A Powerful (But Not Easy) Way to Boost the Influence of Marketing

In my latest three posts (here, here, and here), I've been discussing the widely-held perception among marketers that the marketing function in most companies has less influence than it should have - and less influence than it once had.

Some research studies (like this one) have shown that the influence of the marketing organization has declined over the past 2 - 3 decades.

In my previous posts, I've argued that the rise of business strategy has had a significant impact on the role of the marketing function. Over the past sixty years, strategy has become the primary mechanism senior business leaders use to make major decisions about the future of their business and create their gameplan for success.

This development has affected the marketing function for two reasons.

First, the formulation of a complete business strategy will require several decisions that most marketers would call "marketing" decisions. For example, strategy makers must decide how to segment their industry, what their target market will be, and how they will deliver compelling value to their target customers. Most marketers would say these are classic marketing decisions. Think Segmentation-Targeting-Positioning. 

Second, strategy development in most companies is the responsibility of the CEO and usually involves some or all of the company's C-level executives.

So, the bottom line is that the rise of strategy has transformed some "marketing" decisions into "strategy" decisions and changed who typically makes those decisions. This doesn't make the marketing function's loss of influence inevitable, but it does change what marketing leaders need to do to preserve - and even raise - that influence.

In essence, marketing leaders must recognize that how much influence they possess will be largely determined by how much they contribute to (a) the success of their company's strategy, and (b) the effectiveness of their company's strategy development process.

In my last post, I argued that marketing leaders must perform two core jobs well to raise their influence.

First, they must ensure that their teams are creating and running marketing communication programs and performing other marketing activities that support their company's business strategy. I discussed this task in detail in my last post.

Provide Strategy-Critical Intelligence

The second core job is equally important, but less frequently discussed, at least in a detailed way. To increase their level of influence, marketing leaders need to provide their company's strategy development team the information and insights they need to make sound strategic decisions.

The choices that senior business leaders make when developing a business strategy are high-stakes decisions that will have a major impact on their company's competitive success. Therefore, those choices should be made on the basis of detailed and reliable information about the company's capabilities and its competitive environment.

More specifically, strategy developers need detailed and reliable intelligence about their company's industry, its potential customers, and its competitors. I've use the term intelligence intentionally because what strategy developers need is not simply raw data, but data that's accompanied by a sound analysis of that data.

The following outline shows that major kinds of information marketing leaders need to provide to the senior business leaders who comprise their company's strategy development team. This outline is not exhaustive. It contains the types of information that apply to most companies, but additional or other information can be important based on a company's specific situation.

Providing the information shown in this outline, along with adequate supporting evidence, won't be a trivial undertaking for marketing leaders in many companies. The intelligence needed for strategy development differs from the data many marketers now routinely collect. Therefore, providing this intelligence will require a fairly significant amount of research.

The amount of work required to perform this job well can be substantial, but the payoff justifies the effort. When a company's strategy makers have access to relevant and accurate industry, customer, and competitor intelligence, they are more likely to make sound strategic choices, which will ultimately make the company more successful.

For marketing leaders, performing this job well will enhance their influence and, by extension, the influence and stature of the marketing organization. When the CEO and other company leaders view the senior marketing leader as a trusted source of the industry, customer, and competitor intelligence that will help them formulate better business strategy, they will place greater value on, and give greater weight to, the view and perspectives of the marketing leader.

Top image courtesy of Joshua Tree National Park via Flickr (Public Domain).

How to Elevate the Influence of the Marketing Function

Source:  Shutterstock

Many marketers believe that the marketing function in most companies doesn't have as much influence as it should have. In my last two posts (here and here), I discussed why this circumstance developed, and I argued that one of the main causes was the rise of strategy as a business discipline.

Over the past five decades, strategy development has become the dominant process senior business leaders use to create their gameplan for success. Developing a complete business strategy requires company leaders to make several decisions involving customers, competitors, and other market-related factors. 

As a result, the strategy development process essentially transformed a number of "marketing" issues into "strategy" issues.

So, how can marketing leaders increase the influence of the marketing function under these circumstances? To accomplish this goal, the marketing function must perform two core tasks effectively.

• It must create and run programs that support the company's chosen business strategy.

• It must provide the company's senior leaders information and insights that can enable them to make sound strategic choices.

At first glance, these tasks may seem obvious, but they are more nuanced than they first appear. And when they are done properly, they will boost the influence of the marketing function.

I'll discuss the first task in this post, and I'll cover the second task in my next post.

Job 1 - Run Programs That Support Company Strategy

The first job of the marketing function in any company is to create and execute marketing programs that support the company's chosen strategy.

This job may seem easy to understand, but what does "support" the strategy actually mean in operational terms? How can we determine that any marketing program meets the "support" requirement?

In my last post, I introduced the strategy framework developed by Roger Martin, one of today's leading authorities on business strategy. Martin describes strategy as the answers to the five interrelated questions shown in the following illustration:

The answers to these questions constitute the five core elements of a complete business strategy.

• "What is our winning aspiration?" - A description of what strategic success looks like for the company.

• "Where will we play?" - A description of the company's target market.

• "How will we win?" - A description of how the company will deliver distinct and superior value to its target customers.

• "What capabilities must be in place?" - A description of the activities the company must excel at performing to be successful with its "where-to-play" and "how-to-win" choices.

• "What management systems are required?" - A description of the management and measurement systems the company needs to support its other strategic choices.

Martin has also written that the primary job of a company's functional units (e.g. marketing, human resources, manufacturing, etc.) is to provide the essential capabilities and the required management systems identified in the company's strategy.

Martin's approach is useful for marketers because it establishes boundaries or "guardrails" for marketing plans, and helps ensure that marketing programs actually support the company's strategy.

For example, this approach requires that:

• Every marketing communication program should be specifically designed to reach, or create engagement with, potential buyers in the target market(s) identified in the company's strategy.

• All marketing communication programs should describe and present the value provided by the company's products or services in ways that are aligned with the "how-to-win" element of the company's strategy.

• The metrics used to measure the effectiveness of marketing programs should be designed to measure performance in the target market(s) identified in the company's strategy.

The credibility and influence of the marketing function are enhanced when this task is performed well, and when the senior marketing leader effectively communicates the rationale for marketing's activities to the CEO and other senior company leaders.

Performing this job well demonstrates to the CEO and other senior executives that the senior marketing leader and the other members of the marketing team understand the company's strategy and are applying their marketing expertise to make the company's strategy successful.

