A thought experiment…
You’re a start-up. With a great product and a cool name. One or two syllables. Maybe with a Q in it, or a Z.
You’ve had two rounds of funding and you’re doing really well.
Great team. Very smart and hard working.
Proven product-market fit. A loyal user base. Solid growth.
Ready to light the touchpaper, drive growth to the next level. Fire up the Rocket Ship.
Performance Marketing has got you to where you are today. You’re very good at it. But a few people, including your investors, have told you that it won’t be enough for the next phase of your growth and that you need to invest in ‘Brand Marketing’
Which throws up two big questions:
Should I now start to invest in Brand Marketing?
If so, how do I do it brilliantly?
(Followed by lots and lots of other questions which I hope to answer for you in due course.)
In this thought experiment, let’s look at three different scenarios that might happen.
You decide to carry on and stick to what you know. More Performance Marketing. Brand is a dirty word. Old school. Bezos called it ‘the price you pay for an unremarkable product’ and he’s right. You ignore the fact he changed his mind on that and is now the biggest spender on advertising IN HISTORY.
You give Brand Marketing a go for a while, but it doesn’t work and you go back to what you know. It was crazy expensive and complicated. You should never have tried.
You give Brand Marketing a proper go and you make it work. It’s a significant investment but you worked out how to make it affordable and effective. It’s complicated and different to what you’ve done before, but you’re committed to keeping learning and improving.
(I will cover each of these scenarios across this article and two follow-ups.)
Spoiler alert: only the third scenario has a chance of glory and riches!
In this article, I will focus on the first of these scenarios and explain why relying solely or excessively on Performance Marketing will result in your growth flattening out as you hit a ‘performance plateau’.
I’m very lucky to have met and worked with lots of very clever people and to explore this particular subject, I interviewed Tom Roach, VP of Brand Strategy at Jellyfish (transcript below), who recently coined the idea of the ‘Performance Plateau’ in one of his typically brilliant and insightful articles (which you can read in full here.)
Q: So, Tom, what is the ‘Performance Plateau’ and why does it happen?
"As you put more money into (performance) channels, you begin to see diminishing returns. And so there's a sense that nothing's working anymore."
It’s something that lots of people have observed and Grace Kite and I had also observed it, which is this phenomenon, mostly in the world of performance-driven digital brands, predominantly or solely using performance channels, and often optimising to ROAS (Return on Advertising Spend) or that kind of metric. They reach a peak and begin to flatten off and can't quite work out what's happening. It seems to be something that happens when you've maxed out a number of different channels. And as you put more money into those channels, you begin to see diminishing returns. And so there's a sense that nothing's working anymore. And you're not growing as well as you might anymore. And that is what Grace had seen in her econometrics work. I'd seen it happen more anecdotally from clients. And I've heard people who are really into activation on Facebook and those kinds of channels, have corroborated it. For me, this is something that does seem to happen.
Is this something that also affects large, established businesses?
I think it can be. For example, you see big businesses like AirBnB making a big noise of the fact that they’ve gone too far towards performance activity and now they’re rebalancing. We’ve seen a couple of stories like that recently. It’s not usually the same for early stage start-ups, but I do think something similar is happening. There is a bit of a reticence to do anything that they see as ‘brand activity’ and within some of those businesses, ‘brand’ is seen as a dirty word. And that is a bit of an alarm bell - when you have a business that has a founder or leadership that is brand-sceptical or brand-phobic.
Why do you think that for some people brand is a dirty word?
"I think it’s interesting that Jeff Bezos has very much changed his mind over the last few years and they're the biggest investors in TV in the world today."
Lots of reasons. There are lots of myths around the profligacy of advertising and many see it as a ‘tax on a poor product’ which is something Jeff Bezos once said, and it still resonates in that world. This idea that using advertising is a sign that you don’t have a great product in the first place, and you don’t have that virality or word of mouth. But I think it’s interesting that Jeff Bezos has very much changed his mind over the last few years and they're the biggest investors in TV in the world today and they do Superbowl ads. And they have a huge advertising business of their own. It’s an exciting story because they’ve learned from their own data about the power of advertising, and in particular brand-building advertising, which they have now become very good at.
How do start-ups know when it’s the right time to start investing in Brand Marketing?
It’s hard to say, but the most obvious one is if they’re not growing as fast as their categories and they’re seeing an underperformance. When they put more money into existing channels that they know and love and it’s not getting the return. The efficiency of advertising in those channels is now declining. That can be a sign that it really is time to start branching out and using other channels. So, the main signal is that things just aren’t working as they should be in terms of top-line growth, but also the return they’re getting on their existing communication is declining.
So, what do businesses need to do to get past this plateau and drive more growth?
"The thing that seems to be very hard, is convincing yourself and your leadership that this is right thing to do. "
There are some obvious solutions like doing some brand advertising and sorting out what your brand proposition is, what the right channels are to use and the right audience to go after. And those things are relatively very easy. The thing that seems to be very hard, is convincing yourself and your leadership that this is right thing to do. And I suspect the length of time businesses seem to sit on that plateau is directly connected with the amount of internal persuasion and internal unlearning and rethinking and relearning of things that needs to go on. At least in the UK, we do have organisations like the IPA and experts like Binet & Field and a databank of learning that we can look to, and rethink how things should work.
Businesses need to give themselves their own philosophy and create a model of how things are going to work.
Gousto is a great case study for this. They found themselves on a sort of performance plateau and they went through a process of building a new model for how communication was going to work for them. And it was going to be about using brand communication to create a new, larger reservoir of future customers. And that reservoir can be activated through more performance activity. That created a virtuous circle of new customers who have been primed and warmed up and may be more familiar with the brand. That's creating a new model entirely for how you think things are going to work. But that really does require a leadership that are totally up for it. I think there are many marketing people who are frustrated because they have leadership and founders often who just don't believe in it and they almost talk about it like it's an article of faith.
So, it’s about more than just advertising. It’s about having the right culture and mindset. And agreeing the right KPIs for your teams, right?
Yes, getting KPIs and incentives right is crucial. What I see a lot, is where a brand team is incentivised on one set of metrics and the performance team are very separate and incentivised on a different set of efficiency metrics and they can often be competing with each other. So you have two parts of a machine that have to work together but are incentivized very differently. I think it goes right to the root of how you set your teams up and how you organise people and what they’re incentivized to achieve within one coherent marketing effectiveness framework, so they’re working together, and not competing against each other.
Thanks, Tom. It’s been great talking to you and understanding more about the ‘Performance Plateau’!
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So, hopefully I’ve done a decent job of explaining why scale-ups that have grown through performance marketing need to evolve their approach and mindset to drive future growth including investing in Brand Marketing. And if I haven’t, I’m sure Tom has!
In the next article, I’ll explore the things to watch out for if you do decide to embark on the Brand Marketing journey. By doing a ‘pre-mortem’. It’s a bit like ‘blame-storming’ but without making people cry or get fired.
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