The marketing industry has many similarities with Wall Street, namely because marketing is essentially an investment based on risk tolerance, goals and the quest for a bigger overall return on your investment.
Additionally, the hallmark of any investment is futurity, which is equally as important to the field of marketing as it is to finance.
Today, CMOs face an increasingly dynamic, complex and challenging marketing environment, as new kinds of media have grown in importance. The evolution of digital—mobile, social, search, etc.—has created new opportunities for brands to reach and engage with consumers moment to moment.
But this also has CMOs feeling more and more pressure to produce instantaneous business results and a measurable ROI, which has led to an increased focus on short-term KPIs—and myopia. As the renowned marketing consultant Peter Field has put it, “The single greatest threat facing marketing at the moment is short-termism: the dominant focus on this period’s or quarter’s sales.”
Results today vs. growth tomorrow
Although the focus on short-term and tactical results is essential to ensure that marketing spend is more agile, responsive and targeted than ever, it should not distract from looking at the long-term strategic view. Marketers must still prioritize long-term plans and strategies if they want to retain and grow their market share and customer base over time or risk eroding their long-term brand equity, often beyond recovery.
Evidence from several published econometric studies—econometric modeling’s main goal is to help make smarter investment decisions to maximize the effectiveness of marketing strategies—have shown that advertising has a long-term impact on sales. However, these studies provide different views on the size of the long-term effect (often called the long-term multiplier or the LT/ST ratio) relative to the short term, ranging from 1x to 14x. Short-term initiatives are, in fact, more effective at stimulating transient sales effects, but they deliver weak long-term growth.
Long- and short-term advertising investment strategies are both valuable and need to be part of the bigger marketing picture. However, short- and long-term effects fundamentally work differently, as they’re designed to achieve different goals. Although long-term strategies always produce some short-term results, the reverse is not true and long-term effects are not simply an accumulation of short-term effects. In fact, marketing efforts that lead to short-term sales growth often inhibit long-term growth. As Peter Ducker has put it: “Long-term results cannot be achieved by piling short-term results on short-term results.”
Maintaining a 60/40 ratio
Based on several published economic studies, marketers should have a 60/40 marketing investment ratio in terms of long-term (brand building) versus short-term (sales activation, to provide a response mechanism to capitalize on the effects of the brand-building activity) in order to achieve maximum efficiency and effectiveness. However, the LT/ST ratio depends on a number of factors—brand size or market share, category, competitiveness of the market, purchase cycle, media channel, creative messaging, and seasonality of the product. The 60/40 ratio rule hasn’t changed over time, although there are many critics in today’s changing media landscape who would evangelize for a shift away from brand-building channels (with little evidence to support such a strategy).
More often, CMOs are rapidly shifting from one tactic to another, chasing short-term sales. Would you do the same with your long-term financial investment plan? No, because the full financial return from marketing investment is rarely immediate. Additionally, nobody, except maybe the most aggressive investors, expect to see a huge ROI in the short-term (in 6 months or 1 year), so why do we expect this from marketing investments? Warren Buffett is known for saying, “The stock market is a device for transferring money from the impatient to the patient.”
The financial investment approach
At the end of the day, instead of choosing between long-term (brand-driven growth) and short-term (sales activation) marketing efforts in any strict sense, the goal should be to establish a finely tuned balance of investment styles with a diverse but balanced mix (portfolio) of marketing activities (asset classes). This provides a foundation of stable investments, while managing a brand’s risk marketing tolerance, to help accomplish specific goals.
The key is to build a marketing plan that values and achieves short-term and long-term marketing strategies simultaneously and in collaboration, balancing the two with some overlap (think Venn diagram: some brand-building ads also drive short-term sales, and some ads that harvest demand drive long-term brand results). Meaningfully integrating brand building with sales activation can lead to larger brand effects, business effects and overall efficiency than either branding or activation alone.
Since the world is constantly changing, it is important to monitor investment strategies in an ongoing fashion. While it is important to set long-term goals that promote the brand mission and vision, it is equally important to remember to be agile and adapt to business priorities as they change and evolve over time.
Create a new mindset
CMOs must invest in patience, as growing brand equity simply takes time. However, it’s a challenge when the average tenure among CMOs is decreasing. The executive search firm Spencer Stuart reports the median tenure among CMOs was 26.5 months in 2015.
The intensity, the pressure and the demands on CMOs to quickly and immediately provide ROI on marketing investment instead of focusing on a long-term brand-building vision is leading them to prioritize short-term results (potentially for job security).
CMOs need to begin looking at marketing as a financial investment, with a measured, balanced and logical investment strategy, investigating the risk potential, growth expectations, and their portfolio as a whole, in order to meet the goals of the business.
George Musi is svp, head of analytics and insight at Blue 449.