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Back in 2007, Les Binet and Peter Field published a highly influential research report, “Marketing in the Era of Accountability,” supported by a robust analysis of data from the IPA (the UK-based Institute of Practitioners in Advertising). Their 2013 follow-up paper, “The Long and the Short of It,” offered the following recommendation: marketers should spend 60% of their budget on long-term brand building and 40% on short-term activation. Binet and Field arrived at their conclusion by looking at the IPA Effectiveness Awards from 1980 to 2010, comparing the winners that demonstrated notable accomplishments to the winners that reached extraordinary levels of success.
Drawing conclusions from the list of IPA Effectiveness Awards is a flawed approach that generates so many questions and problems, but that will need to wait for a future post.
Methodological concerns aside, the general question remains: if data-driven marketers are convinced we should spend 60% of our budgets on long-term brand building, why isn’t that happening? ESPECIALLY with data-driven marketers?
I think there are a couple of reasons:
1) The feedback cycle on long-term brand building is, by its very nature, long term.
When we run a paid search activation campaign, we can determine if it works (or not) very, very quickly. If the results are bad, we can adapt and improve the campaign. If, on the other hand, the results are great, we can scale things up to achieve huge returns. But when we run a brand-building campaign, we are left with qualitative (and BS-filled) metrics. We have no reliable ways to identify 1) whether our plan is working or not, and 2) what the ROI is (or even how to calculate the ROI).
If I told you, “give me money today and then tomorrow I’ll pay you back double the amount,” you might give me a dollar and see what happens. Suppose my promise holds and I hand over $2 — you might try it again the next day with an increased sum of $10 or $100. As long as I continue to double your money, you would feel confident enough in my plan to keep scaling up your daily investments.
Consider if, instead, I told you, “give me money today and then in one year I’ll pay you back somewhere between 10% and 10x your amount.” Almost certainly, you would hesitate. This example illustrates what we are asking companies to do with long-term brand building. No wonder it’s such a scary concept.
2) The second reason that long-term brand building is underinvested relates to the inherent nature of business cycles. When things are going well, we tend to get complacent. The CEO gives the CMO high fives in the hallways. Check-in meetings are comfortable and fun. Everything is moving up and to the right. You can keep doing what you are doing. If “what you are doing” includes spending a lot on long-term brand building, then you will likely continue that pattern. But for companies that aren’t actively investing in long-term brand building, they are far less likely to shift gears and make that a new priority. Things are good, why rock the boat?
Sooner or later, things WILL go sideways. When that happens, everyone wants a fix RIGHT NOW. The CFO will approve increases to the marketing budget if you can argue that it will generate more revenue by the end of the month. Maybe she will even give you the flexibility to demonstrate growth by the end of the quarter. Maybe even the end of the year. But if you start talking about long-term brand building that would help the business over the next 2+ years, you’ll be laughed out of the meeting.
The result is that most companies significantly underspend in long-term brand building.
I’m pretty sure that Binet and Field’s 2013 report offers some incorrect assertions. Their research relies on fundamentally flawed inputs to support some strong conclusions.
That said, I am convinced that long-term brand building — done right — offers higher ROI than short-term activation. But we should not underestimate how hard it is, in the real world, to make that change.
I generally get involved with companies after things have already gone off the rails (If they haven’t, then why pay for someone like me?). I’ve learned that organizations are rarely interested in discussing investments for the long term, because they are so determined to stop the short-term bleeding.
In practice, the attention to urgency usually demands that I fix paid search as soon as possible (because most companies’ paid search strategies are inadequate). After improving the paid search account, we can often cut that spend and grow topline at the same time. Then I cut a ton of display marketing (which is frequently a waste of resources). What is the total result of these triage actions? Significantly less marketing spend and slightly higher revenue.
Sometimes we can find affiliate “activation” partnerships that will get us more growth at a good ROI. But then my goal simply shifts — now I need to identify ways to take those savings and invest them into long-term marketing channels.
Achieving that goal doesn’t always happen. Many CEOs insist on more short-term activation (they are, after all, digging themselves out of a hole) — even if the ROI on the incremental spend is not very good.
Alternatively, the CEOs want to pocket the savings as EBITDA — but that just kicks the problem down the line. In six months, the one-time bump we achieved by fixing the short-term activation channels will be baked into the business, removing these strategies as options for short-term fixes in the future. Reducing the marketing spend usually creates a one-time windfall — if you don’t invest those resources, you’ll likely go off the rails again, but without any tools to pull yourself back on track.
When I joined A Place for Mom in 2011, we inherited a business that was facing A LOT of trouble. To get the company back on its feet, we spent 18 arduous months improving the operations and sales process. During that time, we played around with some marketing ideas, but all of it was short-term stuff. After the 18-month operational turnaround, I took over marketing and I STILL focused on short-term stuff. About 70% of my time was spent fixing paid search and affiliates; the remaining 30% was split between direct activation television and a two-person SEO team with no engineering support.
But three good things happened:
1) The SEM got better. This provided us a one-time dividend to make other investments.
2) SEO went from zero to “something.” That something was pure margin — which, once again, gave us more resources to make more investments.
3) Television continued to underperform in direct acquisitions, but the excess returns we were getting from SEO and SEM allowed us to keep trying. We never managed to make short-term acquisitions pay out, but over time we began to see the long-term results of television. The impact was huge.
By my third year in the business, we were on fire. The two years of “mediocre” television was finally paying its own dividend. Our brand leads were growing dramatically year-over-year, without an increase in spend. And our direct acquisition channels just kept getting better. While the channel leads would probably claim credit for those improvements, I’d counter with three trends that suggested our growth could be attributed to greater brand awareness and appreciation: 1) clickthrough rates kept going up, 2) conversion rates kept going up, and 3) unbranded organic position kept moving up. How did we develop a brand that was stronger and better known? The power of television.
I tried the same strategy when I joined General Assembly, but it did not work nearly so well. GA was in a far greater rush than APfM. We couldn’t afford to wait 18 months to get the business back on track. As such, we kept investing in short-term activation channels. Our strategies worked. Paid search got a lot better. We discovered an effective paid social media strategy using our in-house introductory events. We optimized and improved our affiliates. Despite that series of short-term successes, we never had the latitude to make any long-term investments. In turn, a long-term lift — the kind that a strong brand can make on your acquisition channels over time — never materialized.
We still had a fabulous outcome (selling to Adecco in May 2018 for over $400MM), but we never found a way to run television ads. Looking back, it’s my greatest regret about that experience; that said, even with the benefit of hindsight, I’m still not sure I see a path for how we could have pulled off success with television.
Investing for the long term is really, really hard. But you should always be thinking about how you can improve your company’s position, especially by building a strong brand. And when things are “good,” don’t become complacent — that's the perfect time to make the long-term investments that will pay off when things are rough.
Keep it simple,
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Edward Nevraumont is a Senior Advisor with Warburg Pincus. The former CMO of General Assembly and A Place for Mom, Edward previously worked at Expedia and McKinsey & Company. For more information, including details about his latest book, check out Marketing BS.