Marketing Spending Suffered in 2006 Due To Advertising Venue Oversupply

We announced availability of our fourth quarter 2006 report yesterday, titled Marketing 2006: A Make Or Break Fourth Quarter. The press release is up on Yahoo.com for those interested.

In that report, we noted that while marketing budgets for Q4 rose from those of Q3. But we never completely believe budget numbers, so we always ask our executive panel to look back a quarter and tell us how much of those budgets they actually spent. The results were sobering: average marketing spending in Q3 was only 74% of what it was in 2005. That's not good. We further don't expect much improvement when we get the Q4 actual spending numbers, meaning that 2006 will likely be the worst year for marketing spending in the three years we've been collecting data.

Now for the kicker: I claim we can already see the results of low marketing spending. According to today's Wall Street Journal, we're already seeing reports of lower retail sales from the fourth quarter. While there may not be a direct connection, we regularly see declines in sales after declines in marketing spending.

Now, if you're like me, you'll likely be saying, "Hey wait a minute! I see advertising on nearly every Web site I visit! And it's not like I'm getting any less direct mail or spam either. How can marketing spending be declining?"

The answer is pretty easy to explain. It's just supply and demand. Online media like Web sites, podcasts, sponsorships, and community-based marketing have vastly expanded the supply of marketing venues above and beyond where the business world was before the Internet. This oversupply has decreased the value of every venue as a marketing tool, since people only have a fixed amount of attention they pay to marketing. Yet, the total number of businesses marketing themselves and their products has not grown nearly as much. So we actually have marketing venue oversupply, which is driving down prices. Said another way, we're suffering through a tyranny of too much marketing and not enough attention.

This is why Blackfriars researches marketing. Done well, marketing can actually help us find what we want and need. Done poorly, it's a complete waste of money. But if companies cut back on marketing spending, we do know one thing: they shouldn't expect their revenues to rise as a result.