It's common knowledge that brand strength is one of the most important drivers for an organization's long-term growth. For example, a strong brand creates a sense of consumer preference, promotes loyalty and can increase margins on the company's products and services (Aaker, 2000). Your brand is also a unique asset that cannot be taken over by competition.
However, in the e-commerce world, it is often pretty quiet when it comes to brand marketing. In a highly performance-driven world where the marketer's main goal is often mainly short-term sales and turnover, marketing activities that trigger a direct response from the consumer in the form of conversion are usually chosen. This used to be called sales activation, but in the digital age, this is better known as performance marketing.
Performance marketing is purely sales driven and involves activation. This form of marketing is aimed at generating turnover as efficiently as possible, in other words to increase the “return on ad spend” (ROAS). However, the consumer pool that you can reach with this strategy is limited, as you are responding to the 'bottom' of the marketing funnel. This soil consists of consumers who currently have a purchase intention and are therefore only a small part of the total market of (potential) buyers. This pool will eventually be exhausted as soon as the need is met, and in addition, there are many other salespeople clamoring for their attention. It's like an old-fashioned, physical market, where multiple sellers try to persuade you to buy a product from them instead of the neighbor. The question, of course, is how you, as a seller, not only manage to attract the attention of consumers, preferably prior to and during the exploratory phase, but also ensure that they ultimately prefer your market stall.
In addition to performance marketing, there is another marketing activity that can be used to achieve business goals, namely brand marketing, also known as branding. This form of marketing works fundamentally differently than performance marketing. The goal of brand marketing is to encourage brand preference by getting consumers to think or feel something new about your brand. In addition, brand marketing focuses on inspiring consumers, so that long-term memories will be built that are linked to your brand. If you do this right, you can ultimately create brand preference and positive brand value. Unlike performance marketing, brand marketing focuses on the top of the funnel. This allows you to reach consumers on a wider scale, many of whom have no purchase intention yet and are not actively looking for your products and/or services yet. With brand marketing, you can also stimulate an intention and ensure that you are top of mind when consumers are in the exploratory and decisive phase.
We're not saying that one form of marketing is better than the other — quite the opposite! To reach the entire potential market and to achieve long-term growth, you should use both forms of marketing. Through performance marketing, you can respond to existing demand, while you can stimulate the need or future demand through brand marketing.
By combining the various marketing activities, you create synergy. Brand marketing creates preference in this regard, and performance converts that preference into money. You could compare it to planting a seed in someone's head via brand marketing, which will ultimately be harvested through performance marketing. The more inspiring the message, the better it can be activated. Both forms are like yin and yang: two opposites that together form a certain harmony. This is therefore the strength of a full-funnel marketing strategy. The model below shows the position and goals of the two marketing activities.
The ideal balance between the budget and the use of brand marketing and performance marketing is often debated. As mentioned earlier, many e-commerce companies focus purely on short-term turnover through performance marketing because generating sales is the main goal.
However, if you look at the scientific literature, you will see that performance marketing itself is not sustainable. For example, Les Binet and Peter Field, also known as the godfathers of marketing effectiveness and ROI, investigated that the ideal ratio is an average of 60/40, including 60% brand marketing and 40% performance marketing (Source). This research is based on an analysis of more than 600 companies in the digital age between 1998 — 2016. Of course, there are nuances and there are also companies that can grow for a long time by focusing solely on performance marketing. In particular, new or innovative organizations can grow more easily in the initial stages without using brand marketing. This can be seen, for example, in organizations that put an innovative product on the market or have an innovative way of working. They stand out more, as it were, because they are immediately unique and distinctive. But they, too, ultimately exhaust the in-market target group and will eventually also have to conduct brand marketing in order to grow further.
The effect of the interplay between brand and performance is clearly shown in the graph by Binet and Field (2017). The graph visualises the lack of sustainability of sales uplifts. With performance marketing, you only exhaust the demand that is already there at that moment. As soon as you turn off the tap, sales also come to a standstill. With brand marketing, you reach a larger target group and create memories that last. As soon as you don't actively advertise, you'll still reap the benefits, because consumers remember your brand or service when the need arises and they're in the market. This effect is much less strong when consumers have seen purely sales-driven ads. When you use both forms of marketing, you see that it is precisely the combination of brand marketing and performance marketing that will ensure real growth in the long term.