What the Rise of Strategy Meant (and Means) for Marketing

Many marketers now believe that the marketing function in many companies has less influence than it should have - or once had.

As one example, they frequently point out that the marketing function is usually responsible for creating and running promotional programs, but often has little or no influence over the other three "Ps" of the marketing mix - product, price, and place.

The idea that the fundamental purpose of a business is to understand customer wants and needs, and create products or services to satisfy those wants and needs emerged in the 1950s. As this concept gained traction, many marketing scholars embraced the view that the marketing function in a well-managed company would direct much of what the company does.

In my last post, I explained that the marketing function in most companies never gained the broad authority that marketing scholars anticipated. What actually happened was that strategy development became the primary mechanism senior company leaders used to make major decisions about the future of their business.

Over the past six decades, the strategy discipline has become the dominant method for describing the purpose of a business and creating the "recipe" for its success. In the words of Walter Kiechel:

"Strategy's coming to dominance as the framework by which companies understand what they're doing and want to do, the construct through which and around which the rest of their efforts are organized, eclipses any other change worked in the intellectual landscape of business over the past fifty years." (Emphasis in original) [Walter Kiechel, III, The Lords of Strategy:  The Secret Intellectual History of the New Corporate World (Boston:  Harvard Business Press, 2010)].

The rise of strategy to the dominant position in the hierarchy of business management tools effectively prevented the marketing function from gaining expansive decision-making authority in most, though not all, companies.

To understand how this happened, we need to look at what a complete strategy encompasses and where strategy is made in most organizations.

The What and Who of Strategy

Roger Martin, one of today's leading authorities on strategy, defines strategy this way:  ". . . strategy is an integrated set of choices that uniquely position the firm in the industry so as to create sustainable advantage and superior value relative to the competition." [A.G. Lafley and Roger L. Martin, Playing to Win:  How Strategy Really Works (Boston:  Harvard Business Review Press, 2013)].

Martin goes on to describe strategy as the answers to five interrelated questions. The following illustration shows Martin's five core strategy questions and some of the subordinate questions that business leaders must answer to create a complete strategy.

Veteran marketers will recognize that answering some of these questions will require strategy makers to use several marketing principles and methods.

For example, the "Where will we play?" question will require strategy makers to decide whether and how to segment their market and select their target market. And the "How will we win?" question will require them to determine how they will deliver value to customers that is distinct from, and superior to, the value offered by competitors.

The rise of strategy also constrained the marketing function's decision-making authority because of who formulates strategy. In most companies, strategy development was (and still is) led by the CEO, and usually involves some or all of the company's C-level executives.*

So, as senior company leaders increasingly used strategy to define the purpose of their business and create their gameplan for success, they absorbed several market-related decisions into the strategy development process. As a result, those decisions became "strategy" decisions rather than "marketing" decisions.

Under these circumstances, the influence of the marketing function across the company will be largely based on the contribution it makes to the success of the company's strategy.

To maximize the influence of the marketing function, most marketing leaders will need to reframe the function's mission and objectives to make clear that the function's first priority is to support the company's strategy and strategy-making process.

In my next post, I'll explain how marketing leaders can use this approach to increase their influence with other senior company leaders and enhance the influence of the marketing function throughout the company.

*****

*In larger enterprises with multiple business units or brands, each business unit and brand will likely require a distinct strategy. These strategies are typically developed by each business unit leader or brand manager with input from his or her leadership team.

Top image courtesy of  Stefan Erschwender via Flickr (CC).

Why Mission Is the Critical Foundation of Effective Marketing Planning

The fourth quarter of 2025 is well underway, which means many B2B marketers have begun planning for next year.

Marketing planning processes vary considerably across companies. Planning in large enterprises can be quite formal, while the process in smaller companies tends to be less formal.

Whatever your approach to planning, one key to developing an effective marketing plan is to keep your planning process focused on the right things. Fortunately, a proven military planning technique can help marketing leaders keep their planning process on course.

For years, US military commanders at all levels have used a framework called METT-TC as an integral part of their planning process. METT-TC is a mnemonic that is designed to help commanders remember and prioritize what to analyze when planning a military operation.

METT-TC stands for mission, enemy, terrain, troops available, time, and civil considerations. These six factors define the environment in which any military operation will be conducted, and commanders must thoroughly analyze each of these factors to develop sound operational plans.

When I work with a client to develop a marketing plan, we analyze five environmental factors, and I've created a mnemonic for these factors that serves much the same purpose as METT-TC. My mnemonic is MMCC-R, which stands for mission, market structure and dynamics, customer dynamics, competitive landscape, and resources available.

Mission Is "First Among Equals"

These five factors are all important, but mission is clearly the "first among equals" because it provides the "north star" guidance for the rest of the planning process. Mission occupies this pivotal position for two reasons.

First, to deliver maximum impact and effectiveness, all marketing activities must be aligned with and supportive of a clearly defined mission. With every proposed marketing initiative, you should ask:  "How will this initiative help us fulfill our mission?" Obviously, you can't answer this question if you don't have a clear picture of what your marketing mission is.

The second reason is equally important. To be a successful marketing leader, you need the support of your CEO and other senior company leaders. Your chances of gaining and keeping that support will be higher if you and the other members of your company's senior leadership team have a common understanding of marketing's mission.

Therefore, you need to have regular, open, and frank discussions with your senior company leaders about the core mission of marketing in your organization. The goal, of course, is to cultivate a shared understanding of marketing's mission across the entire senior leadership team.

The Core Mission of Marketing

So, what is the core mission of marketing? I'm always skeptical of marketing principles or methods that purport to be universal. Competitive conditions can vary considerably across companies, and that usually requires a company to develop business and marketing strategies that fit its unique circumstances. But, this is the "exception that proves the rule."

Every marketing organization in a for-profit company has a two-part mission, both aspects of which are linked to revenue growth. Marketing must create and run programs that will enable the company to achieve its short-term revenue objectives, and also design and execute programs that will lay the necessary foundation for long-term revenue growth.

The need to focus simultaneously on the short term and the long term is not unique to marketing, but it can be particularly challenging for marketers. For the past several years, marketing leaders have faced increasing demands to prove the value of their activities and programs. Overall, this has been a positive development, but it can have a dark side.

Marketing programs that produce a quick impact on revenue are relatively easy to measure, and their results can often be seen in a few weeks. However, programs whose impacts are several steps removed from the buying decisions that generate revenue are much more difficult to measure, and they may not produce visible results for several months.

Under these circumstances, marketing leaders often face pressures to shift resources to marketing programs that can deliver quick and easily measurable results. Unfortunately, such a shift can cause companies to under-invest in longer-term marketing activities and programs, thus placing future revenue growth at risk.

