Many companies used to spend almost equal amounts on R&D and marketing. But today, R&D spending appears to be outpacing marketing expenditures by nearly 10 times.
A new article by Harvard Business Review notes that while public companies don’t have to disclosed their marketing budgets in financial statements, they do have to reveal their advertising spend. Looking at the percentages for advertising and R&D spending from 1975-2017, the authors found that these budget items were neck and neck until the late 1970s. Now, research and development has a bigger piece of the pie.
“Although marketing and advertising are distinct, advertising expenses could represent a firm’s commitment towards marketing as a discipline,” write the authors. “A firm with higher advertising expense is likely to have greater marketing commitment than a firm with smaller ad budget.”
The differences were gauged for small, medium and large sized enterprises. While the largest shifts were seen in the smallest companies, larger companies also showed a trend towards spending for engineering and tech. “This might represent the sign of times—no company is safe today and without innovating,” the authors said.
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There are likely several factors at play, according to academics Vijay Govindarajan, Shivaram Rajgopal, Anup Srivastava and Ye Wang. Some companies might be cutting down their advertising and marketing spending thanks to better analytics and tracking via online marketing, while others might be increasing their focus on viral marketing. Or, some companies may be growing via acquiring established brands that don’t need the marketing push of a start-up.
For companies that are increasing their marketing spend, technology is a key budget item. Forty-two percent of respondents to Chief Marketer’s 2019 B2B Marketing Outlook survey said their martech budgets would increase this year, and another 40 percent said theirs would hold steady. Only four percent saw a decrease on the horizon.