How focussing on ROI might kill your brand (and your apples)

I love ROI (wow that makes me sound dull). It helps me to measure success by determining how profitable my investment is. It’s a good indicator as to whether I’m putting my investment in the right channels. It tells me whether my channels are performing as expected. It’s a metric that I’d be lost without.

But it’s dangerous. And its dangers are more prominent at times of heightened scrutiny on budgets.

The pressure is on. Budgets are being scrutinised. We’re expecting the public to spend less. We’re entering a recession. So how will we all respond?

My fear is that far too many companies will fall into the trap of short-termism. What the hell’s that? It’s when organisations gravitate towards sales activation behaviours. They use persuasive messaging to generate sales now, rather than focussing on influencing future sales.

But, if we’re generating sales now, surely that’s a good thing, so what’s the problem!? Generating sales is a good thing. I’m not disputing that. My concern is that we become too focussed on the now and we forget about the future. Forgetting about the future is never a good thing; look at the state of our planet because we’ve been too wrapped up in the now, rather than the future. With marketing, when you focus on the now, you get results, in the form of return on investment (ROI). If you can generate a strong ROI, you know your efforts have been effective. But just because you’re getting immediate results, doesn’t necessarily mean you’re spending efficiently. So, you can have effective marketing, that isn’t efficient.

I’m going to say something that might not make much sense: If you optimise towards ROI, you’re likely to waste spend. It doesn’t make sense because if your return on your investment is strong, surely, you’re winning? Wrong. Think about it. Let’s take PPC by way of very basic example; If you’re focussed entirely on your ROI, you will use tactics that make that ROI stronger. You might for instance, be using brand terms in your PPC campaign. You might put higher levels of investment against the cheaper keywords (Brand terms are usually cheaper), and you’ll see your cost per click go down. If you can lower your average cost per click, the return you make on your investment will be stronger. It appears you’re winning. But in reality, if someone’s searching for your brand, they’re likely already familiar with your brand, and would likely click on your organic search listing, if the PPC ad wasn’t there. (I’m not saying you shouldn’t bother with brand PPC; there are good reasons for running brand PPC but if you’re using brand PPC for a different reason, track those results separately so as not to muddy your campaign picture). In making your campaign results look stronger, you may have just wasted some of the campaign budget on an existing audience. That’s not efficient. But it is an easy trap to fall into if you’re focussed on immediate results.

Scale the PPC example across other channels, and you start to see decisions being made where only investments with high rates of return are selected. This means that other investments, that might reduce ROI, but could increase the value of the business overall, start to become rejected.

Short-termism is being compounded by the quick wins on ROI that can be achieved by digital channels and the associated immediacy of results. Most of our digital channels can give us immediate results. Perhaps that’s why organisations have come to expect immediate results. And don’t get me wrong, immediate results have their place. (I’ve been basking in the glory of the immediacy of results that digital channels can bring us for more years than I can remember!) We all need to make sales now, and we need to do so at the lowest possible cost. And so, the ability that digital brings us to monitor real time results and optimise accordingly is incredibly powerful. ROI as a metric has its place. It helps us to understand campaign performance, whether we’ve got the right channel mix. But it needs to be used in context (are you reaching the right audience? Are they receiving the right message?) If you’re focussed solely on ROI, it’s easy to lose sight of the bigger picture.

Last year, the institute of Practitioners in Advertising released a study that you may well be familiar with ‘The long and the short of it’. If you’ve not seen it, check it out. It revealed that “long term campaigns were 200% more efficient than short term campaigns, 200% more likely to drive market-share improvement and 60% more likely to deliver profit improvement”. At a similar time, research by McKinsey was published looking at companies over the past 15 years, revealing that “companies with long term strategies experienced 47% more growth and 36% higher earnings”. So, the science is telling us that although short term strategies can deliver sales, long term investment is key to growth. And you need both; emotional priming (brand) and prompts to trigger desire (activation).

Great. So, we all know what we need to do; to drive long-term growth we need to target both existing and new customers; in addition to activation campaigns, we need to focus on brand building. It makes sense, when done right, brand building creates emotional connections, which in turn generate loyalty. To build a brand we need to uncover an emotional insight and execute it in an unexpected way, through emotive storytelling to a broad audience. Numerous studies show that those who invest more than 60% of their marketing budget on brand building, consistently outperform their competitors.

But I’m not convinced that that is what we’re all going to do right now.

We’ve seen from previous recessions that as pressure rises, fewer brands hold on to longer-term strategies. They get impatient. They need results now to keep them afloat. An impatience for results often leads to an organisational culture focussed around short-term outcomes. Demands on marketers for short-term outcomes are often exacerbated by targets being intrinsically linked to budget cycles. Right now, budgets are being scrutinised. As more marketers become obsessed with short term results, we start to see the demise of brand building. And it’s understandable. Brand building can take up to 5 years before you see the benefits of your efforts. Brand building will initially be less profitable than an activation only campaign. It’s a hard sell at the best of times to the powers that be, let alone during a recession.

So, I feel a bit demoralised on behalf of the marketing industry. The evidence is out there. But the pressure will likely hit harder than the outcome of any study. The reality is, that just as consumers are led by emotion when buying in to a brand, we too as marketers and business leaders’ risk being led by emotion, rather than rational thinking. When the pressure is on, emotions run high. So, we take control of the more tangible stuff – the stuff we can grab hold of right now – the short-term results. And it makes us feel good again, so we invest more in the short term. And the long term suffers as a result. We can all see it happening again. Yet we now know that the winning formula is in the region of 60% brand investment vs 40% activation investment. And we know the two need to work together. The stronger your brand, the better your results from your digital activations. Digital activation can act as an extension of you brand, and therefore strengthen your brand building activity.

For some, investing in brand-building as we enter a recession might not feel like an option. But for many there is a choice. A choice of short-term security or a turbulent short-term in favour of long-term success. Let’s see how many organisations choose to hold their nerve this time around. Or is it not a question of nerves? What do you think will hold organisations back from longer-term brand-building?

I like to think of it as growing an apple tree. When you plant a tree, it doesn’t generate immediate results. If you water the tree frequently, you know you will see results in the long term. When you pick the apples from the tree, you get instant results (you can enjoy eating it straight away), but those instant results don’t lead to future growth. If you keep picking the apples but don’t water the tree, the tree might not survive. If, however, you keep watering your tree, whilst picking your apples, your tree will continue to grow. Given the right attention, over time, the stronger your tree will get. The stronger your tree, the higher the quality of your apples.

On that note, time for a cider.

Please note: These are personal thoughts and not connected to current or past employers