Producing both short-term and long-term revenue growth is the core marketing mission at any for-profit company, and the company's senior leadership team must understand and endorse this mission. Therefore, communicating this mission to your company's senior leaders and obtaining their buy-in is a vital step in your planning process.

Top image courtesy of DENAN Production via Flickr (CC).

Cracking the Code on Strategic ABM Success

 The Story of ABM

Over the past two-plus decades, account-based marketing (ABM) has evolved from a niche marketing discipline used mainly by large IT services firms to become a core component of marketing at many B2B companies.

The Information Technology Services Marketing Association (ITSMA) (now part of Momentum) coined the term "account-based marketing" in 2003, and ABM soon became a central focus of its research and consulting.

ITSMA defines account-based marketing as ". . . a strategic approach to designing and executing highly-targeted and personalized marketing programs to drive business growth and impact with specific, named accounts." [Source]

The popularity of account-based marketing has grown dramatically because B2B marketers perceive that ABM is highly effective. In the 2023 Global State of Account-Based Marketing survey by ITSMA and ABM Leadership Alliance, 81% of the respondents said ABM programs deliver a higher return on investment than "traditional marketing initiatives."

As originally conceived, ABM was viewed as a special approach to marketing that would be used with a company's most valuable customers. Within a few years, however, the successes achieved by early ABM adopters prompted marketers to look for ways to scale account-based marketing so that it could be cost-effectively used with a broader range of accounts.

In its 2016 Account-Based Marketing Benchmarking Survey, ITSMA documented the rise of three distinct types of ABM - strategic ABM (a/k/a one-to-one ABM), ABM Lite (a/k/a one-to-few ABM), and programmatic ABM (a/k/a one-to-many ABM).

This three-part framework has become the standard way to describe account-based marketing, but the reality today is that one-to-few and one-to-many ABM aren't materially different from state-of-the-art conventional outbound B2B demand generation marketing.

This is not true for strategic ABM, which embodies a very different marketing approach. With strategic ABM, marketing activities and programs are components of a multi-faceted management plan for a single customer account, and they are customized for that account.

Strategic ABM Still Rules

While one-to-few and one-to-many ABM have broadened the reach of account-based marketing, the linchpin of any successful ABM initiative is still strategic ABM.

Strategic ABM remains the most widely-used type of account-based marketing, and most ABM thought leaders and practitioners agree that strategic ABM - if done well - will generate a higher ROI than one-to-few or one-to-many ABM. Put simply, it's hard to have a high-performing ABM program if don't master strategic ABM.

The functional centerpiece of a successful strategic ABM initiative is the account management plan. With strategic ABM, a separate plan is developed for each account in the initiative. This is the first distinguishing characteristic of strategic ABM. It's truly one-to-one.

An effective strategic ABM account plan is also distinguished by the process used to develop it and the content it contains.

Developing the Plan(s)

Strategic ABM is often implemented in companies that already have a key account management (KAM) program. Key account programs have existed in some large B2B companies since the late 1950s. Early KAM programs were usually led by a sales executive, and their primary focus was managing sales opportunities.

The discipline of key account management has evolved substantially over the past six decades. Many companies now have well-developed KAM programs that are designed and executed by cross-functional account teams, and led by dedicated, senior-level account managers.

Today, the best KAM programs are focused on identifying longer-term growth opportunities in the account and maintaining the long-term health of the customer relationship, as well as on shorter-term sales opportunities.

In these circumstances, strategic ABM is essentially synonymous with key account management. A marketer becomes a member of the account management teams (usually no more than 5) and brings marketing expertise to the formulation of the account management plans. ABM activities are fully integrated into the account management plan so that the company has a single, cohesive strategy and plan for each key account.

Content of the Plan(s)

An effective strategic ABM/KAM account management plan is essentially a full-fledged business plan that is focused on an individual customer. The objective of the account planning process is to formulate a strategy and set of actions that will (a) protect the current revenue you are earning from the customer, and (b) enable you to grow the revenue you earn from the customer.

I used the term "business plan" intentionally because an effective strategic ABM/KAM plan is similar to the kind of business plan you would develop for any strategic move, such as the introduction of a new product or service, or an adjacent market expansion.

You can easily find dozens of business plan templates by performing a simple Google search. The framework that I've found works well for an account management plan contains six major components.

Customer Description

The objective of this portion of the plan is to provide a comprehensive picture of the customer's business operations, competitive position, organizational structure, and financial performance.

This portion of the plan should describe:

• The market(s) the customer serves and the economic attractiveness and growth potential of those markets
• The products and/or services the customer offers
• The types of individuals and/or organizations the customer primarily serves
• The customer's principal competitors
• The customer's current and recent financial performance
• The customer's business strategy and strategic priorities
• Any recent or planned structural changes (expansions or contractions)
• The customer's senior leadership team

If the customer is a public company, much of this information, including financial performance data, can be obtained from the customer's regulatory filings. If the customer is privately owned, financial data can be more challenging to obtain.

A mindset that I've found useful when preparing this portion of an account plan is to imagine that you are a stock analyst who is preparing an evaluation of the customer for investment purposes.

Current Relationship

This portion of the plan is where you describe your current position with the customer. What products and/or services do you sell to the customer? How long have you been doing business with the customer? How has the revenue you earn from the customer changed over the past 2-3 years? Who are your principal competitors for the customer's business? How strong is your current relationship with the customer? Most importantly, what "share of wallet" are you currently earning from the customer?

Relationship Objectives

This portion of the plan details your objectives for the relationship with the customer. Most of these objectives will be about increasing the revenue you earn from the customer, and those objectives are usually best expressed in terms of increasing the share of customer spend you earn in relevant areas.

You may also want to include more "operational" objectives. For example, if the customer has several business units and you are currently doing business with only some of those business units, you may have an objective to win business from a new business unit.

Threats/Barriers to Success

This is where you identify the events or circumstances that could throw a wrench into your plan. Obviously, you can't foresee every possible threat or barrier, but if you have deep customer insights and a realistic picture of your company's capabilities, you can identify many of the plausible events or circumstances that could derail your success.

Measurable Outcomes and Milestones

Every account management plan should include specific outcomes that are quantitatively measurable. Obviously, these outcomes will include your ultimate relationship objectives. For example:  "Increase the revenue we earn from XXX by 15% in our next fiscal year." You should also include measurable outcomes that are milestones or leading indicators of progress toward your ultimate objectives.

