Managing Partner, Analytics Practice
Vice President, Analytics Practice
Marketers have been perennially faced the question of whether to drive short-term financial growth or build long-term brand equity. This debate has gained momentum with the recent growth of online advertising, which is typically geared toward driving more short-term purchases. We can think of this debate as having two archetypal figureheads: a company’s CFO (the steward of financial performance, responsible for reporting quarterly results) might look at the short-term performance of online advertising and want to allocate more spend toward these channels; while the CMO (the steward of brand identity) might want to invest in growing more long-term brand equity.
Now that we’ve set up our CMO and our CFO figureheads and set them arguing across the boardroom table, we have to pause and ask the question: is their debate really valid, or is it just the product of a false dichotomy? In other words, are financial growth and brand growth really mutually exclusive? We looked to our analytics to find out.
To be able to answer the long term vs. short-term debate, it is first important to understand the factors that drive the short-term and long term growth. Are they different, or is there some synergy that can be leveraged?
Our past work on the impacts of different media and media inputs does prove that some inputs favour boosting short term sales while others favor building long-term brand equity. It is therefore important to a brand to have a balanced media and marketing approach. A short-term uplift of sales driven by limited-time promos may make some stakeholders happy, but if these efforts are not balanced with investment in long-term growth, then brand equity will likely erode. When that happens, the brand becomes more vulnerable to competition and market dynamics.
Which media inputs favor the CFO, and which favor the CMO? Activations have historically been more powerful in driving short term sales effects, while TV is seen to excel in building brands in the long run, as well as in serving as the cornerstone of 360-degree campaigns that facilitate multiplicative media synergies.
Digging deeper into TV media options, “promo”-style TV advertising is more efficient than “thematic” ads in driving short term sales. Campaigns that appeal to rational concerns are also seen to be more effective in driving short term growth. However, thematic TV advertising is seen to be more effective in building brand equity. This brand-building impact amplifies if the thematic spot’s creative is especially powerful (i.e., a creative magnifier), if messaging remains consistent, and if campaigns are supported with optimal investment. Hence, promo TV advertising should be leveraged if the intent is to drive short-term sales, while thematic advertising should be leveraged if brand building is the key objective.
Another point to note is that while the short-term strategies don’t typically impact long-term brand building, the reverse may not necessarily be true. Higher brand equity is known to impact sales over the long run, and efforts to boost brand equity may also produce some short-term effects. (In fact, for especially strong brands, the contribution from base equity to sales is as large as 90 percent.) Brands that have invested in brand building do reap the benefit in terms of uplift in sales, especially in the long run.
Given the differential time frame in which the impact is noticed for short-term and long-term strategies, it is also important to measure the effectiveness in the right context. Measuring the effectiveness of long-term strategy in context of short term uplifts in sales is bound to yield low effectiveness for all of its elements. Likewise, measuring the effectiveness of elements constituting short-term strategy in context of brand building will yield low effectiveness. Hence, it is important for marketers to be well aware of the objective of each element of their strategic plan, so that they can measure it with respect to their right objective.
Ideally, both short-term and long term considerations should be included when considering concepts like “return on investment.” Short term ROI rankings of media types is a commonly used tool that can be further improved by adding in measures that approximate long term ROI of media types on brand performance. With this fuller short and long ROI picture (as seen in the nearby chart), we can prioritize media and activation with a clear vision of their impact. In conclusion, different levers impacting short term and long term growth imply that short term oriented campaigns will not drive long-term business outcome and equity growth. However, the reverse may not necessarily be true: strategies aimed at long term brand building may also lead to more near term boosts to sales. To succeed in a competitive landscape, it is therefore important to have a strategy that strikes a good balance between brand building and short-term growth. It is also equally important for marketers to have a clear understanding of what elements contribute toward each type of growth, so that they can measure the effectiveness of each element with the correct framework in mind.
In essence, then, the data shows CFO and CMO are right in their perspectives. And in the best of times, one would hope that they could work side by side and both get what they want. However, the data also shows that even when there may be temptations to focus solely on realizing short-term gains – say, at a time of financial crisis – the kind of media that most typically accompanies long-term brand building efforts should not be neglected in favor of putting all of a company’s eggs in the short-term media basket; investments in brand equity can also play an important role in sustaining short-term sales.