Balancing Budget Between Brand and Performance Marketing

Today on Stacking Growth, we have the final part of our summer brand measurement event featuring Matt Chinella and Dale Harrison. This is part three of three. We're releasing them in part so you have a chance to really engage with the information presented. Today, they're covering recommended budget allocation between brand and performance marketing, the differences and execution between newer and mature brands, the dynamics of memory decay, and they answer audience questions. Hope you enjoy! Let's talk about budget allocation because this is what everybody came for. A hundred percent performance ad means you don't get into that all-important day one consideration set, but a hundred percent brand ad means it's like not having your brand to serial on the shelf in the serial aisle when they're ready to buy. It means that you've lost a lot of opportunity at the moment that someone's ready to make a purchase decision. There's a Goldilocks solution in the middle. The best research we have on this comes out of work done by Lesbinae and Peter Field out of the IPA, so the Institute of Practitioners and Advertising, which is an old-old industry organization in the UK. They looked at a mix of B2C and B2B companies of different sizes, different product areas. What they found was what they called the 60/40 rule is the optimum, which is basically, and again, this is across B2B, B2C, big company, small companies, all different kinds of products. This is kind of a weird blended average, but what they saw was 60 percent of your budget should go to brand, 40 percent to marketing. For B2B, it should be somewhat closer to 50/50, but the problem is this is not a one-size-fits-all, and it's something that really has to be adjusted for where your particular brand is in its life cycle, and this makes a huge, huge difference. So if we sort of dive into the nuances of the 60/40 rule, this is a very, very important slide. So brand is less effective for long-purchase cycles, and the reason for that is that if someone remembers your brand for, say, one quarter, you know, the senior brand to add, they remember it for one quarter, but it's going to be three years before they come in market. A lot of those people have forgotten you, which means that sort of translating that brand awareness into future sales, these brand ads are less efficient, which means we need more of them to be able to achieve the same level of kind of awareness of the brand of people coming in market. So this is a very counterintuitive concept that because it's less effective, you know, we need more of it, and the effectiveness is being driven by a long purchase cycle instead of a short purchase cycle. Because again, if you remember something for a month, but you're buying it weekly, then, you know, then it's much more likely that you're going to, you know, that prior memory will still be there on the next purchase cycle. But if you're going to remember it for, say, three months, but it's going to be five years before you rebuy, you're going to have to go back and refresh that memory, that memory association multiple times in that one buyer before they come in market. So, so this is that interplay between long purchase cycles and short memory decay. And this becomes really important in terms of that allocation. So B2B purchase options for in-market buyers, you know, lack the easy access and the visibility of retail shelf space. So, you know, so this is also one of the reasons that you need to try harder as a B2B brand to reach that in-market buyer. So again, if I'm looking to buy, you know, a brand of yogurt, I go to the grocery store and I see all of my options in front of me on the aisle. There's not any equivalent of that really in B2B, which also means that we've got to, you know, we have to work harder on the performance ads to be able to reach people to give them that option. So, so one of the issues as well is newer versus material. So recently launched brands are going to need more performance ads. So more of the budgets toward performance. Part of this is because the sales team needs people actively in the sales process. And, you know, and the other thing is that mature ads, mature brands, you know, have had a longer time to refresh memory, you know, and those memories require fewer ad exposures to be able to refresh. So there's a real difference between a mature brand and a, you know, and a new brand, you know, especially in terms of the amount of performance ads that you need to run, you know, primarily because of kind of sort of business constraints. The, the other thing is what I call fast versus slow. So long sales, long purchase cycle products versus short. So, you know, again, if you're only buying something once every five years, you have a long time to forget those the brand ad that you were exposed to before you were ready to actually come in market and that that brand awareness to have commercial value for the company. For fast purchase cycles, so think printer-ing, you're much more likely to have residual memory from the, from the prior buying cycle, you know, and less time for memory to decay to kick in. So, you know, so generally if you have a slow product, I mean, long purchase cycle, you're going to need more higher percentage of brand investment versus performance. And so here is some sample splits for different types of products that are kind of slow and fast. So, you know, for something like an enterprise SaaS platform, it's probably closer to 7030 because you're having to keep reminding people because it's going to be, because you don't know who individually is coming in market. You can't magically get your ad in front of just people who are going to come in market in the next six months. All you can do is sort of reach as broad an audience as possible. And so, you're going to need more brand-less performance for a very long purchase cycle product like an enterprise SaaS platform. Yet, there's a similar thing with live insurance, long purchase cycles on this. Consumer package goods much shorter purchase cycle. You know, things like fast fashion, you know, where you got really quite short purchase cycles. You've got a lot of brand memory from the last purchase or the last, you know, purchase process, even if they didn't buy you, they will have been likely been exposed to your brand. So, again, you've got a car. A car is a very long cycle. Typically, you know, five to seven year purchase cycle, you know, certainly in the US for purchasing a new car. And so, and you see this with, you know, the big car companies, they spend an enormous amount of money on brand ads for TV trying to reach a broad audience because they know they have to keep reaching them over and over again because it's going to be so long before they buy that they have to keep reminding them. So, what's right for you? And this is the