Action Plan

This portion of the account plan details the actions you will take to achieve your relationship objectives. Your account plan should identify who is responsible for each action and specify a target completion date. This level of detail will enable the members of your account management team to organize their work, hold each other accountable, and track progress toward success.

Final Thoughts

It should be clear that developing this type of account business plan isn't a trivial undertaking. It requires a significant amount of time and effort, especially the first time it's done for a customer. That's why strategic ABM/KAM initiatives should be reserved for your most valuable customers.

The deep customer insights and level of focus resulting from the account planning process also go a long way to explaining why well-designed and executed strategic ABM/KAM programs deliver outstanding value and ROI.

Image courtesy of emiliokuffer via Flickr (CC).

Are Your Revenue Generation Programs Targeting the Right Customers?

 

Source:  Shutterstock

(This post is an edited/updated version of a post I published early last year. With the fourth quarter of 2024 now underway, many B2B marketing and sales leaders will have started developing revenue generation plans for next year. Measuring customer profitability accurately is critical for developing an effective revenue generation strategy. So, this post is particularly relevant now that "planning season" is upon us.)

Key Takeaways

• A growing number of companies are adopting revenue generation programs that treat customers differently based on their perceived value to the company.

• Most companies determine the value of customers based on current revenue and future growth potential, but most don't track customer profitability or use it to judge the value of individual customers.

• The lack of accurate customer profitability information creates a dangerous blind spot. Without it, companies can end up winning business from unprofitable customers.

The Rise of "Account-Based Everything"

The widespread adoption of account-based marketing is one of the landmark developments in B2B marketing of the past two decades. The use of ABM has been growing rapidly since it was introduced by ITSMA in 2003. While the early adopters of ABM were primarily large B2B technology and business services firms, it's now used by a wide variety of B2B companies.

A  few years ago, marketing industry analysts, consultants, and technology vendors began to argue that companies should adopt an account-based approach in other customer-facing business functions, including sales, sales development, and customer success/customer service.

This broader application of account-centered techniques was soon called "account-based everything." ABE (or sometimes ABX) is usually defined as "the coordination of personalized marketing, sales development, sales, and customer success efforts to drive engagement with, and conversion of, a targeted set of accounts." (Gartner)

The most rigorous and thorough discussion of this broader use of account-centric strategies and tactics can be found in Account-Based Growth:  Unlocking Sustainable Value Through Extraordinary Customer Focus by Bev Burgess and Tim Shercliff. In this book, the authors explain how B2B companies can use account-focused strategies and programs to drive profitable revenue growth.

The premise underlying account-based methodologies is that all customers are not created equal. In most B2B companies, a small percentage of customers account for a disproportionate share of the company's total revenue and profit.

The essence of the strategy described in Account-Based Growth is to identify those "vital few" customers, and then design and implement coordinated marketing, sales, customer success/customer service, and executive engagement programs specifically tailored for those high-value customers.

Burgess and Shercliff explain how to identify and prioritize high-value customers, develop effective account business plans, leverage data and technology to gain deep customer insights, and bring about the leadership and cultural changes necessary to succeed with an account-based growth strategy.

Perhaps most importantly, Burgess and Shercliff emphasize that many companies will need to "radically" reallocate marketing, sales, and customer success resources to effectively support an account-based growth strategy. When you adopt this kind of strategy, you are placing a large bet on the growth potential of a relatively small group of customers and prospects.

In the balance of this article, I'll adopt the Burgess/Shercliff terminology and use the term "account-based growth strategy" to refer to a go-to-market approach that involves identifying high-value customers and prospects and designing coordinated marketing, sales, and customer success/customer service programs to manage relationships with those high-value customers and prospects.

Customer Profitability Is "Missing in Action"

Companies that implement an account-based growth strategy segment their customers into multiple "tiers" based on the perceived attractiveness of each customer. Then, they use different marketing, sales, customer success/customer service, and executive engagement techniques for customers in each tier.

In general, companies will invest more time, energy, and financial resources to develop and execute high-touch and highly customized engagement programs for customers in the "top" tier, compared to those in "lower" tiers. This means, of course, that company leaders must determine which customers to place in each tier.

As part of the research for Account-Based Growth, Burgess and Shercliff surveyed 65 B2B companies. Ninety-two percent of the survey respondents reported having some kind of "top account" program.

When the authors asked survey participants what criteria they use to select accounts for their top account program, 87% of the respondents said the future growth potential of the account, and 76% said the current revenue from the account. These were the two most frequently used criteria by a wide margin.

Customer profitability wasn't among the top five selection criteria identified by the survey respondents. In fact, only 45% of the respondents said their company tracks gross profit at the account level, and only 20% reported tracking net profit by account.

This absence of customer profitability information results in an account selection/prioritization process with a major blind spot. As Burgess and Shercliff put it:  "Without this information, decisions about how much to invest in these top accounts and where to allocate resources are being made in the dark."

To make matters worse, many companies that track some form of profit at the account level still aren't getting an accurate picture of customer profitability because the methodology they use to measure customer profitability is flawed.

When you implement an account-based growth strategy, you invest substantially more in some customers than others. It's impossible to make such investment decisions on a sound basis without an accurate view of customer profitability. You can easily find yourself in the unenviable position of successfully winning business from unprofitable customers.

Why Customer Profitability Matters

If all your customers were equally valuable, there would be no reason to implement an account-based growth strategy, and measuring the profitability of individual customers wouldn't be very important. But the reality is that some customers are far more financially valuable to your business than others. There are three main reasons for this value disparity.

The Pervasive Pareto Principle

The 80:20 rule (a/k/a the Pareto Principle) states that 80% of effects come from 20% of causes. One business application of the rule states that, in most companies, 80% of total revenue comes from 20% of the company's customers.

In Account-Based Growth, Burgess and Shercliff argued that the 80:20 rule is nearly ubiquitous, and my experience supports their argument. During my career, I've analyzed sales data from dozens of B2B companies operating in many industries. In most of those companies, I found that the largest 20% of customers accounted for about 80% of total company revenue.

The 80:20 rule has important implications because it is fractal, or at least "fractal-like." By this, I mean that the 80:20 distribution pattern repeats itself as the breadth of data analyzed narrows, like a set of Russian Matryoshka nesting dolls.

To illustrate, the rule states that 80% of a company's revenue comes from 20% of the company's customers, but it further states that 64% of total company revenue (80% of the 80%) comes from only 4% of customers (20% of the 20%).

