Finding the Right Balance of Brand and Performance Marketing for Startups
Updated: Mar 28, 2022
Startup founders wonder how much marketing resource to put behind building brand love versus performance marketing that drives sales or leads. As with so many good marketing questions, the answer is “it depends.”
Are they launching a new product or service that is largely unknown into an established category? Are they disrupting with a whole new category of product? Are they aiming for capital investment soon? Do they have long-term business growth ambitions or looking to sell the business quickly to make a buck?
Whatever the business and whatever the answers to questions like these, most B2C and B2B businesses need some balance between brand and performance marketing. There will always be an exception. Perhaps, the manufacturer of a widget that aids the guidance system of a rocket (an ingredient in an ingredient) has such a specific customer that it’s all about procurement artistry mixed with strong relationship selling.
But most new businesses in the digital age will maximize sales growth and company value by finding the right balance of investment in building relevant brand awareness/ engagement and in driving near-term conversions like sales or generating leads.
Start By Building Relevant Brand Awareness
Here are 6 common use-cases for startup brand building. (I learned a ton about the importance of brand in my years at Ogilvy. If you want to go deeper on how strong brands create more value, check out: Ogilvy Ideas )
Introduce a new product, service and/or company: People need to know about a solution before they will consider buying it. When you are new or your brand is unknown, you will need to build awareness. “Relevant awareness” goes further. This is when you connect with those most likely to be customers or advocates and give them a reason to care about your product or service.
Aim to build the most valuable company over several years: Whether you plan to hold onto your company for the foreseeable future or want to exit at a high value, building a strong brand will increase the company’s overall value.
“A McKinsey & Company study revealed that brands with strong reputations generate 31% more return to shareholders than the MSCI World average.”
Increase customer lifetime value and create more enduring relationships: If you want to build loyal customers who buy from you more often, having a strong brand – one that gives people more reasons to buy beyond the function of your product or service – will improve customer retention, advocacy and “share of wallet.” This is likely more true today when more consumers are attracted to companies with strong values and community commitments.
“Two-thirds said they’d consider the company’s purpose when deciding what to buy, and 71% said they’d buy from a purpose-driven company over the alternative if cost and quality were equal.”
Need to differentiate your company/product/service/organization: Brands that are felt to be meaningfully distinct and different will earn preference from customers and are more likely to avoid the death spiral of low price.
“A study of 220 consumer products by the Marketing Science Institute (MSI) found that a superior brand preference or reputation commanded price premiums of 26% on average, even when brand quality is the same.”
Get better terms from distribution and sales channels: Food brands need grocery store distribution. Skincare products can achieve scale via retail distribution. Retail and distribution players hold a lot of power. Today, emerging brands can ‘punch above their weight’ by building a brand story that people “get” quickly. Don’t forget that retailers and distributors are people too and susceptible to the emotional tug of a great brand story.
Attract investors: Ditto – investors are people, too.
Generate Sales Through Performance Marketing
Most founders have no problem seeing the urgency of generating sales of their product or service. If anything, they may be more likely to shortchange the importance of brand-building efforts and the need for the right balance.
Here are 6 common use-cases for performance marketing:
Drive sales revenue: Now, more than ever, emerging businesses can drive sales via Facebook, Google and other smart digital channels. And since digital marketing - especially for ecommerce businesses - is completely measurable, it becomes much easier to budget marketing investment.
Grow markets and market share: As fundamental as ‘sales’, performance marketing allows even small brands to expand their market – new geographies, new customer cohorts – and allows them to increase their market share in a particular category and markets.
Demonstrate to investors the ability to acquire customers: One of the traditional gates for capital investment is successfully acquiring customers. For some, this is a requirement for Series A funding. You can make a ‘thing’, and it can sound like a great thing, but it takes successfully selling the thing to the right customers to prove “product-market fit.”
Define an efficient marketing method in a digital-first world: While gaining customers at any cost will get you out the door, smart investors and stakeholders want to see you do it efficiently, meaning you make more money from customers than you do acquiring them.
Accrue first-party data to fuel sustained marketing: Never has it been more important for businesses of all sizes to grow a customer database early. Having a list of customers means you can market to them inexpensively via email and messaging, you can convert that list into “lookalikes” and acquire similar customers via paid social and search, you can personalize marketing for greater efficiency, you will have more options as privacy rules evolve and the big tech media gatekeepers (i.e. Facebook, Google, Apple, etc..) flex their muscles. Oh, and investors know this. The startup that is building a growing list of customers has more going on.
“BCG research has found that data-driven marketing (with first-party data) can double revenue and increase cost savings by 1.6 times.”
Get better terms from distribution and sales channels: See this header above in building brand. Sales channels will work harder for businesses that are driving and demonstrating demand for their products and services inside and outside the channel.
Questions to Gauge the Right Balance
So, how do you create the right balance of brand-building marketing and sales-focused performance marketing? While the short answer again is “it depends,” here are a few questions you can ask yourself to estimate that balance.
Are you trying to build a business that will grow value over the long haul?
YES: Create a strong brand story based upon customer & market insights. Start with a 70:30 mix of brand and performance marketing investment. Let that evolve to 50:50 and ultimately, 30:70 over time (years).
NO: Focus on activities that will drive sales in the short term. Spend most of your money on performance marketing.
Do you want a high-value exit strategy in 3-5 years?
YES: Start with a 70/30 mix of brand and performance marketing investment. Quickly show how you can maximize revenue-per-customer and lifetime customer value (just be clear about your time segment for “lifetime,” e.g., for CPGs, that is likely 1 year; for Home & Auto Insurance that is likely 5-7 years.)
NO: Spend most of your money on performance marketing. Maybe, 20:80, brand:performance.
Do you want to build a business you can sell with 12-24 months for a modest return?
YES: Spend most of your money on performance marketing. Maybe, 20:80, brand:performance.
NO: Spend a greater portion on brand at first and let that seesaw over time.
Do you want to improve your chances of attracting capital investment?
YES: This depends on what type of investment/investor you need. Traditional VCs who want to see that 10X-ish return will put value on fast-growth and a meaningful brand. Private Equity will likely favor a business that has strength in both the brand and performance that they can significantly optimize. Banks may only look at sales and expenses.
NO: If you are bootstrapping your company or just don’t need investment, your business will be stronger with some attention on brand-building. At the very least commit to a 30:70, brand:performance such that the brand gains some strength even while you drive much-needed sales today.