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Performance is clouding advertisers' judgement - here's how to balance spend instead
December 1, 2022
Sustaining investment is a good start, but advertisers need to get out of the ‘performance’ mindset.
The World Federation of Advertisers (WFA) has revealed that just under a third (29%) of 43 multinational companies plan to decrease investments in advertising in 2023, and three quarters agree that budgets are under heavy scrutiny.
For marketing spend experts, this raises alarm bells. We know that a recession is not the time to cut back on ad spend. In fact, our own Analytic Partners’ research finds that marketers who cut spend, risk losing 15% of their business during a recession if competitors are boosting theirs.
But it’s even more concerning that the WFA research reveals an increased emphasis on short-term, performance marketing over brand building with 28% of respondents saying they will look to boost performance spend next year, compared to 21% planning to increase spend on brand. WARC is presenting a similar shift in their Marketer’s Toolkit 2023, however, they’re also highlighting that more respondents than last year are predicting an increase in budget in both areas.
Chris Sutcliffe summarised in The Drum that advertisers are divided on where to spend.
So, let’s close the divide, and clarify exactly where advertisers should be directing their money.
Performance only gets you so far
It’s easy to see why performance marketing is such a tempting route for brands. Performance marketing, with its seemingly easily-trackable results, is appealingly short-term focused. When times are tough, it can give a sense, albeit often a false sense, of security about the chosen marketing tactics.
However, over-reliance on performance marketing is a symptom of short-termism that can lead to detrimental losses.
Let’s look at a recent example: in October 2022, ASOS reported major financial losses directly because of performance marketing short-sightedness. It allocated about 80% of its £224m budget to performance, and found that revenue grew by only 1%.
And ASOS are certainly not alone. Many brands are forgetting about a long held truth (nine years long, in fact) expounded by the IPA’s Les Binet and Peter Field in The Long and the Short of It: Balancing Short and Long-Term Marketing Strategies. It’s not necessarily an either or between performance and brand - a solid marketing strategy needs a balanced combination of both.
The case for brand
Performance marketing appeals via its fast conversions. Brand marketing, on the other hand, takes longer to give you the same satisfaction. It unfolds its true impact over time, impacting sales directly as well as indirectly via building brand equity, making it harder to measure and quantify.
But our research shows that brand marketing upper funnel tactics – e.g. aimed at raising awareness or brand equity - are 60% more effective over the long term than lower funnel tactics, and only 25% less effective in the short term.
That's because brand marketing works across products and services; enhancing the desirability of the brand as a whole, and ensuring it is top of mind. This not only reinforces habits and preferences amongst existing buyers, but also leads customers to purchase products and services they may not have otherwise chosen. When it comes to messaging, we are seeing brand messages in ad campaigns outperform performance messages 80% of the time in terms of sales and ROI. When debating the balance of the two, any investment in brand marketing also has a positive impact on performance - but brands need both to make that synergy work.
ASOS is just one brand where a short-term focus has seen results fade just as quickly as they emerged.The brand has learnt its lesson the hard way and is now planning to drive relevance and storytelling in 2023 next to performance-driven campaigns.
Don’t underestimate linear TV
The WFA research also indicates that the big winners next year will be digital channels, with 42% of respondents saying this is where they will increase spend either slightly or significantly, meaning offline media such as TV, radio, print and outdoor, will likely suffer.
This is partly a result of the mentioned greater performance focus - which is often connected to digital channels - but certainly also a response to the record TV inflation seen in the UK. Combined with its eroding reach and ROI, reducing investment in linear TV could by far become the most common path for marketers to take in order to reduce their expenditures.
Often this will be in favour of digital video or connected TV (CTV). The latter shows a strong return on investment - with providers such as Netflix opening up new avenues for viewers and advertisers alike by adding ad-supported offers to their service.
But once again, finding the right balance is key. Especially in times of uncertainty, linear TV remains one of the strongest performing channels for both short- and long-term sales impact. Despite an often lower ROI, there are very few other channels currently in the UK that have the reach and can absorb the investment of TV.
Look at the full picture
Marketers need to take into account that times are constantly changing and decisions are never just black and white. The lines between brand and performance are not always clear and can converge in certain channels.
It is therefore crucial to carefully balance activities with clear goals in mind for each. And to then measure marketing and all other commercial factors of the business holistically to truthfully attribute wins and losses to tactics, channels, campaigns and messages - ultimately leading to long-term success.