The implications of this aspect of the rule are profound. Suppose your company has $100 million of annual revenue and 1,000 customers. The 80:20 rule indicates that only 40 of your customers are likely producing about $64 million of your revenue.

When it comes to company profitability, the 80:20 rule doesn't go far enough because the distribution of profit is even more skewed than the distribution of revenue. Companies that accurately measure customer profitability frequently find that all their annual profit comes from a small percentage of their customers. (More about this later.)

The bottom line:  In most companies, a small number of customers have an outsized impact on financial performance.

Customer Profitability Varies Greatly

The second reason for the value disparity is that customer profitability varies greatly. When company leaders measure customer profitability accurately, they frequently find that they're earning a lot of profit on their most profitable customers and sustaining significant losses on their most unprofitable customers.

The following diagram depicts the customer profitability distribution found in many B2B companies. In this diagram, the horizontal axis depicts the percentage of total customers, with customers arranged (left to right) by profitability. The vertical axis represents customer profitability. The horizontal line across the middle of the diagram is the profit breakeven point (in other words, $0 profit). The red curved line in the diagram depicts the typical distribution of individual customer profitability.

This diagram illustrates that, in many B2B companies, a relatively small percentage of customers produce attractive profit levels, and a small percentage generate significant losses.

The most sobering point is that customer profitability isn't always correlated with sales volume. In other words, when company leaders measure customer profitability accurately, they often find large customers at both ends of the profitability spectrum. This explains why basing an account-based growth strategy solely on customer revenue is risky.

Customer Profitability Impacts Company Profitability

The third reason for the value disparity is that customer profitability has a major impact on overall company profitability.

The following diagram illustrates how the dynamics of customer profitability affect overall company profit. Once again, the horizontal axis in this diagram shows the percentage of total customers, and again, customers are arranged (left to right) from the most profitable to the least profitable. The vertical axis depicts the percentage of total company profit. The red horizontal line across the diagram is the actual annual profit earned by the company.

When companies measure customer profitability accurately, many find that their most profitable 20% to 40% of customers actually produce between 150% and 300% of total reported company profit. Customers in the middle of the profitability spectrum more or less break even, and the least profitable 20% to 40% of customers consume between 50% and 200% of profit, leaving the company with its actual reported profit.

So, all the profit above the red horizontal line in the diagram is unrealized profit. This is the profit the company earned and then gave away. For obvious reasons, this diagram is often called "The Whale Curve of Customer Profitability," and it dramatically illustrates why customer profitability is so critical to your company's financial performance.

A Final Word

As I noted earlier, companies using an account-based growth strategy segment their customers into multiple tiers based on each customer's perceived value. Then they develop and use more high-touch and highly customized engagement programs for customers in higher tiers than for those in lower tiers. 

One primary goal of measuring the profitability of individual customers is to provide business leaders with information that will help them make better decisions about where to place each customer in the value hierarchy.

In Account-Based Growth, Burgess and Shercliff recommended that companies prioritize their accounts based on two factors:

1. The "attractiveness" of each account; and
2. The competitive strength of their company in/with each account.

The research by Burgess and Shercliff clearly showed that an overwhelming majority of companies use current revenue and growth potential to determine the attractiveness of each of their accounts.

This article demonstrates that business leaders should also consider customer profitability when evaluating account attractiveness.

Buyer Insights That Should Guide Your Planning for 2025

With the fourth quarter of 2024 less than two weeks away, many B2B marketing and sales leaders will soon begin planning for 2025. To develop an effective go-to-market plan, it's vital to understand how the decision-makers in your target market(s) prefer to engage with potential suppliers at all stages of the buying process.

Recent research by McKinsey & Company provides several important insights regarding B2B buyer preferences and behaviors that you should consider as you develop your go-to-market plans for next year. McKinsey's 2024 B2B Buyer Pulse Survey produced nearly 4,000 responses from B2B decision-makers across 34 sectors in eight industries from 13 countries.

Here are some of the key findings from the McKinsey survey.

B2B Buyer Archetypes

McKinsey's research identified three distinct archetypes of B2B decision-makers based on their varying preferences and needs.

• Adapters (44% of survey respondents) - These decision-makers are highly relationship-oriented. "While willing to try new channels, they tend to stick with patterns that they are familiar with and are slow to try new experiences, channels, and suppliers . . ."

• Innovators (20% of respondents) - These decision-makers ". . . are on the cutting edge when it comes to newer technologies . . . They are highly likely to be on any and all digital channels."

• Seekers (36% of respondents) - These decision-makers ". . . demand a seamless omnichannel experience. If they don't get it, they are quick to seek out a new supplier."

Planning Consideration - McKinsey found that all three archetypes are "consistently present" across geographies and economic sectors. Therefore, it's likely the potential buyers in your company's target market(s) will include all three archetypes, and your go-to-market strategy will need to contain elements designed to appeal to each buyer archetype.

The "Rule of Thirds"

McKinsey found that B2B decision-makers interact with potential suppliers in multiple ways. In the 2024 survey, respondents reported that on average, they spend about one-third of their "interaction time" engaging with suppliers via each of three types of interaction.

• Traditional - In-person meetings, direct mail, fax, etc.

• Remote - Phone calls, video conference calls, emails, etc.

• Digital self-service - Company websites, e-commerce, chatbots, internet searches, mobile apps, etc.

McKinsey observed that this "rule of thirds" is consistent across all stages of the buying process and that it holds true across all geographies, industries, company sizes, and buying scenarios (new vs. repeat purchases, high-value vs. low-value purchases).

Even more significant, McKinsey found that the "rule of thirds" is generally consistent across all three B2B buyer archetypes. Adapters have a slightly higher preference for Traditional interactions, but the difference is not great.

The most significant departure from the "rule of thirds" relates to buying scenarios. About 40% of the survey respondents tend to prefer Traditional interactions for "high-effort" purchases. High-effort purchases would include first-time purchases, high-cost purchases, purchases of complex products or services, and purchases from new suppliers.

Planning Consideration - The "rule of thirds" is nearly universal. Therefore, your go-to-market approach should include options for all three interaction types.

Omnichannel/E-Commerce

The findings of the McKinsey survey confirmed the importance of providing seamless omnichannel experiences, including robust e-commerce capabilities. Most survey respondents reported using ten or more ways to interact with potential suppliers during their buying process. This was up from five interaction channels in the 2016 edition of the Buyer Pulse survey.

Equally important, more than half of the survey respondents said they were likely to switch suppliers if they didn't have a smooth experience across channels.

