Essec Business School

With ESSEC Knowledge Editor-in-chief

Building a budget is not just about finances - it is also a social and political process, especially in large corporations. In a new paper published in the Journal of Marketing, Junqiu Jiang, Assistant Professor of Marketing at ESSEC, and co-authors Kapil Tuli (Singapore Management University) and Nirmalya Kumar (Indian School of Business), explore the organizational dynamics that define the process of securing a marketing budget. They identify how Chief Marketing Officers act to reassure CEOs, and develop the idea of a calibrated marketing budget, which aligns projected performance with the allocated resources. 

In recent years, marketing budgets have fluctuated significantly, according to data from the CMO Survey 2020-2025. Despite this, the responsibilities of marketing teams have expanded to include activities like customer experience and incorporating AI into the digital transformation. To date, very little research has focused on the process by which CMOs obtain marketing budgets. Dr. Jiang and her co-researchers aimed to fill this gap and better understand the CMO-CEO relationship in large multinational companies using a field study. 

The role of relationships 

Dr. Jiang and her colleagues used a field study to better understand the processes involved in establishing a marketing budget. A CMO goes into the process with the goal of securing a budget that will grant their teams the necessary resources to carry out their tasks successfully - in other words, a calibrated marketing budget. To do so, they will participate in a long process, beginning at least six months before the launch of the fiscal year. Their relationship with the CEO of their company will heavily influence the success of this process, given the influence of sociopolitical factors. 

The researchers identified a number of key factors influencing this relationship:

• Goal conflict: In this case, when a CEO’s and CMO’s objectives do not align. For example, Dr. Jiang explains that CEOs may see a marketing budget as an easy one to slash in order to meet their earnings forecast - but the CMO will argue that giving their team sufficient resources will be better for the brand long-term. 

• Information Asymmetry: This occurs when one party is privy to information that the other is not. In a business environment, the CMO will be more familiar with how their team functions and factors for a successful campaign. The CEO will have more high-level information, so they may not be in touch with the nitty-gritty details of marketing, leading them to be unconvinced that a big budget is necessary. 

The effect of the two combined? A misalignment between the CEO and CMO when it comes to marketing strategy - and budget. This can result in budgetary slack and upward bias. 

• Budgetary slack refers to underestimating tasks and performance for a given budget, leading to financial wiggle room - but potentially leading to questions if the full budget isn’t put to good use.

• Upward bias, on the other hand, is when performance goals are high, but budget is low. This can hinder the marketing team’s ability to meet said goals. 

A CMO’s goal, then, is to reduce upward bias and calm the CEO’s concerns about undue budgetary slack. 

How do CMOs acquire the right budget? 

Dr. Jiang and Dr. Tuli conducted a series of detailed interviews with 32 senior executives: 16 CMOs and 16 CEOs. They found that while in some organizations, budgets are a top-down decision, others use an iterative process, with the CMO and other marketing colleagues invited to share their input. Their aim is to come up with a calibrated marketing budget, absent of both budgetary slack and upward bias. It must achieve a balance between the team’s KPIs and allocated resources. 

What are key challenges in the process? 

Typically, the process kicks off when the CEO and CMO meet to determine KPIs and resource allocation for the fiscal year. The CMO will then develop a budget proposal, which they will refine alongside the CEO. 

• This is where a pain point can occur: the CEO will have a more global vision, whereas the CMO will focus more on their purview. 

• Some aspects of marketing campaigns are qualitative, in which case the CMO faces the challenge of converting financial KPIs into non-financial metrics and attributing resources accordingly.

• Marketing activities, and therefore KPIs, also include KPIs that are short-term and simple to measure, and long-term qualitative KPIs that hold strategic importance but are more challenging to measure directly. This requires another balancing act for the budget.  

Signaling success 

The interview series uncovered key signals and strategies that CMOs use to ensure their vision is aligned with that of the CEO and arrive at a calibrated marketing budget. The researchers divided these signals into two types: signals of quality and signals of intent. 

• Signals of quality: These can help tackle information asymmetry. In a marketing context, this lies in how the CMO presents their proposed marketing budget. To signify success, CMOs included: 

  • A high level ofdetail 

  • The identification of future opportunities

  • How they will mitigate threats (like competitors) and protect their position in the market

• Signals of intent: These refer to how the CMO intends to do for future goal alignment and to show what they intend to do with the funds. Examples include: 

  • Support frominternal senior members of other organizations (e.g., Finance, HR, IT, Operations.)  endorsing their budget

  • Counterintuitively, CMOs who were willing to relinquish certain activities (and the associated budget) were able to use this as a signal that they could not achieve their KPIs without additional resources. It risks coming off as the CMO being unwilling to push themselves, but in fact signals that the CMO is prioritizing their KPIs without demanding more money. CEOs tend to appreciate this, as it mitigates goal conflict concerns. As one jewelry brand president noted in the study: “So, it goes back to a very simple question on, therefore where is the biggest bang for the buck?”

The effectiveness of these signals lies in the type of calibrated marketing budget the CMO is after. The researchers identified two kinds of marketing budget: 

• Growth-focused calibrated marketing budget: adjusted to consider ambitious key performance indicators.

• Constrained calibrated marketing budget: a situation with lower KPIs then requires a lower budget. 

CMOs must adapt their message accordingly. For example, when seeking a growth-focused calibrated marketing budget, signals such as identifying opportunities and mitigating threats are more valuable as they signal initiative. On the other hand, CMOs pursuing a constrained calibrated marketing budget are better off incorporating a high level of detail, endorsements, and relinquishment into their budget, as these signal prudence and aligned goals. 

How can marketing professionals use these findings to secure resources? 

There are three key findings of this research: both the CEO and CMO collaborate to finalize the marketing budget; certain key signals can boost success; and the success of signals depends on whether the CMO is pursuing a growth- or constrained calibrated marketing budget. Dr. Jiang suggests, “Before kicking off the process, marketing leaders should shift their mindset to see the process as a positive one, as that is more likely to make the collaboration a success.” She also suggests that marketing professionals pinpoint the type of budget they need for success, and use the corresponding type of messaging outlined above. Leaders can also train their teams to adopt a similar mindset and vocabulary to boost alignment on marketing strategies. Since CEOs tend to view signals through a different lens, understanding their perspective can help marketing leaders use the right kind of language and ensure that their team gets the necessary resources to carry out their activities with aplomb following the budgetary process. 

 Further reading

Jiang, J., Tuli, K. R., & Kumar, N. Express: Securing a calibrated marketing budget. Journal of Marketing, 00222429261431239.