When times are tight and the future is uncertain, especially amid lingering fears about recession and a sluggish ad market, it’s tempting for marketers to focus on quick wins to get some points on the board and live to fight another day. Those quick wins, however, aren’t what sustain businesses. While helpful for the next quarterly read-out, short-term sales can easily distract teams from thinking about what really drives success: long-term growth.
Those distractions can be costly. While targeted and direct marketing makes sense when consumers are feeling the pinch or a business needs to meet a sales target, these approaches aren’t as lucrative as you might think. For example, we’ve found that promotions deliver only about half of the long-term returns that media spending does. That’s because incentives typically offset natural purchase cycles. And when consumers buy earlier at a lower price or buy more at a lower price, they’re removed from the market for that product later on, which is unfavorable to the promoter. Incentives can also train consumers to buy on incentives or to look for depth of incentive, which lowers long-term profitability.
The importance of balanced marketing strategies can’t be over-emphasized, especially when you consider that brand-building efforts are a lever that drive sales: Nielsen research has found that ongoing marketing efforts account for 10%-35% of a brand’s equity. What’s more, Nielsen Compass data shows that a brand loses 2% in future revenue for every quarter it doesn’t advertise. And over the long term, lost revenue takes a long time to gain back. Our research has found that it takes up to three to five years of solid and consistent brand building effort to recover from extended periods of not advertising.
And when you remove long-term brand building, brand awareness and consideration fall, which typically reduces the effectiveness of conversion marketing efforts. If you let your brand decay, future sales tend to decline at a 1:1 ratio. Lastly, pulling back on long-term marketing increases your cost of acquisition. So the reality of a short-term marketing strategy is share contraction because you’re forgoing future sales while increasing cost to drive near-term sales.
Historical research has also found that an outsized share of voice can increase a brand’s share of market. Several years ago, Nielsen analyzed more than 120 brands across 30 categories of typical advertising to test this thinking. The study results showed that, all things being equal, a 10-point difference between share of voice and share of market ultimately led to 0.5 percentage points of extra share growth. Practically, that means that a brand with a market share of 20.5% and an excessive share of voice of 10 points would grow its share of market to 21% in a single year.
But understanding the importance of brand building is the first step. To take your brand to the next level, it’s critical to understand which tactical investments produce the best returns in the long run. As with many industry terms and phrases, “long-term” can mean different things to different brands. The same can be true about evaluating long-term impact. Some may choose to lean on downstream purchases that result from conversions or previous brand exposures. Others may opt to analyze the impact that their marketing has on driving brand equity metrics, like consideration and purchase intent.
Each of these approaches help define the foundational building blocks of a brand’s base business, but they’re very different from one another. They also work much better when they complement each other instead of as independent approaches. Said differently, long-term measurement requires a holistic effort that incorporates both of these approaches: One that looks at the impact of downstream purchases as well as how consumer perceptions are affected by marketing exposures and how they’re sustained over time.
Consider this: The impact of a single marketing exposure is a point in time. Once the exposure passes, its effect will fade over time. Comparatively, brand perceptions aren’t confined to a single point in time. Brand perceptions also aren’t static. They can shift, which is why marketers need to reinforce their messages over time to ensure they’re frequently engaging with their target consumers. Reinforcing those messages through media investments carries significant weight. According to the ROI norms data in Nielsen Compass, the long-term impact of media can double the impact of media spend, particularly for upper-funnel channels like TV and digital video.
Aside from aggregated proof points, analytics at a brand level can show how a shift from short-term decision making to a more well-rounded marketing approach can help marketers understand how to allocate their budgets while still working to build their brands for long-term success.
For example, a national insurance company recently set out to understand the strength of its marketing efforts across channels, campaigns and KPIs. With an eye on an unpredictable economy on the horizon, the company knew that if it wanted to safeguard its marketing investments, it would need to validate them both in the present and the future.
To get a read on how to approach its marketing in the short term, the company enlisted Nielsen to use its most recent spending data to model quotes and items for new and existing customers, as well as renewals. The models also factored in the costs associated with new customer acquisition and customer retention.
With a clear view of how to use its marketing budget efficiently, the company took its planning a step further to understand the short-term and long-term impact of marketing on sales. With the use of Nielsen’s Long-Term Effects analyses, the company was able to prove that its marketing efforts generated more than 31% increased incremental sales over the long term, thereby justifying its investments despite the economic uncertainty. The company also discovered which business lines benefitted the most from the marketing investments, as well as which marketing vehicles drove the biggest impact.
Yes, short-term sales are appealing and can deliver results now, but longevity and long-term business vitality need effective, balanced marketing. And perhaps more importantly, marketers need the insight into their long-term efforts to keep their investments safe and their businesses growing.
This article originally appeared on MediaPost.