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January 17, 2020
Investing in your company helps you make a great product, investing in your marketing puts that product in front of the right consumer. The retail industry as a whole dedicates an average of 21.9% of their total company spend to advertising, a percentage that is higher than most other industries, according to the Gartner CMO Spend Survey of 2018-2019. In comparison, health and pharmaceuticals spends only 2.6% of their total company spend on advertising.
So, what exactly should your retail marketing budget be? With all of the statistics and various budget allocation factors swirling around the retail industry, Orange Label provides the method behind the marketing madness.
In most circumstances, Orange Label recommends that an average of 10-15% of total desired revenue be spent on retail marketing. How that money is allocated depends on the retail company itself. Orange Label Marketing Services Director Michelle Komala explains the importance of getting detailed with your budget. “Retail is still a really broad term, so it depends on a few factors: are you strictly an e-commerce company, a start-up, a chain with multiple locations and access points? How niche is your product, where are your purchasers coming from? The entire country, or just within a 5-mile radius of your location? All of those things impact spend levels needed to make an impact.”
Orange Label analyzes the clients overall business and marketing goals, the competitive landscape, industry trends and other factors to determine the budget. Once the percent of the budget is decided, it’s time to move forward into placing the allocated budget into specific categories.
After you gain a clearer understanding of where your revenue is being generated, it’s easier to determine which marketing tactics might resonate best. Analyzing which categories are providing the most traction for brands is necessary when deciding where you want to place the percentages of your budget. Retail, for instance, accounts for 21.9% of current digital ad spending, so depending on your brand, this could be a strategic choice.
A retail marketing budget can include, but isn’t limited to:
Agency Fees/Marketing Consulting
Creative Production (Print, Digital, Broadcast, Video, Collateral)
Media Planning, Negotiation and Buying
Digital Campaign Management
Media Actual Spend (TV, Radio, Digital, Outdoor, Print, etc…)
Social Media Content Creation and Management
Marketing Analytics/Software Applications
Developing New Marketing Knowledge and Capabilities
For 2020, there is expected to be 10.1% growth in digital ads, with a 4.6% decline in traditional ads. “There are more consumer marketing tactics available for retail marketers [than other industries]. Social media and digital advertising are relevant to every company, because of the targeted nature and capability of that tactic. For some retail clients, mass market tactics can also be very impactful like out-of-home, radio and television,” concludes Komala.
Fund distribution across channels is reliant on where retail marketers determine the most relevant audience will be reached. For example, if you have an audience who has actively been pursuing your brand on social media, it makes sense to dispense part of your marketing budget toward a social media campaign. Understanding where your revenue is being generated will help you determine which ads might resonate best.
Three channels that have consistently proven to show the highest ad revenue growth are social media (38%), online video (27%), and search (18%). Digital channels will continue to take more of the budget pie with projected spend on digital marketing to increase from 44% of marketing budgets to 54% by 2024.
With this in mind, a sample budget allocation might be:
Agency Fees/Marketing Consulting 9%
Brand/Campaign Strategy 8%
Creative Production (Print, Digital, Broadcast, Video, Collateral) 9%
Media Planning, Negotiation and Buying 6%
Digital Campaign Management 5%
Media Actual Spend (TV, Radio, Digital, Outdoor, Print, etc…) 38%
Social Media Content Creation and Management 7%
Website/Landing Pages 9%
Marketing Analytics/Software Applications 3%
“It’s essential for the majority of the budget to be on actual media spend, getting the message out there. It’s important to differentiate that from other marketing expenses, like strategy and creative,” says Komala. “All are needed, but I have seen the mistake where a company will invest a large portion of their budget on creative assets, but reserve little budget to actually promote them, which makes the creative more of an expense than an investment.”
Orange Label presents clients with in-depth, results-focused reporting that shows clients exactly where their money is going. This, in turn, helps to optimize spend by honing in on clients’ most valuable categories.
In 2019, total retail sales in the U.S. amounted to a whopping $3.8 trillion! With a reach this huge, marketers must note trends that will impact budget allocations, including:
Last year, online sales were the highest they had been throughout the entire decade, accounting for an average of 13.4% of business-to-business (B2B) and business-to-consumers (B2C) companies’ sales in the United States.
When speaking about online retail, it would be remiss not to take into account the impact Amazon has had on the marketplace, a company that dominated an estimated 37.7% of online sales in the United States in 2019. Some are coining this overwhelming market presence as “The Amazon Effect.” The behemoth’s undeniably fast shipping and low prices are far-reaching over multiple elements of the retail industry and e-commerce retailers have to fight to keep up, or enact new ways to set themselves apart.
Even with its dominating online presence, Amazon is following in the recent trend of online stores making offline appearances in the form of pop-up stores. Amazon Bookstores are popping up around the country and Amazon Go stores–which sell Amazon products rated at four stars or above–are scattered throughout major cities and their acquisition of Whole Foods grants shoppers with a Prime membership an in-store discount. Following suit, online retailers might think of relevant ways that they can incorporate their products into a physical location, and brick-and-mortar stores must keep creating incentive for a consumer to return.
Mobile sales are also quickly overtaking the amount of purchases from any other platform, representing the majority of online sales in e-commerce. Sales from mobile phones made up 23% of online retail sales in 2018 and are expected to grow at a compound annual growth rate of 16% between now and 2022. This makes websites with smooth mobile functionality and mobile ads a necessity for relevant retail marketing budgets.
Along those same lines, conversion rates from apps were about three times higher in 2018 than they were on the web alone. With this in mind, pairing mobile campaigns with streamlined online sales processes can generate significant traffic for retailers across the board.
Seventy percent of customers would rather learn about a product by reading written content, rather than viewing a traditional advertisement, according to Cision, and 53% of companies said that they will be increasing their content creation initiatives in 2020. A retailer can provide a customer with a wealth of knowledge simply by writing content about their products, in turn creating value that Amazon doesn’t necessarily always carry.
Content is also the umbrella for many popular trends in use by retailers, like the augmented reality phenomenon that’s turning people’s faces into Dunkin Donuts, allowing you to try on Sephora makeup from your phone, or showing you what Ikea’s furniture might look like in your living room. Being creative with content marketing is going to be a crucial step for retailers in the upcoming decade, and dedicating some of the marketing budget toward pursuing these avenues can help brands stay on track.
Creating your marketing retail budget is the first step to a successful marketing practice. “Every day, every minute, every second matters in marketing. Our team is ‘in it’ everyday to ensure each and every tactic is optimized,” says Komala. “Every day, every minute, every second matters in marketing. Our team is ‘in it’ everyday to ensure each and every tactic is optimized.” Click To Tweet
Want to learn more about how to plan your marketing retail budget? To take control of where your marketing dollars are going, contact us today.
As Orange County’s longest-standing, privately held response marketing agency, we have witnessed dynamic shifts in the world of marketing. Through it all, we have ensured our clients stay at the forefront of communication and technology, driving response and value with every new endeavor.