Performance Marketing is killing clients

Nigel Hollis, Executive Vice President and Chief Global Analyst at Kantar’s Insights Division has written a piece which nails why Performance Marketing (PM) will kill your company. I’ll repeat that; he’s not saying it’s a low performing way to spend your marketing budget; he is explaining how it will mean you actually cease to exist.

For the sake of doubt, here’s a synopsis of how the Performance Marketing Association defines PM: ‘Performance Marketing refers to online marketing and advertising programs in which companies only pay when a specific action is completed; such as a sale, lead or click. This is unlike other forms of advertising where fees are paid up front and do not depend upon the success of the ads.’

It is the question of what constitutes ‘success’ that Hollis picks up on. He states that ‘Brands do not grow by targeting high probability purchasers. They grow by turning low probability purchasers into high probability ones.’ And if you’re not growing, you’re dying.

Paying your agency to kill you off?

I urge you to read Hollis’s fact-driven piece here. But if you’re short on time my synopsis of it is that because PM is about getting people to take action on the spot, it’s constantly hitting the low hanging fruit and just trying to close the deal. Surely that’s good? Well, you get your little pile of short-term wins, but what about the competitors? What’s left for them? They have to try harder. They have to win hearts, convert people, and earn a place in their customer’s lives; they have the microphone and are controlling the narrative. So, next time you go out there, who is everyone thinking about? Not you.

My views on the self-harming marketing model

Hollis’s piece while devastating, still only highlights a fraction of the problem. The industry I grew up loving is now ranked third-least trusted by the public. Short-termism is largely to blame. In the spirit of Buzzfeed, here’s 6 ways Performance Marketing hurts everyone:

1. It reduces creativity, and that means reducing returns:
PM promotes the idea that you don’t have to be creative anymore – because you can just optimise any dogmuck until someone accidentally steps on it. This is a falsehood.

Creativity in marketing can be understood with the equation ‘Return = MediaCreativity . In other words, money spent on media will get you seen and get you returns. Creativity adds value and magnifies that return. The more creative you are, the more the magnification; the better the value for money. And not just by a little: The average multiplying effect of creativity on profitability is 12*. Cannes Lion Creative Marketer of the Year companies outperform the stock market by a factor of 3.5**. Performance Marketing reduces creativity and reduces real returns.

(Of course you can also be effective without spending on media, but that’s another piece.)

*Paul Dyson, Admap, Sept, 2014, ‘The Top Drivers of Advertising Profitability’
** Source: Yahoo! Finance Sharemarket Data

2. It squanders budgets:
Spending on short-term results means less spending on bigger long-term results. Long-term approach are proven to be +10x more effective than short-term thinking*** Short-term indicators are highly ineffective when viewed over timeframes longer than just weeks. Not only is it more cost effective to create work with underlying strength you can build on rather than throw away; statistically only 3% of cases led by short-term goals generated very-large market share growth. Whereas 38% of 3+ year cases did.****

***Source: Thinkbox, Ebiquity, Gain Theory, ‘Profit Ability: The Business case for advertising’.
**** Source: IPA’s report, ‘Media in Focus – Marketing effectiveness in the digital era’, written by Les Binet and Peter Field.

3. It rents customers:
Our job is to change the chances of someone choosing you over the competition. PM does this by putting your product in front of people until they buy it. It makes it easy – or unavoidable. But what about the next time? They didn’t ‘choose’ you the first time – so you essentially rented the customer. Then you’re back to square one and your budget is spent and the customer is either being wooed by your competition, or, worse; now sees your service as a commodity and is simply looking for the lowest price.

4. It bans us from the board room:
Spending on short-term results pulls marketing towards the company sales team – which would be fine – but that usually also means pulling them further from board level decisions. Marketing plans should be aligned to business plans. It needs to be thought of at scale. A big, shared ambition is the key starting point for any successful activity. In contrast, the normalisation of a reliance on automation and immediate sales-capturing diminishes everyone’s ambitions and dreams. It says that incremental gains and stealing easy goals is a way to succeed. It’s not.

5. It’s gravel in the mind:
Mass production of small space leaderboards, microads, native ads, and promoted posts fills the world with sludge. It drags down the industry. (Remember when people used to look forward to the ads? Now they pay not to see them).

PM is not helping your brand. It’s helping your competitions’

In summary, Performance Marketing devalues agencies, and their thinking, and helps kill off good clients. If you’re spending on it just now, consider who you are really helping. And why not come in for a chat about being truly effective through strategic creativity?

We say ‘Better. Not more’.