Volume 195: Underperformance Marketing.
Underperformance Marketing.
tl;dr: ‘Data-driven’ execs fail to follow the data.
Many moons ago, I met with the highly caffeinated founder and CEO of a well-known DTC brand. During a 30 minute brain-dump at 2X normal speed, he shared a conundrum I’ve thought of often in the years since:
“It’s really easy to go from 0-$10m in revenue and it’s really hard to go from $10m-$100m.”
I didn’t know it then, but this was my first real contact with the simple reality that so-called ‘performance’ marketing has mathematical limits, beyond which it quickly turns into diminishing returns and then ‘underperformance’ marketing. Nowadays, of course, we all know that in order to be effective we need to combine performance tactics and brand marketing activities; there have been oodles of academic studies, industry reports (this is a good one, btw), and anecdotal stories proving it, and the answer is always the same: Do both, ideally without too much seperation, since interconnection multiplies greater than disconnection.
The reason why this works best isn’t even complicated; in fact, it's entirely simple and logical: People overwhelmingly buy from brands they’ve already heard of, 95% or so of these people aren’t in the market for any given product at any given moment, so, to maximize our chances of them buying from us rather than a competitor, we first want to establish what some call “brand preference” and others refer to as “mental & physical availability” so that our performance marketing is better able to do its job later. And this principle works exactly the same in both consumer and B2B markets.
But here’s the conundrum part of it: If the underperformance problem with performance marketing-dominant advertising strategies is so obvious, the data proving it so overwhelming, and the negative effects so debilitating, how come all of the signals that matter point to corporations reducing marketing spend overall while rebalancing what they do spend in favor of performance tactics at the expense of brand?
Similarly to the rise of Measureship as a management philosophy, there isn’t a single force to explain this that we can point toward, but several, all of which feed upon themselves:
Measureship incentivizes tiny incremental numerical uplifts and ‘data-driven’ decision-making, which is only possible to measure granularly enough in the digital, surveilled, environment, where performance marketing is king.
Finance is increasingly being asked to allocate the firm's scarce resources toward value creation, but is doing so through a lens of short-term accounting efficiency rather than long-term growth effectiveness, which radically over-states the value of performance marketing and understates the value of brand.
Brands are being deprecated as strategic assets by leadership teams and boards that are increasingly non-marketing, non-brand savvy, and don’t realize their brand’s potential to become an economic moat.
A chaotic 15-year FOMO-driven sprint toward digital advertising, tech stacks held together with baling twine and duct tape, channel fragmentation, data complexity, snake-oil selling intermediaries, lies (too many links to share), bullshit, and nonsense obscuring reality behind a facade of “massaged” and vanity metrics.
A new generation of ‘growth marketer’ (a re-labeling of someone who understands performance tactics and pretends to understand brand too) rising into the CMO role, often from a technical background, whose primary skill is running optimizable performance-oriented playbooks, which means they lack the knowledge, experience, and systems to run brand-focused activities effectively. Worse, while they understand how to execute a playbook, they often don’t have a strong grasp on how marketing works and how consumers buy, which means they struggle to adapt these playbooks as they become played out and stale.
Believing the big-tech brand propaganda (ironically) that inefficiency is the greatest sin in marketing and that their version of advertising magitastically solves both efficiency and effectiveness problems. Provable via the dashboards they give you that grade their own homework, rank their ad-products first for, well everything, and handily ignore all non-digital signals as irrelevant…wait, wut?
Placing too much emphasis on building products that are so good they “sell themselves,” which means you don’t need a brand, and the only goal of product marketing is to use performance techniques to get the product in front of people who will, of course, immediately buy a product that’s just so, so, so incredibly, unbelievably good, just by being exposed to it. This attitude is a fast track to bankruptcy, but there’s just enough survivor bias out there for a zombie idea without merit to hang on in engineering circles because it’s emotionally soothing. Which is ironic considering these same engineers pride themselves on their rationality in decision making. Sorry to burst anyone’s bubble, but having a great product these days is the cost-of-entry, not the driver of success.
And finally, because the people engaging in ad fraud know precisely how to make their bots look sexy to a marketer once they’ve been stripped down to their too-good-to-be-true (because it isn’t) one’s and zero’s-lingerie.
The above boils down to a sad reality faced by many in marketing today: It’s become a game of measurement theater, increasingly disconnected from logic and common sense, where maximizing the short-term financial efficiency of advertising tactics has become the only goal rather than value-creation, effectiveness, or contribution to enterprise value. Worse, because it's become a game of measurement theater, at least 50% of the job has now devolved into an exhausting game of prove-you-create-value rather than being enabled to do the very hard work of creating that value.
And, let’s be crystal clear, marketing is hard work. Irrespective of how well we may know the theories of what should work, marketing is hard, customers are fickle, customer markets are open and complex, competitors are unpredictable, marketing outcomes are often non-linear, and ‘cutting through’ remains the exception rather than the rule. Anyway, that’s a conversation for another day. Let’s get back on track.
