Performance marketing mania ‘putting growth at risk’

As marketing is increasingly steered by algorithm-driven media and AI-generated creative, many businesses are ploughing far too much spend into performance marketing and missing out on significant revenues and profits by continuing to ignore the data-driven case for building equity for tomorrow, while driving sales today.

That is according to a new report, “The Multiplier Effect – a CMO’s Guide to Brand Building in the Performance Era”, which is designed to help marketers better understand how to deliver high-impact advertising.

Based on insights and data from a first-of-its kind coalition of marketing effectiveness experts, the report is published by WARC in partnership with Analytic Partners, BERA.ai, Prophet and System1.

Backed by evidence, it argues that many businesses suffer from an incomplete approach to advertising, and offers advice on how advertising can deliver the best possible returns.

The study highlights how, over the past decade, advertising investment has increasingly become focused on performance advertising due to the rise of digital-native businesses, a bumpy economy, a fragmented media landscape, and the related shifts in consumer media consumption.

Performance advertising holds out the promise of immediate returns and near-endless optimisation. But misleading metrics and diminishing returns mean many marketers risk diminishing the impact of their advertising by over-investing in performance and entering the “doom loop” of slow growth and declining effectiveness.

Research by Analytic Partners reveals the greatest payback comes when performance-led and equity-led advertising are both part of the mix. Moving from a performance-only to a mixed approach can deliver an improvement in total revenue ROI in the range of 25% to 100% – with the average uplift coming in at 90%. Moving to a performance-only approach from a mixed approach, by contrast, results in an average decline in ROI of 40%.

System1 found that 92.1% of strong equity-building ads with impactful creative performed well in the short-term, too. These ads created both demand among consumers who are ready to buy as well as building long-term equity.

Meanwhile, Prophet’s survey of 300 leading marketers in North America further reinforced the need to do both performance and brand advertising in a holistic way.

Its survey identified the qualities which set over-performing companies apart – and it was not their spending patterns, which remained largely even across the “winners” and “losers”. Some 90% of “winning” companies were at least somewhat integrated when it comes to connecting brand and demand.

The report claims that evidence shows the key to unlocking the power of brand building is to move away from conceptualising brand and performance as separate activities (brand + performance), and instead basing advertising efforts on the fundamental co-dependency between these tasks as part of an integrated growth strategy (brand x performance).

Marketers wanting to consider the implications of the co-dependency between brand and performance on their advertising and benefit from The Multiplier Effect should consider a number of best practices:

For budgeting purposes, for instance, CMOs should be allocating at least 30% to equity-driving ads, or the “brand baseline”, with 40% to 60% a typical “best practice” range.

And, while search investment will vary by brand and category, for most brands, spending more than 25% of budgets on search should be a red flag. This is called the “search ceiling”.

Marketing chiefs should also avoid thinking in silos when campaign planning; instead, think of full-funnel creative platforms, where different types of assets reinforce each other. The ideal is to “go deep” by integrating all creative assets within a platform.

Finally, CMOs should build a “measurement stack” that can identify a brand’s “baseline” revenues and the incremental impact of advertising beyond it.

WARC Americas Editor Ann Marie Kerwin said: “As we look to continue the project through further rounds of research, there are still a number of questions to answer, such as how does advertising combine and align with other forms of activity to build equity, how do advertisers optimise creativity and how do marketers present this argument to the CFO.

“Ultimately, we need a model for building brands that is fit for the future of marketing. Recognising the Multiplier Effect is an important first step.”

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