The 2024 survey results also made the importance of e-commerce emphatically clear. Seventy-one percent of the respondents said they offer some form of e-commerce, and in those companies, e-commerce sales generate 34% of total revenue, on average.

The survey also confirmed that many B2B buyers are comfortable making larger purchases via e-commerce and other remote interaction channels. The survey asked participants this question:  "What is the maximum order size that you would purchase through end-to-end digital self-service and remote human interactions for a new product or service category?"

Seventy-three of the respondents said $50,000 or more, 39% said $500,000 or more, and 20% said $1 million or more.

Planning Consideration - Unless your company is an outlier, your go-to-market strategy needs to include a major focus on providing seamless omnichannel interaction experiences, and e-commerce should be the centerpiece of your omnichannel strategy.

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Every company's competitive environment is unique in some ways. Therefore, not every finding in the McKinsey survey will be literally and precisely applicable to your situation. However, the broad trends identified in the survey should be carefully considered during your planning process.

Image courtesy of Mike Lawrence (CreditDebitPro.com) via Flickr (CC).

Where to Find Revenue Growth Opportunities

For the past several years, I've written a few posts each fall that address some aspect of marketing planning. With the fourth quarter of 2023 beginning today, many marketers will have started (or soon will be starting) their planning for 2024.

Last week's post discussed how marketers can use the jobs-to-be-done framework to define their market and determine how their products or services create value for customers. This framework helps marketers pinpoint what will motivate their customers to buy.

The following post describes a framework marketers can use to identify what sources of revenue growth are (or can be) available to them. Identifying sources of potential revenue growth is an essential part of a sound planning process.

I published this post in 2019, but the content of the post is as relevant today as it was four years ago. What follows is a lightly edited version of the original post.

The Original Post

Driving consistent, profitable revenue growth is one of the greatest challenges that business and marketing leaders face. The key word in that sentence is "consistent." Many companies can produce substantial revenue growth sporadically or over a short period of time, but it's exceptionally difficult to consistently generate above-average growth over the long term.

Business and marketing leaders must perform two distinct but related tasks to maximize revenue growth:

1. They must identify what growth opportunities are (or can be) available to them and determine which of those growth opportunities are most attractive.
2. They must find the right balance between short-term and long-term growth opportunities.

In this post, I'll focus on how business and marketing leaders can identify growth opportunities.

Structural Sources of Growth

The first step in identifying potential growth opportunities is to understand the dynamics of revenue growth - how it happens or, more accurately, where it originates. There are, in fact, several distinct sources of growth. These structural sources of growth are not dependent on how a company is organized or on the types of products or services it sells. Instead, they are based on the business and marketing strategies that a company uses to tap into each source.

This topic has been discussed in management and marketing literature for a long time. In a 1957 article for the Harvard Business Review, Igor Ansoff identified four structural sources of growth and four related types of growth strategies:

1. Sales of existing products in existing markets (market penetration strategy)
2. Sales of existing products in new markets (market development strategy)
3. Sales of new products in existing markets (product development strategy)
4. Sales of new products in new markets (diversification strategy)

In a 2004 article in the Harvard Business Review, Michael Treacy and Jim Sims identified five structural sources of growth:

1. Continuing sales to existing customers (base retention)
2. Sales won from the competition (market share gain)
3. New sales in an expanding market (market positioning)
4. Sales from expanding into related markets (adjacent market expansion)
5. Sales from expanding into new, unrelated lines of business (diversification)

I've used both of these models when working with clients to frame our discussions about how to grow. But over the years, I've expanded on these models to create a more detailed framework of the alternative ways to generate growth. The current version of my framework is shown in the following diagram.

This framework is a good tool for stimulating your thinking about how to grow your business and for identifying the growth opportunities that are (or can be) available to your business. When using this framework, it's important to keep several things in mind.

First, the good news is that these structural sources of growth are always present, at least to some degree. Their existence isn't dependent on the market conditions a company is facing at a particular moment in time. However, the volume of revenue that a company can obtain from each source is greatly influenced by the market and competitive environment. 

So the framework identifies potential sources of revenue growth, but it doesn't tell you about the relative attractiveness of those sources. You'll need to use traditional market and competitive analysis tools and techniques to perform that evaluation.

Second, no single source of growth is likely to provide all the revenue you need to reach your growth objective.

And third, each source of growth has distinctive attributes and dynamics. So you'll need a specific strategy and game plan for each source of growth you choose to pursue.

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Top image courtesy of ccPixs.com (CC).

When Planning for 2024, Focus On the Jobs Your Customers Need to Get Done

Understanding what will motivate a potential customer to buy your products or services is a critical prerequisite to developing an effective marketing strategy and creating compelling marketing communications. As thousands of marketers will attest, this isn't a simple task.

As marketers, we develop customer value propositions and we create content we believe will resonate with our potential buyers. But too often, our marketing programs don't produce the results we expect.

This lackluster performance frequently stems from the methods marketers typically use to define their market(s) and to determine and describe how their products or services will create value for customers.

Most B2B marketers define their market(s) based on a combination of product/service characteristics and the attributes of their potential customers (company size, industry vertical, etc.). 

So, for example, a marketer might define his or her market in these terms:  "We sell manufacturing execution system software to large enterprises that are engaged in both discrete and process manufacturing."

Then, marketers use these definitions to guide the development of their customer value propositions.

The problem is, these conventional approaches to defining markets and identifying how products or services create value don't help marketers pinpoint what actually motivates people to buy. Fortunately, there's a proven way to solve this problem.

Understand What Customers Need to Get Done

The starting point for understanding what will motivate your potential customers to buy is to recognize that people don't buy a product or service because they want the product or service itself. In most cases, what they really want is what the product or service will enable them to accomplish. 

For example, most small business owners don't really want a company brochure, or a direct mail campaign, or, for that matter, a website. But, many will invest in these things because they see them as effective tools for increasing sales.

Theodore Levitt, the legendary professor of marketing at the Harvard Business School, memorably expressed this idea when he often told his students, "People don't want to buy a quarter-inch drill. They want a quarter-inch hole."

In their 2003 book, The Innovator's Solution, Clayton Christensen and co-author Michael Raynor built on Professor Levitt's thinking to describe what is now widely known as the jobs-to-be-done framework (the "JTBD framework"). In 2005, Christensen and co-authors Scott Cook and Taddy Hall further described the importance and value of the JTBD framework in a landmark article published in the Harvard Business Review.

The basic idea of the JTBD framework is that when people identify a "job" they need or want to get done, they look for a product or service they can "hire" to perform the job.

