The hidden costs of performance marketing
Opinion
When marketers focus on short-term revenue-harvesting, it causes them to take their eye off the ball when it comes to driving longer-term business success.
As the Peter Drucker aphorism goes: what gets measured gets managed.
With the emergence of more digital channels and more data to track over the past two decades, combined with tightening budgets and increased financial scrutiny, many marketers feel pressured to focus their efforts on performance marketing.
Look at most marketing job ads these days and performance marketing, more often than not, is highlighted as a key skill.
But have we got carried away with this focus?
Yes, we have. And here’s why.
Creating demand vs harvesting demand
Where marketing is fundamentally about the science and art of creating demand, performance marketing has pushed the discipline into the space of harvesting demand.
On the face of it, this doesn’t seem such a bad shift and it gives internal brand stakeholders a comfortable lever with which to manage marketing. However, the cost of an over-emphasis on performance marketing may do your brand more harm than good.
Performance marketing is more akin to sales than it is to marketing. Where sales’ focus is on “closing the deal” and generating revenue, marketing is about driving longer-term sales growth.
As a function of harvesting demand, performance marketing is an uncomfortable bedfellow of marketing and marketers.
It forces marketers to focus on short-term revenue-harvesting, causing them to take their eye off the ball when it comes to driving longer-term business success.
Short-termism
The fact that suppliers of digital marketing channels emphasise return on investment, combined with marketers increasingly having to prove the value of their efforts, drives this short-termism.
Facing financial pressure in a more volatile economy, chief financial officers and CEOs understandably question the value of investing in long-term efforts such as brand-building that are harder to track or ascribe attribution metrics to.
Within this context, the emergence of performance marketing has tied the success of immediate sales performance to the longer-term focus of marketing.
Consequently, marketing has been backed into a corner of driving and activating sales channels, as opposed to understanding and responding to the needs of consumers.
The short can’t deliver the long
I don’t want to completely slate performance marketing.
Done well, it can be extremely effective. Particularly for more immature brands with aggressive, immediate growth challenges, performance marketing can play an important role in a company’s strategy.
But a word of caution: you will hit a plateau.
And quickly, if you haven’t focused on the longer term by investing in building your brand.
By focusing purely on demand-harvesting, businesses are diminishing the value of their most important asset, their brand, and risking getting trapped in the short term.
Even brands like Nike fall prey to this trap. Nike began to lose its way in 2020, when it came under new stewardship and transitioned to becoming digitally led — only to hit its lowest share price since the pandemic this year.
The culprit?
In a nutshell, it was Nike’s fatal mistake of shifting its effort from creating demand to retaining demand — from investing in brand-building to over-investing in problematic programmatic advertising and performance marketing.
So powerful is the lure of data that even giants like Nike end up investing in less effective but easier to measure marketing approaches versus more effective but harder to measure brand-building strategies.
It isn’t surprising because, particularly in times of crisis, businesses often mistakenly deprioritise long-term brand-building in favour of short-term revenue-harvesting.
But the reality is that the short can’t deliver the long, but the long can deliver the short.
Not a deterministic science
As Ehrenberg-Bass has taught us, growth comes from attracting many new or light users into your brand, rather than focusing on a few heavy users. The Nike example shows that consumer loyalty simply isn’t a source of growth.
The lesson here is that marketing isn’t a deterministic science. However, as a rough rule of thumb, marketers should adopt a ratio of 60% long term and 40% short term to ensure their strategy enables them to build the long term while growing the short term.
Brands that have this well-embedded in their marketing strategy are the likes of Procter & Gamble, Coca-Cola and McDonald’s — building from big brand platforms to grow demand.
The lesson other brands can take from these giants is that, yes, data is brilliant and you shouldn’t ignore it, but it can also drive you down a narrowing funnel of focus.
By being so binary with their approach, businesses will create a massive rod for their own backs as short-term-sales-oriented marketing squeezes their long-term profitability and brand salience.
The real approach should be a combination of brand-building and product-driving.
For example, Booking.com — whose market share was built aggressively through performance marketing and search — has increasingly focused its efforts on establishing its brand beyond just ubiquitous presence.
Performance marketing and brand-building can live harmoniously together. But, faced with continued pressure for immediate sales growth, marketers will need to keep their spines well and truly straight and remind stakeholders that to focus on performance marketing is to do so at their own peril.
Marketers would do well to remind them of the hidden but inevitable costs this will bring to their brand.
Wander Bruijel is senior partner at Born Ugly