In practice, the relationships between the two forms of marketing are often unhealthily far apart. Two well-known examples of major e-commerce players where this has almost cost the head are Adidas (Source) and Ebay (Source). For example, Ebay ended up with a budget split of 10% brand marketing and 90% performance, and this isn't even uncommon among e-commerce companies. The focus on short-term thinking (mere performance marketing and last click attribution) by Adidas and Ebay ultimately resulted in price sensitivity, problems with consumer confidence, a lack of competitive differentiation, and less customer loyalty. They also eventually exhausted the same pool of in-market people, resulting in declining returns. Adidas was convinced that performance marketing was the biggest driver for e-commerce, while in reality, brand marketing accounted for most of the sales on their webshop in the long term. The companies ultimately applied the sacred 60/40 ratio between Binet and Field, which resulted in a strong brand preference among consumers, an increase in traffic via other channels, and improved performance marketing performance. All this as a result of a positive brand value.
We predict that brand marketing will only become more important in the e-commerce landscape. The competition is getting fiercer, more and more organizations are selling online and everyone has a lowest price guarantee. This growth in competition also results in higher CPMs and CPCs in ad auctions. Performance marketing is becoming increasingly expensive and, in addition, the effectiveness of performance marketing is becoming less effective. the disappearance of third party cookies. Creating distinctive character (and thus brand marketing) will thus become more important than ever before.
We believe it is time to bring the two worlds between brand and performance closer together in the context of e-commerce. How does this translate into practice? And what is the effect of brand marketing and brand value on the e-commerce formula that we use to maximize e-commerce returns?
Traffic x conversion rate x average order value = turnover
Although the results of brand marketing probably do not translate directly into a high ROAS or turnover within the brand-specific campaigns, it will have indirect consequences that you will see (in the long run) in the entire turnover and performance campaigns.
In traffic, more consumers come in via direct, organic, referral or cheap branded search campaigns, because they recognize you and know what you have to offer. You will also have to fight less hard for consumer attention within (generic) paid campaigns, which translates into a higher CTR and lower CPC. In addition, an increase in customer loyalty will translate into a higher retention rate. In short, you get more volume at a lower price.
The effect on the conversion rate is simply an increase in buying intent, because a positive brand value creates a preference for your product and/or service. After all, people are sensitive to the story behind your brand, and don't just buy based on the functional benefits alone. Harvard research shows that 95% of purchasing decisions are made unconsciously, with emotions as the biggest driver (Source).
Finally, brand marketing and thus increasing brand value will benefit the average order value. After all, as a strong brand, you don't have to be the cheapest, which means you can grab more margin. After all: consumers are convinced that you have a certain added value and are willing to pay for it. This also means that you don't have to do as much discount-driven marketing to achieve your revenue goals and thus become more profitable.
The effects of brand marketing and brand value on the e-commerce formula are shown in the following model.
A good example where the interplay between brand and performance marketing becomes clear is our customer Grutto. Grutto is an online retailer of meat packages with a strong purpose focus. The organization is committed to regenerative agriculture and sustainable food production. Grutto sells meat from healthy soil, from animals with a good life and is committed to reducing food waste.
For Grutto, we rolled out a paid-social strategy, bringing the relationship between performance and brand marketing closer together. Consumers at the top of the funnel were targeted with a brand commercial, while consumers at the bottom of the funnel were retargeted with more performance-driven ads. This strategy resulted in a twice as high ROAS compared to the strategy where we only use performance ads. In addition, we also reached a part of the target group that was not directly in-market yet but became so because we inspired them.
Using brand and performance marketing together is very important for long-term growth, especially now that the e-commerce landscape is changing so much. Fiercer competition, combined with more expensive and less effective performance marketing, means that even as an e-commerce player, you need to stand out more and work towards a more balance between inspiration and activation. Both sides (brand and performance) of the same marketing currency must be used and will create synergy in the long run. The example of our customer Grutto shows that brand marketing does not necessarily require huge budgets. Through social media and YouTube, where rich media can be used in the form of video, you can start very pragmatically and further expand this strategy to reach the masses with inspiring content.
Resources
Aaker, D. (2000). Brand leadership, The Free Press
Binet, L. & Field, P. (2017) Media in Focus: Marketing Effectiveness in the Digital Era, Institute of Practitioners in Advertising
