their lifetimes in the categories that your company participates? Let’s take a closer look at that question.

Share of future spending by consumer segment enables precise allocation based on anticipated lifetime value. By simply viewing the forecasted spend by consumer group in your category, guidance on where to invest in current and future engagement will become much clearer. Taking into account that marketing and branding in particular are investments in future consumption and loyalty, the math should reflect spending across the lifetime of a consumer group. When you consider age, life stage and family size into account, macro segments that rise to the top are Asian and Hispanic. As the charts below illustrate, currently active Asian households on average will spend about $1 million more and currently active Hispanic households on average will spend $600 thousand more than white non-Hispanic households over the remainder of their lifetimes.

Cumulative Lifetime Spending Apparel

Cumulative Lifetime Spending Quick Service Restaurants

So why don’t marketers budget according to forecasted spending of key consumer groups? In a word, it’s legacy. If you do things the way you did them last year, it’s more comfortable and fewer people in the organization need to be convinced to do things differently. In addition to that, many CMO’s feel that consumer groups like Asians and Hispanics will rapidly assimilate into the “overall American culture”. This is only partially true. Our research has shown that Americans increasingly identify and even embrace the culture of their heritage. This means that we like to recognize and even indulge in the language, food, music, dance, entertainment and even current affairs of our countries and regions of origin.

Increasingly these days, we feel we can be Americans and simultaneously celebrate our heritage; why not? Imagine the Food Network or your music streaming service that only serves one type of American food or one type of American music? That would not only be boring, but would be limiting in terms of economic potential – why subscribe to a streaming service if all you want to do is listen to your old classic rock CDs? Variety is the spice of life and this long tail of variety stimulates innovation and evolution of consumption behavior as well as cultural identify.

Since most CMOs of large organizations are either Baby Boomers or Gen Xers, they would be well-served by tuning into what Millennials and GenZ consumers are doing and thinking. Those of us who have Millennial and GenZ children and close acquaintances can attest to the fact that this process can be quite enriching. There is so much variety these days that it’s nearly impossible to sample across life stages and consumer groups without closely engaging in personal relationships with members of these high-growth groups. Of course, commissioning agencies, consultants and data scientists who can help derive these insights from big data is a must. And guess what? Millennials and members of GenZ are much more culturally diverse than the average American – roughly 60 percent are Hispanic, Black and Asian.

Shareholder equity would be the ultimate beneficiary of this enhanced budgeting process. Any corporate valuation expert you poll would affirm that a company’s enterprise value is based on the expectations set by active investors and key shareholders – they vote via their brokers by moving capital from one security to the next. That move is largely based on past and present performance as well as long-term outlook on how that company will acquire market share, grow revenue and profits and ultimately how well it will retain high-value consumers who represent future growth.

There you have it… instead of budgeting by looking in the rear view mirror, try looking through the windshield – business is moving at light speed, if you don’t peer through a defogged windshield you’re certain to crash and burn. If you’re not targeting those consumers who will contribute to revenues and profits into the foreseeable future, you’re betting your company on shrinking market segments. This can easily be corrected by focusing on future growth and investing in those consumers who will help you realize greater enterprise value for your organization.

To find out how to forecast future spending growth by population segment, contact Geoscape today!

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