Addictive and potentially destructive?

Be warned, kids: It may look cool to use SEO, affiliate marketing or email to drive sales, but it only takes a few programs to get hooked! Yes, Performance Marketing has become the cocaine of the modern marketing industry. It offers the immediate gratification of short-term sales spikes and the addictive satisfaction of seeing real-time returns on investment (ROI). Like the initial euphoria of cocaine, brands revel in the surge of website traffic, high conversion rates, and impressive ROI. It’s easy to become addicted to the adrenaline rush of seeing immediate results.

But an over-reliance on Performance Marketing can erode the foundational health of a brand. And the analogy goes further, as companies find that the early highs of PM success can only be reached at greater and greater financial cost. As consumers become saturated with a company’s outreach and take early advantage of special offers and deals, they become increasingly resistant to the effects of these tactics. Marketers struggle to keep up the pace of ROI, brand becomes diluted by price discounts, and one-off pushes, and a downward spiral can follow as real and rapid as the initial positive results. The short-lived highs of tactical gains are shadowed by gradual declines in brand equity, visibility, and consumer trust.

Just as cocaine wreaks havoc on the human body over time, performance marketing can have devastating long-term effects on your brand. Here’s how:

1. Dependency: Much like a drug addict craving their next fix, brands can become dependent on performance marketing for short-term gains. This dependency blinds them to the importance of building a strong brand identity and fostering meaningful relationships with customers.
2. Diminished Brand Equity: While performance marketing may drive immediate sales, it often comes at the expense of brand equity. Constantly bombarding consumers with ads focused solely on conversion can lead to brand fatigue and a negative perception of your brand.
3. Short-Term Focus: Performance marketing encourages a short-term mindset, prioritizing quick wins over sustainable growth. Brands become fixated on immediate results, neglecting long-term strategies that are essential for building a resilient brand.
4. Commoditization: In the quest for instant gratification, brands may resort to aggressive tactics that commoditize their products or services. This erodes differentiation and turns your brand into just another option in a crowded marketplace.
5. Risk of Burnout: Like the crash that follows a cocaine high, the short-term success of performance marketing is often followed by a period of decline. Brands may experience burnout as they struggle to maintain unsustainable levels of performance.

The Double-Edged Sword of Performance Marketing
While Performance Marketing serves as a potent tool for lead generation and sales conversion, its prowess in brand building is noticeably deficient. The transactional nature of Performance Marketing focuses on the bottom of the marketing funnel, often neglecting the upper funnel activities essential for brand awareness and equity. This focus on immediate conversion metrics can lead to the neglect of long-term brand-building strategies that cultivate loyal customer bases and sustainable growth.

Recent years have seen a marked shift in marketing budgets towards Performance Marketing, driven by its promise of quantifiable results and accountability. While no precise statistics exist for a collective “Performance marketing” spend or percentage of spend, it’s possible to see the relative growth via proxies like digital marketing, or the component parts of PM like SEO, SEM, display etc. A study by the Interactive Advertising Bureau (IAB) highlighted that digital ad spending, much of it performance-based, has consistently outpaced traditional brand advertising expenditures. For instance, in 2020, digital ad spending in the U.S. alone surpassed $150 billion, accounting for approximately 60% of total advertising expenditure. This shift underscores the growing preference for the measurable outcomes offered by Performance Marketing over the intangible benefits of brand building.

Brand Dilemmas: Short-term Gains vs. Long-term Equity
Numerous brands that have heavily invested in Performance Marketing have witnessed immediate boosts in sales and lead generation. However, several of these brands also experienced a subsequent decline in brand metrics such as awareness, perception, and loyalty. For example, some direct-to-consumer (DTC) startups initially flourished through aggressive Performance Marketing strategies but later struggled to maintain customer retention and brand differentiation as competition intensified.

Casper: The mattress-in-a-box company, Casper, is a prime example of a DTC brand that leveraged Performance Marketing effectively to drive initial growth. Casper invested heavily in digital advertising, especially through Google and Facebook, to attract customers to its online store. While this strategy helped Casper achieve significant sales and market presence quickly, the brand faced challenges in sustaining long-term growth and profitability. The intense competition in the online mattress space made it difficult for Casper to maintain its market share without continuous heavy spending DTC communications, leading to customer acquisition cost (CAC) pressures and challenges in retaining customers without constant incentives. Once valued at over a $billion, Casper was eventually delisted on the NYSE and bought by a PE fund at less than a third of that valuation

Blue Apron: Blue Apron, a meal kit delivery service, initially saw rapid growth through Performance Marketing tactics, including social media ads, search engine marketing, and affiliate marketing. However, as the market for meal kits became saturated with competitors, Blue Apron struggled to retain customers who were often lured away by cheaper alternatives, competitive Performance Marketing offers, or simply lost interest. The high churn rate and increasing CAC demonstrated the limitations of relying too heavily on Performance Marketing without a strong emphasis on brand loyalty and differentiation.

Glossier: Glossier, initially celebrated for its community-driven approach and direct engagement with consumers, also leaned into Performance Marketing to scale up its operations. While the company successfully built a strong brand identity and loyal following in its early days, maintaining momentum and growing its customer base became more challenging as the beauty market grew increasingly crowded. The reliance on digital ads to drive sales faced diminishing returns over time, highlighting the need for a more diversified marketing strategy that includes building a deeper, more emotional connection with consumers.

These examples underscore the broader trend within the DTC sector: while Performance Marketing can drive impressive short-term results, brands often encounter obstacles in sustaining growth, retaining customers, and differentiating themselves in a crowded market over the long term. The key takeaway for DTC startups is the importance of investing in brand-building activities that foster a strong, loyal customer base, alongside performance-driven tactics to ensure long-term success and differentiation in the marketplace.

These cases highlight the pitfalls of over-indexing on Performance Marketing without a corresponding investment in brand development.

Striking the Right Balance
The key to sustainable growth and market competitiveness lies in finding the right equilibrium between Brand Marketing and Performance Marketing. Brand Marketing, focusing on emotional connections, storytelling, and consumer engagement, builds the brand’s equity and lays the foundation for long-term relationships with consumers. In contrast, Performance Marketing drives immediate sales and measurable outcomes. A balanced approach involves leveraging the strengths of Performance Marketing to fuel short-term goals while concurrently investing in brand-building initiatives to secure a loyal customer base and enduring brand value.

Recommendations for Marketers:
Full-funnel Focus: Marketers should adopt a through-the-funnel, omnichannel approach to budget allocation, ensuring that investments in Performance Marketing do not overshadow brand-building efforts.

• Leverage Data for Storytelling: Utilize the data and insights gained from Performance Marketing to inform and enrich brand narratives, making them more relevant and impactful to the target audience.
• Focus on Customer Experience: Beyond transactions, focus on creating memorable brand experiences that foster loyalty and word-of-mouth advocacy.
• Measure What Matters: Develop metrics that evaluate both the immediate impact of Performance Marketing and the long-term value of brand equity.
• Adapt and Innovate: Stay attuned to changes in consumer behavior and market dynamics to adjust the balance between Performance and Brand Marketing accordingly.

Conclusion
So, what’s the antidote to the performance marketing trap? It lies in striking a balance between short-term gains and long-term brand building. Instead of chasing quick wins, focus on creating authentic connections with your audience, investing in brand storytelling, and delivering value beyond just sales.

Remember, just as cocaine offers a fleeting sense of euphoria followed by a steep price to pay, performance marketing can deliver short-term success at the expense of your brand’s future. Choose wisely and prioritize the health and longevity of your brand over temporary highs.