important part is that the reality is there's no simple one size fits all answer. You know, so you'll hear people talk about the 6040 rule. It's a vague number. I mean, that is kind of a mixture of a lot of very different sorts of brands and companies. It is not going to match you. So, you got to think through, am I a new brand? Am I an incumbent brand? It's been there for a long time. Am I a fast brand? A slow brand? How likely is it that someone is going to forget me before they come in market? These are very important. But a good baseline to start with is about 50/50 brand versus performance. Slow purchase cycles, you need more brand. A younger product, you're going to need more performance. Too much of either is going to reduce, you know, your revenue potential. Some of this we've already covered before, so we don't have to go through this, but it's just a couple of slides. So, so, a few rules for kind of integrating the brand and the performance together because they really have to go hand in hand. Is you need integrated, integrated, integrated creative? So, there really needs to be a single agency handling created development for both brand and performance. You cannot farm this out to different agencies and hope for it to work well. You know, because again, that performance ad needs to show you the things that they already showed you previously in the brand ad so that it can trigger those memories by representing the same stimulus to you. The other thing is consistency. So, the look of the performance ad should be immediately recognizable for anyone who's seeing the brand ad. So, and again, this is very, very important and it's why bad brand ads can wipe out your investment. I'm sorry, bad performance ads can wipe out your investment in brand marketing. The other thing is stability. If we're constantly refreshing the creative, we tend to it tends to wipe a lot of the usefulness of the prior brand memories because what What we want to do is to show them something that's visually or if we're using like bumpers or stingers or jingles, something that's is auditoryly very close to what they were previously exposed to because the closer we get to the original stimulus, the more likely we are to trigger the memory. The other issue is that, and you see a lot of kind of especially in B2C, this is a bad problem where they do what they call pulsing. They'll have a big brand campaign that runs for three months and then they won't spend any money for the next year, for the rest of the year. The problem is that brand ads really need to be always on because we don't get to control who sees it. We put it that into the world. We don't know whether all the people who happen to randomly see it, even if it's perfectly targeted, we have no idea which of those are going to be buying next week, next month, next year, five years from now. We need to constantly be out there refreshing those memories and especially for long purchase cycle products like B2B, Enterprise CRM or SaaS products where you have a multi-year time lag between purchases, you really need to be always on. The other thing is reach. Broadrage for brand ads because every buyer you missed is a buyer who doesn't know you exist. No company has enough cash to reach everyone in their ICP but you want to take the cash you've got and spend it preferentially for reach versus frequency because if I show the same person, my ad 50 times in the next 90 days, that means that there are 49 people who didn't see the ad at all because I spent the money on that one person. I'm better off showing the ad once to 50 people in the next 90 days than I am to show the ad 50 times to one person in the next 90 days. There is this preference for investing the money toward broad reach over frequency but you still have to have some level of frequency. You still have to come back to them every few weeks or months and hit them again with your ad to be able to refresh those memories because the memories are not forever. This is a really interesting point. I want to circle back to the reach thing because we talk about reach and we talk about frequency but also impacts. To me, the channels that you choose to distribute and run advertising on because you look at channels like LinkedIn which I know get championed a lot as the pre-eminent B2B advertising channel and for all the intents and purposes it is but it's also an intentionally a low reach channel by and large. It's not a channel where while you can have a lot of domain or retargeting, it's a channel where you're not going to get a tremendous amount of audience penetration for your entire audience compared to channels like Reddit or Meta or YouTube even. I think when you talk about reach as a goal or a metric to key in on with your advertising, I think part of that is thinking about your channel mix and thinking about what channels facilitate the most reach for me because sometimes some of the channels that get espoused are not always the ones that actually contribute to that. Well, and there's also this notion of reach primacy which is that you're always better off reaching more future buyers than fewer future buyers which means that one of the most important metrics to look at is CPM. So what's that cost per thousand to get your ad in front of a unique group? Now again, that doesn't mean you should be running super bowl commercials. Not because every person you put the ad in front of who is not a future buyer is a wasted expenditure. But again, we don't have full control over that. We're always going to have a mixture of people that are inter-ICP and not inter-ICP, no matter what channel we choose. But the idea is essentially what is the effective CPM rate for reaching our ICP market. So you can do adjustments on this. I mean, there are ways that you can do, get some estimates for this channel. This CTV channel is likely 10% of the views are likely to be people who are inter-ICP. And which means that if you're buying that channel at $2 a CPM, then the effective CPM rate is going to be $20 a CPM. Because only 10% of those dollars are going to go to future buyers. So there are ways to make these sorts of tactical financial adjustments in your channel mix. But an important metric to think about is that idea of effective CPM to reach the ICP. I want to ask a question real quick. I know we're past time, but I do. There's a couple of questions that I wanted to ask if you have time, Dale. I don't know if you do. All right, cool. So I got a question from Harry, and then I have one more question after that. But Harry asked earlier when we were going through the material here, is whether as the B2B buyer and being that they talked to sales normally later in the journey, should marketing's jobs to be done change? And I would think of this in a B2B context. Change from brand and performance to brand performance and selling at scale. I would think performance and selling