Christensen and his co-authors argued that this is how customers "experience life." Their thought process begins with an awareness that they need or want to get something done, and they seek to hire something or someone to do the job for them.

So, the presence and recognition of a job that needs to get done are what trigger and energize a potential customer's motivation to buy. This makes the job - not product/service features or customer demographics/firmographics - the primary unit of analysis for marketers who hope to develop and execute high-performing marketing strategies and programs.

In the HBR article, Christensen and his co-authors put it this way:

"The marketer's task is therefore to understand what jobs periodically arise in customers' lives for which they might hire products the company could make. If the marketer can understand the job, design a product and associated experiences in purchase and use to do that job, and deliver it in a way that reinforces its intended use, then when customers find themselves needing to get that job done, they will hire that product."

I've previously written about how the JTBD framework can be used to guide the development of marketing content. The point of this post is that the framework can also be a powerful tool for thinking about market definition, market segmentation, and value proposition development during your marketing planning process.

So, as you begin planning for 2024, take enough time to identify the jobs your potential customers are facing that your products or services can perform. This is the real key to understanding what will motivate your potential customers to buy.

Image courtesy of Got Credit (www.gotcredit.com) via Flickr (CC)

The Vital First Step of Your Marketing Planning for 2024

The fourth quarter of 2023 is only a few weeks away, and that means many B2B marketing leaders will soon begin planning for next year.

Marketing planning processes vary considerably across companies. The planning process in large enterprises can be quite formal, and the output is often a lengthy document replete with spreadsheets containing budget details and financial projections. The planning process in smaller companies tends to be less formal.

Regardless of whether your planning is formal or informal, one key to having a sound planning process is to start the process in the right way. Fortunately, a proven technique from military planning can help marketing leaders get their planning process started on the right basis.

For years, US military commanders at all levels have used a framework called METT-TC as an integral part of their planning process. METT-TC is a mnemonic that is designed to help commanders remember and prioritize what to analyze when planning a military operation.

METT-TC stands for mission, enemy, terrain, troops available, time, and civil considerations. These six factors define the environment in which any military operation will be conducted, and commanders must thoroughly analyze each of these factors to develop sound operational plans.

When I work with a client to develop a marketing plan, I begin with an analysis of four environmental factors, and I've created a mnemonic for these factors that serves much the same purpose as METT-TC. My mnemonic is MEC-R, which stands for mission, economic/legal environment, competitive landscape, and resources available.

Mission Is "First Among Equals"

These four factors are all important, but mission is clearly the "first among equals" because it provides the critical starting point for a sound planning process. Mission occupies this pivotal position for two reasons.

First, to maximize impact and effectiveness, all marketing activities must be aligned with, and supportive of, a clearly defined mission. With every proposed marketing initiative, you should ask:  "How will this initiative help us fulfill our mission?" Obviously, you can't answer this question if you don't have a clear picture of what your marketing mission is.

The second reason is equally important. To be a successful marketing leader, you need the support of your CEO and other senior company leaders. Your chances of gaining and keeping that support will be higher if you and the other members of your company's senior leadership team have a common understanding of marketing's mission.

Therefore, before you begin any detailed planning for next year, you need to have an open and frank discussion with your senior company leaders about the core mission of marketing in your organization.

More specifically, you should prepare a clear and concise high-level description of your proposed marketing mission and share it with your senior management team. The goal, of course, is to have your senior leadership team endorse your mission description.

The Core Mission of Marketing

So, what is the core mission of marketing? I'm always skeptical of marketing principles or methods that purport to be universal. Competitive conditions can vary considerably across companies, and that usually requires a company to develop business and marketing strategies that fit its unique circumstances. But, this is the "exception that proves the rule."

Every marketing organization in a for-profit company has a twofold mission, both aspects of which are linked to revenue growth. It must run programs that will generate revenue in the short term, and also design and execute programs that will lay a solid foundation for long-term revenue growth.

The need to focus simultaneously on the short term and the long term is not unique to marketing, but this can be particularly challenging for marketers. For the past several years, marketing leaders have faced increasing demands to prove the value of their activities and programs. Overall, this has been a positive development, but it can have a dark side.

Marketing programs that produce a quick impact on revenue are relatively easy to measure, and their results can be seen in a matter of a few weeks or months. However, programs whose impacts are several steps removed from the buying decisions that generate revenue are much more difficult to measure, and they may not produce visible results for a year or more.

Under these circumstances, marketing leaders often face pressures to shift resources to marketing programs that can deliver quick and easily measurable results. Unfortunately, such a shift can cause companies to under-invest in longer-term marketing activities and programs, thus placing future revenue growth at risk.

Producing both short-term and long-term revenue growth is the core marketing mission at any for-profit company, and the company's senior leadership team must understand and endorse this mission. Therefore, communicating this mission to your company's senior leaders and obtaining their buy-in is the essential first step in your marketing planning for 2024.

Image courtesy of fdecomite via Flickr (CC). 

Having a Plan Does NOT Mean You Have a Strategy

With the fourth quarter of the year now underway, many business and marketing leaders have already begun their planning for 2023. Over the next few weeks, they will be evaluating how well their business performed in 2022 and looking for ways to improve performance next year.

This annual ritual is usually called strategic planning, and the output of the process - in larger companies at least - is often a lengthy document that  describes what company leaders hope to accomplish in the coming year and what actions they intend to take. Most strategic plans also include a detailed description of where the company will invest in new or existing assets and capabilities.

In fact, the annual planning process is often dominated by budgeting issues. Roger Martin, the well-regarded strategy guru, has this to say about the predominant emphasis on budgeting:  "The vast majority of strategic plans that I have seen over 30 years of working in the strategy realm are simply budgets with lots of explanatory words attached."

The problem is, many business and marketing leaders confuse strategy with planning. They assume that the development of a business or marketing plan is equivalent to the formulation of a business or marketing strategy.

But in reality, formulating strategy and developing plans are fundamentally different tasks. They require leaders to address different issues, and more importantly, they demand different types of thinking.

Most Plans Have Three Components

In the course of my career, I've reviewed dozens of business and marketing plans, and I've found that most have three major components.

Goals/Objectives - Most business and marketing plans contain a set of goals and objectives that leaders hope to achieve in the coming year (or other planning period). Most of these goals and objectives are expressed in quantitative terms (increase revenue by X%, increase market share by X percentage points, etc.).

