Each euro invested in marketing will generate more than three euros, but only when striking the right balance

Results show that advertising creates an average gross profit of €3.24 per every euro invested in it, and the period of its impact is very long, up to three years. The challenge, especially for growth companies, is that advertising investments must be front-loaded, but the problem is that the cash flow of such companies simply won’t allow for that. That’s why growth companies invest far too often only in short-term tactical measures instead of long-term brand actions. (Source 1)

Obviously it’s the advertising content that is decisive in how quickly the investment will pay back – that is, whether you are working on a long-term brand and capitalising on short-term trade.

Brand actions get better results in the long run

You can start an advertising campaign for a 50% discount on a product, with the offer valid only until tomorrow. This can be very productive, if success is measured by how much money you make during the next few days. Tactical advertising typically converts people who are already considering a product, nevertheless doing little to change the ideas potential customers may have of the brand. So excessive investment in tactical advertising will not maximise advertising proceeds in the long term.

The purpose of marketing communication is to change people’s brand perceptions and thereby their purchase behaviour. This requires long-term work, not quick returns. Since there is no shortcut to people’s hearts and there nevertheless is some need for quick sales returns, striking the right balance between short-term and long-term measures is critical.

As the image from the IPA data bank below shows, the impact of short-term tactical measures dominate up until the sixth month. After this, long-term brand actions bring a higher profit. Both operate under a different logic, metrics and time span. Both are needed, but it’s finding the right balance that is crucial.

Source 2

Differences between the balance in different industries

It’s been found that the optimal balance between long- and short-term investments is 60:40. Of course there are many factors at play to reach the right balance, such as how considered or spontaneous buying is in any specific category; how much purchase decisions are affected by rational thinking versus feelings; at which point of its life cycle the brand is; and the level of innovation of the product and service.

Due to the above factors, the optimal balance between varies from one industry to the next.  Online stores and other digital players should focus more than average on long-term branding measures than short-term tactical measures – in 80:20 proportion. Tactical measures work better than average for digital players, and as a result a lower investment in tactical measures is sufficient.

See below for recommendations in the IPA data bank on the balance of long-term and short-term measures.                                                                          

Source 2

Of all mass media, television is still the most effective for building brands and images. TV has an excellent ability to leave a memory trace which is triggered when the purchase window appears, making you select that particular brand. The power and impact of TV is still unsurpassed, whether you consider it in the long or short term. Up to 71% of all long-term ROI created through advertising is attributed to TV. The ROI from TV is superior to that of any other media.

Source 1: Advertising ROI: Ebiquity and Gain Theory, Profit Ability: the business case for advertising

Source 2: Les Binet and Peter Field, The Long and the Short of It, IPA.