Amongst the corridors of marketing, one of the long-standing debates is what proportion of marketing budget should be spent on brand advertising and performance advertising.
The issue can be viewed as a pendulum, which swings between the two extremes of pure brand or performance marketing spend or is more often stuck at a point in between. In our experience, there are three reasons behind the pendulum’s resting position:
Many structural factors will come into play e.g. a brand’s sector, cycle, business model or strategy will all feed in to where the pendulum currently lies.
The impact of performance marketing spend is often quick and easy to measure, whereas the impact of brand spend can be more challenging to determine. This often tips the balance in favour of performance, where instant results can be easily produced.
In many organizations there is a prevailing short-term mindset, which brings a focus on short term results. This again means a swing towards performance, as any brand impacts will likely only appear over the longer term.
We’ve worked with brands at various positions on this pendulum, and the results we’ve seen are really interesting…
1. What happens when you take brand off air?
If brand spend is cut, there can be a short-term improvement on profitability. However, in the longer term we’ve seen profitability go negative, due to the lost sales outweighing the cut in costs. In one client of Gain Theory, a short term $0.4m gain turned into a $1.1m loss.
Erosion of brand metrics follows: we’ve seen clients where brand metrics have declined for at least 3 years following a cut of brand advertising. It is then harder and takes longer to recover from this and in that client, we subsequently quantified a negative effect on sales of 20%. So, while this approach can be appealing to hit short term targets, it can be hugely damaging in the long run. This leaves one asking: is it worth it?
2. What happens when you spend heavily on brand?
Some businesses will invest significantly in brand for a specific purpose, for example to build awareness or tell stories to keep the brand feeling relevant and alive for customers. This type of investment can be a brave decision for marketers without appropriate measurement, as there is unlikely to be an immediate sales result.
One of our clients invests significantly in their brand advertising throughout the year. They view this as crucial to maintaining their strong brand position in the market and place importance on tracking brand metrics to measure its impact. They also see this spend build sales in the long term. To balance out this heavy brand advertising, this client will also pulse with performance campaigns to ensure they are also meeting sales expectations in the short term.
3. What happens when you spend heavily on performance?
In some clients, we’ve seen a move towards heavily investing in promotions. Unsurprisingly, this shows immediate uplifts in sales and profit. As well as producing seductive metrics, it can also be very attractive from an investment POV. And there’s nothing inherently wrong with that – everyone needs to drive sales. However, taking a longer view, we’ve seen clients where significant spending on price and promotions brought a negative impact on the brand and value for money metrics.
What’s the solution?
Ultimately, there is no silver bullet to determine where you should be on the pendulum swing, and marketers will need to flex according to their business strategy.
But marketers need to remember that accountability is key: finding the right way to measure brand spend in a fair comparison with performance spend will help to conduct this debate objectively.
Our recommendation is to define a holistic measurement strategy as a first step. This allows brands to quantify the impact from all their marketing, providing a view of real financial results. Once this measurement is in place, the best decisions can then be taken to meet total company targets and find the optimal place on the pendulum swing.
Long-Term effects of Advertising: Gain Theory’s research for the ProfitAbility report click here
Marketing Effectiveness Strategy: commissioned by EffWorks in conjunction with brands representing £7bn in ad spend click here