Initiatives - The second major component is a description of the initiatives that company leaders intend to implement (or continue) in pursuit of their identified goals and objectives. This is usually the longest part of a business or marketing plan. For example, a marketing plan for a B2B company will usually address several initiatives, such as:

• What marketing campaigns or programs will be run
• What marketing channels will be used
• What events (trade shows, etc.) will be attended or conducted
• What technology tools will be acquired, updated or replaced

Budgets - The third element of most business and marketing plans is a revenue projection and budget. As I indicated earlier, the annual planning process is often dominated by budgeting issues, so this part of the plan usually receives the greatest scrutiny from company leaders.

What Makes Strategy Different

The formulation of a business or marketing strategy requires leaders to address a very different set of issues from those covered in a typical planning process.

Strategy has been described in a variety of ways over the years. In Playing to Win:  How Strategy Really Works, A.G. Lafley and Roger Martin proposed a five-part framework that captures the essence of strategy very well. Lafley and Martin say that strategy consists of an integrated set of choices that answer five fundamental questions.

1. What is our winning aspiration? (What does success look like?)
2. Where will we play? (In which markets, with which types of customers, in what channels, in which product categories, and at which vertical stage or stages of the industry will we compete?)
3. How will we win? (What will enable us "to create unique value and sustainably deliver that value to customers in a way that is distinct from [our] competitors?")
4. What capabilities do we need to have in place in order to win in our chosen field of play?
5. What management systems do we need to institute in order to create, review, communicate about, and manage our strategy?

While all of these questions are important, questions 2 and 3 ("Where will we play" and "How will we win?") are the two that are most crucial for developing an effective strategy. Lafley and Martin wrote, "These two choices, which are tightly bound up with one another, form the very heart of strategy and are the two most critical questions in strategy formulation."

Strategy Must Come First

Success in business and in marketing requires both a sound strategy and a thorough plan, but strategy formulation should always precede planning. That's because the plan should be based on (and designed to support) the choices that define the company's strategy.

For example, a company's strategy will include choices about what types of customers the company will seek to serve and how the company will create value for those target customers. It's impossible to develop a sensible marketing plan until those strategic choices have been made.

Having a strategy in place actually makes planning easier because the strategy provides "guardrails" for the planning process. The content of the strategy enables company leaders to more easily determine which initiatives are most essential for the strategy to work and therefore are most likely to produce the desired outcomes.

Image courtesy of Kyle Van Horn via Flicker (CC).

Marketers Should Prepare for Sluggish Growth and Continued High Inflation

For the past few weeks, the hottest topic in the business/financial media has been whether the U.S. economy is headed into a recession. Every day, a parade of economists, market analysts and other pundits appear online, on TV and in print to give their view on the likelihood that a recession is on the horizon.

In addition, several major Wall Street investment firms have recently estimated that the odds of a recession occurring in the next several months have increased.

The odds of recession are increasing primarily because the U.S. Federal Reserve is tightening monetary policy in an effort to rein in historically high levels of inflation. Since the beginning of this year, the Federal Reserve Open Market Committee has raised the target federal funds interest rate 2.25%, and it has recently started reducing the size of the Federal Reserve's balance sheet (which tightens financial conditions).

The Committee has also indicated that additional interest rate increases are likely, and most Fed watchers are expecting an increase of 0.5% at the Fed's September meeting.

Marketers need to have a reasonably accurate picture of future economic conditions in order to develop sound marketing plans. As I've previously written, the health of the overall economy is one of the major factors that create the environment in which marketing plans will be executed. And while macro economic conditions affect different kinds of companies in different ways, they will impact the success of marketing efforts at most companies to some extent.

Unfortunately, the outlook for the U.S. economy over the next several months is far from clear. The uncertainty exists for several reasons, including the real-world impact of Federal Reserve's policy decisions, the continuing problems in global supply chains, and a possible energy crisis in parts of Europe this winter.

Given this high level of uncertainty, the best option for marketers is to focus on those future economic conditions that can be predicted with a reasonable degree of confidence. In my view, we can say two things about the direction of the U.S. economy over the next 6 to 12 months.

1. Economic growth (as measured by real GDP) is likely to be slow even if we are able to avoid a recession.
2. Inflation is likely to be persistent and remain above the Federal Reserve's target of about 2% per year, although there are some indications that we may already be past the peak of inflation.

Economic Growth

Real GDP growth slowed significantly in the first half of 2022. The following chart shows the trailing 12 month rate of real GDP growth measured at the end of the four most recent calendar quarters.

At the end of Q4 2021, the real GDP growth rate over the preceding 12 months was 5.5%. By the end of the second quarter of this year, the annual growth rate had fallen to 1.6%.

Most economists are predicting slow economic growth in 2022 and 2023. For example, the latest (July) forecast by The Conference Board is that real GDP will grow 1.7% in 2022 and 0.5% in 2023. (Note:  Many economists say the long-term sustainable growth rate of the U.S. economy is about 2% per year.)

Below-average growth over the next several months is the most likely scenario because it is difficult to envision any events that would trigger an increase in economic growth in the short run.

Inflation

Inflation has emerged as the most serious issue currently affecting the U.S. economy. The following chart shows the annualized rate of inflation for January through June of this year as reported monthly by the U.S. Bureau of Labor Statistics. The chart includes both the "headline" rate of inflation (All Items) and the "core" inflation rate (All Items Excluding Food & Energy).

The substantial and persistent gap between headline and core inflation shown in this chart demonstrates that high fuel and food prices have been major contributors to inflation this year. This, of course, won't be surprising to anyone who drives or eats.

On a positive note, there are some indications that inflation may already be easing. For example, as the above chart shows, the core inflation rate has been declining since March. In addition, AAA has reported that the national average price of gasoline fell from $4.85/gal on June 30th to $4.21/gal on August 1st. These declining gasoline prices should be reflected in the July consumer price index, which the Bureau of Labor Statistics will release on August 10th.

Even if inflation has already peaked, many economists and other analysts are forecasting that the rate of inflation will decline only slowly. In June, Federal Reserve Board members and Federal Reserve Bank presidents predicted that PCE inflation* in 2022 would be 5.2%, still substantially above the Federal Reserve's target inflation rate of 2%.

Key Takeaways

For marketers, the key takeaway here is that economic growth is likely to be sluggish for the next several months. The outlook for inflation is generally favorable, but energy market analysts have noted that most physical energy markets are still tight. Therefore, there is a substantial risk that energy prices could rise later this year and slow the progress on inflation.

*PCE inflation is the percentage rate of change in the price index for personal consumption expenditures. PCE inflation is generally considered to be the Federal Reserve's "preferred" measure of inflation.

Top image courtesy of CreditDebitPro.com via Flickr (CC).