This week Mutinex has released an updated version of the Marketing ROI Index report. In news that will surprise no one, we’ve found that marketing budget growth has completely stalled and ROI is flat.

With Australia’s most recent GDP numbers showing that the economy is struggling overall and that household spending is down .2%, there can be little doubt that what we’re seeing in the marketing space (we dub it “the great flattening”) is symptomatic of the fact that we’re in the biggest economic slowdown that we’ve seen for some time.

When market conditions are tough, businesses tend to constrict marketing budgets in uncomfortable and arguably counterproductive ways. Our data, based on a $2bn marketing spend pool, shows us that since 2021 marketing budget growth has been rapidly tapering. In the last two years budgets have barely moved. Total budget growth has not yet fallen below zero, but with high inflation in play, a net zero increase is a budget cut by any other name. Marketers are under a lot of pressure to drive growth in adverse conditions, with less money at their disposal.

Fool’s gold?

Broadly speaking there are two ways to respond to this pressure. The first is with a slug of optimism and a dash of reactivity. You think “these conditions can’t last for long, it’ll be short and sharp. I can wait it out.” And then you heavily weight your marketing budget towards the lower funnel and go about harvesting existing demand.

The other way to respond to this pressure is to put on your black hat and dig your heels in. In this scenario you have a lot of tough conversations with senior executives about how the economic indicators aren’t very good and how important it is to generate demand as well as harvest it for the medium to long term. Then you go about figuring out how to balance your marketing spend in a way that addresses these imperatives.

At the moment, our figures show that marketers are leaning heavily towards optimism, with marketing budgets skewing heavily towards the lower funnel – particularly paid search and affiliate marketing.

So let’s play this out. For a while, it works. The business is really pleased with the cost per click and it’s really easy to explain as a metric. It feels like you’re going to make it through. But the bad economic conditions drag on, eventually existing demand dries up and before you know it, your paid search costs skyrocket.

There are several forces working against marketers here and the consequences are already starting to play out. The first force is simple market dynamics. When everyone is spending money on the same things, competition drives prices up and you end up paying more. Second, when belts are being tightened, there are probably fewer buyers in market for your product. So it’s likely that you’re spending more money at the bottom of the funnel to address existing or perhaps switching customers (with discounts). Finally (and linked to the previous point), you’re not going broad enough to address potential new customers, which means you’re not driving incremental results.

ROI impacts

We’re seeing this effect play out right now in marketing ROI. Towards the end of  Q1 this year, we saw a small bounce in marketing ROI as marketers leaned heavily into harvesting existing demand. But that bounce was a blip. Despite continued and increased investment in the lower funnel, marketing ROI has already flattened again.

The gains of that strategy have already been realised.

Next best

So where to from here? It’s time for marketers to reduce their exposure to an overheated lower funnel and seek incremental growth by rebalancing their investment.

Where can they look to do that?

The Mutinex Marketing ROI Index report Q3 takes a detailed look at channel performance on an ROI basis and makes some suggestions about where the market is currently under invested.

Download it now to find out where you could make gains.