Net, net, “Houston we have a problem”—a big one. While we know that a decisive shift toward performance marketing at the expense of brand will lead directly to economy-wide underperformance and diminishing returns, corporations are doing it anyway. Unfortunately, because the forces that got us here are so powerful, rational arguments and common sense aren’t likely to get us very far in changing minds, especially considering the ‘attention economy’ we’re now living in, which thrives on overly simplistic low-context binary catfights. Instead, we need to make a different, more emotional case to try and cut-through. I’m not sure this is right, but here are some arguments around the theme of “underperformance marketing” that might be useful:
Heed the SaaS death-rattle.
During the ZIRP era, two classes of corporation gorged themselves on performance marketing at the expense of most everything else: SaaS in B2B and D2C retail in consumer. Today, both classes of corporation have flatlined and entered the “valley of death” where diminishing returns have kicked in hard, growth has stalled, digital landlord tolls are ever more value-extractive, and they’re spending more to stand absolutely still. (As an aside, this is why SaaS corporations are so hot on AI as a means of increasing marketing efficiency, but it’s a fools errand. The problem is the tactics are ineffective, not that the spend is inefficient) Anyway, businesses should carefully heed what happened to these firms first, before making any commitments to a performance-dominant marketing stack.Take charge of your own destiny.
The big tech business-model is akin to that of a drug dealer. It wants your business to become dependent upon its ‘performance’ advertising products so that it can become your feudal digital landlord in perpetuity. (Unlike brand advertising, there aren’t any longer term uplifts from performance spend. It only works while you spend money on it). This is why the Booking.com annual report historically lists dependence on Google as a material risk to its business. Think on that. Why would a $165bn corporation like Booking list Google as a material business risk if Google was its friend? Simple, it’s not your friend. It’s a value-extractive monopolistic vendor. And, like any other vendor, use it with eyes wide open, on your own terms, and whatever you do, do not become dependent upon it, or any of its cousins. I guarantee that if Booking could go back in time and change things, it would.Choose your inefficiency wisely.
When the AdTech Industrial Complex weaponized inefficiency as a means of shifting ad budgets from traditional channels to digital, it conveniently forgot to tell the whole story, which is that A. Marketing, like every other aspect of business has an inherent level of inefficiency that will never be eliminated, and B. Not all forms of inefficiency are created equal. In the performance camp, inefficiency boils down to two things: First, intermediary fees and ad fraud, which mean that as little as 50c of every media dollar makes it in front of an actual human being, sometimes a lot less. Second, that there is zero long-term uplift from performance advertising alone. In other words, when you’re spending on it, you see results, but as soon as you stop spending on it, performance drops to zero. With brand-spend, on the other hand, the inefficiency is more likely to come in the form of too many people seeing your ads rather than too few. Namely those who either aren’t in market right now, or who may never be in market for you at all. While performance and brand spend both have inefficiencies depending on how you measure, it makes sense to lean in the direction of additional reach, which brings the potential for longer-term value, than wasting too much money on intermediaries that can’t even get basic targeting right in serving an advertising product that has no longer-term value at all.Don’t be boring, entertain.
From the early, heady, anything is possible days of the web then app economy, it’s striking how lazily marketers now treat the digital environment. Pursuing low-value performance tactics long after diminishing returns have kicked in, ignoring obvious problems like signal loss, and how traffic to certain parts of the open-web has been decimated by users turning to GenAI as an alternative to the unusable hellscape the Internet has turned into; ironically, caused by marketers and their big-tech slumlords pursuing efficiency at all cost tactics.Instead, we need to expand our idea of what is possible, and use our business-imagination to radically rethink how we might build brands online. Rather than look to AdTech for answers, I’d be tempted to think more about the intersection between the world-building prowess of top brands (think Ralph Lauren, Apple, Nike) and the creative energy we’re seeing in the creator economy. The platforms and the audiences exist, it’s up to brands to be engaging and entertaining and world-building enough to be paid attention to. (And yes, if this is starting to sound awfully similar to the historical genesis of the ‘soap opera,’ that’s because it is).
Want value, think contrarian.
One of the things that’s been lost to time is that much of what we now lump together as ‘performance marketing’ originated from the programmatic selling of what was back then labeled remnant inventory, very cheaply. The first users of these new advertising products were largely startups. Some of these startups then grew very large, and we (somewhat falsely) viewed their mastery of this cheap digital media as a key reason for their success. As a result, use of such tactics expanded exponentially, becoming more expensive as the laws of supply and demand kicked in. Today, while a whiff of this value remains, like the faint smell of cheap perfume on a collar, it’s mostly rhetoric. Reality is the opposite. Nowadays, we increasingly find highly surveilled online media reaching the point where the cost/benefit has moved into reverse.Instead, value for money increasingly lies in non-surveilled, so-called ‘traditional’ media channels. While I’m not at all underestimating the reality of cord-cutting, the fact is that a lot of money can still be made in declining markets, and that goes for media too. If the likes of TV, radio, etc., become cheap enough, then the fact that an audience may be declining will matter much less than its relevance to your brand. After all, the idea of finding value for money is all about arbitrage - paying less for something that offers you greater value. And if arbitrage is the game you want to play, performance channels are no longer where you want to be playing it. Instead, you must be contrarian, and move opposite to the crowds. I’ve said this for a while now, but there’s a very good chance we’ll see a ‘next big startup’ grow using traditional media, rather than performance channels, solely due to this value reversal.