Brand Building Drives Long-Term Revenue And Profit Growth.

Citing several advertising effectiveness studies, a new guide to ad success shares the keys to revenue and profit growth.

“Advertising rarely works through heavy persuasion or manipulation,” Cumulus Media/Westwood One Audio Active Group Chief Insights Officer Pierre Bouvard says in Westwood One’s blog. “Decades of consumer data show it works as a ‘weak force.’ Advertising is a gentle nudge that builds brand awareness and reinforces existing habits, rather than a brute force conversion of non-believers.”

Among the research noted is WPP Media’s purchasing study of 1.2 million consumers and 200 brand categories, showing that 84% of purchases are effectively decided before shopping begins.

“Across a wide array of categories, the vast majority of purchases are made with brands and services that are already known,” Bouvard says. “If your brand is not known before people come into the market, you have little chance of being purchased.”

According to the Ehrenberg-Bass Institute of Marketing Science, only 5% of consumers are in the market at any time for most products or services. Therefore, Bouvard says, “Advertisers need to formulate two distinct marketing strategies: one to target the tiny 5% that are in the market. The second is to target the massive 95% who are not in market now but will eventually enter the category.”

Marketing’s two most important jobs are converting existing demand (lower funnel sales activation) and creating future demand (brand building). The goal of the former is to reach those 5% in the market — which usually takes the form of a sales event — while the latter focuses on the other 95% who are not in the market, not thinking about the category and not interested in a sales event.

“Creating future demand via brand building improves conversion rates, lifts share of search, and is responsible for most revenue and profit growth,” Bouvard says. Indeed, a World Advertising Research Center study shows how brand building drives significant incremental revenue while underspending on creating future demand reduces sales growth. Over a one-month period, the 50/50 mix of brand building and performance marketing generated 27% more revenue growth than the all-performance strategy, while up to six months, the 50/50 brand/performance mix outperforms the all-performance strategy by 40%, and beyond six months, the 50/50 brand/performance mix yields 50% greater sales growth than an all-performance strategy.

Another global study found that most advertising effects take place over an extended period of time, with 24% of the profit generated occurs in week 1, with 18% between weeks 2-13 and 58% from week 14 to two years out. “Advertising is a long-term business, but we foolishly attempt to judge impact over the short term,” Bouvard says.

Research also shows that brands’ excessive use of sales events and lower funnel tactics leads to a performance marketing “valley of death” where sales plateau and cost-per-action soars as demand evaporates, as there has been no creation of future demand creation.

The blog also warns against a “dangerous obsession” with ROI vs. focusing on growth in customers, revenue and profit. “The biggest ROI would seem the most desirable, however ROI does not reveal anything about actual revenue growth, profit growth, or customer growth - it is simply a ratio,” Bouvard says. “Your ROI obsession is killing sales and profit growth and could destroy your brand. The most important number that really determines sales and profits is not ROI. It’s the budget! To grow profit, increase your advertising budget.”

Note to smaller brands: avoid stopping advertising altogether or “going dark,” which, based on research, leads to a cliff drop effect in sales as shown above. According to Ehrenberg-Bass, by year two after going dark, small brand sales are cut in half, while WARC finds it can take up to five years for brands to recover. “Larger brands can coast longer on their accumulated awareness and brand images,” Bouvard says. “When small brands represented by the dark line below cut advertising spend, sales collapse right away, fast and hard.”