is really largely the same. And I don't really distinguish much between the two, but I'm curious if you differ on that. Well, I think the real goal of the performance ad is to get someone into your sales process. Once they're in your sales process, they don't need any more reminding. It's not like they're going to have a conversation with your BDR and then completely forget about you. If you don't hear back from them, it's probably because they decided they're not going to use you. And so the thing about the sales process is that just being in, because even a very long sales cycle is still relatively short, a long sales cycle is maybe 90 days, maybe six months if it's a massive enterprise product. But a lot of sales cycles are going to be two weeks a month, six weeks. Once you're in that process, you're being exposed to multiple brands and you're simply not going to forget the ones that you're working with. You may decide that a particular brand isn't for you, but you dropped it not because you forgot it, but because you made a decision to drop it. So I think that there's obviously a place for marketing and sell support and being able to have the sort of materials that sales people cannot produce for themselves available to be able to pass through to sales people. It's not entirely clear that how useful it is to keep hammering the crap out of them with LinkedIn ads or Reddit ads. Retargeting? Retargeting. Retargeting. Because, again, at this point, forgetting is not the problem. They're gathering information and they're sort of pruning their choices as they gather information and they have access to your sales people, which means that they have access to much more specific information for them to make a decision with, then you're going to be able to do with a generic ad that you drop on LinkedIn or you drop on Reddit or something. And again, the question is always, if we did hammer them with case study after case study for the next three months, is there anything? So many of us do anyway. The question isn't whether or not that might increase the likelihood of making the sale. It almost surely will. The question is, were those resources better spent, getting a 1% increase in close rate on the people that you're targeting with in the sales process, or is it better spent reaching another 1,000 people or another 10,000 people that are future buyers? And so, I think you have to not get hung up on whether or not the thing you're doing is going to increase the chance of them buying because almost anything you do is going to increase the chance of buying just because you're paying attention to them. But is this the best use of financial resources? You have to financialize the marketing argument. So of all the ways I could spend the next dollar, should I spend it reaching someone who doesn't remember me right now, but might become an in market, or should I spend it on someone who absolutely remembers me, but it's pretty much decided they're not going to buy from me. All right, that's a perfect set. We ended up, there's last question I have from a minute from a minute. I hope I pronounced that right. And it was a really good question. So I'm going to do all the preposing as well. So he says, "psychology such as memory formation is this unique as fingerprints, but we heavily approach marketing with math." based heuristics. Are we as a practice heading down a risky route by thinking our approach can or should be driven solely by numbers? I'm parent, I'm parenthetically saying solely. So here's an important distinction that I think it's extremely confused in marketing. The internal desires and motivations and behaviors of a single individual is extremely random and chaotic. We are not in the business of controlling the behavior of single individuals. We are in the business of moving market behavior. It's literally right there in the name of the word marketing. And so we're looking at shifting broad patterns of behavior across thousands or tens of thousands or millions of people. And one of the things that we know is that as chaotic as individual behavior is, large population level behavior is highly predictable. And specifically one of the issues around this idea of what's called the Eben House for getting curve. This is research goes back 160 years and we've got literally generations worth of research at a learning theory around how groups of people remember and forget at the group level. And one of the things that we know is that it is impossible to know when a single individual will forget something. There's simply no way to model that or to estimate it. But if we have a million individuals, we can tell precisely the rate at which the fraction of that million will have forgotten within a given time period. And so this is the real distinction is that we cannot know the internal mental states of single individuals. And because of that, we cannot know exactly when or what they're going to do next. But if we look at 100,000 or a million or 10 million individuals, we can predict very precisely. And because what happens is that there is sort of emergent ensemble level behavior. So population wide behavior that is emergent at the population level, that is at some level sort of disconnected from what's going on at the level of individual decision making. The decisions are individual decisions are chaotic, but they sort of are all moving in the same direction or in similar directions as a whole. And one very good analogy with this is if you have, this is part of physics, but if you have a container of gas, every single individual molecule is randomly bouncing around off the walls, off of each other. It is literally impossible to calculate what anyone molecule will do and the path it will take. But I can tell you things about the overall container that there will be a certain amount of pressure at a certain temperature in a given volume. And because things like pressure, and temperature, and volume have nothing to do with the individual molecules in the gas, it has to do with the collection of all the molecules. And so there's a very similar thing with human behavior. Individual behavior, highly chaotic. But if we have enough humans that are all behaving chaotically, there are population level patterns that are highly predictable. Down I are going to do this again next month. We're going to be basing it more around making a defensible argument to the CFO about brand marketing, which I think is going to be a really great discussion because I know that that tends to be a super uphill battle for the marketing professionals that are in this in the zoom room with us. So hope you all enjoyed. We will get everything out to you. Dale, thank you so much for your time and your expertise and your wisdom. Look forward to doing this with you again. And we will see you all out on on LinkedIn, and I suppose. Thank you all so much. Have a great rest of your week.