Effectiveness Lessons
"Effectiveness Godfather," Les Binet recommends these five effectiveness lessons for navigating turbulent time.
Written by
Michael Murray
February 1, 2023
4
min read
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“History,” Paul Worthington, President of Invencion writes in his weekly newsletter, “will view 2022 as the end of the past decade rather than 2020.”
Worthington discusses the end of ZIRP (Zero Interest Rate Policy) and the cheap capital it brought consumers and companies in the years after the 2008 financial crisis. Without ZIRP, it’s unlikely we would have Airbnb, Uber, Doordash, etc. There would be no WeWork, no DTC revolution, and no cheap capital chasing bad capital.
But, as Les Binet recently pointed out (while speaking to a senior audience at Effworks, the IPA's effectiveness event), things start to look rather different when we change the time horizon.
This means that, while the current combination of economic signals has never been seen before, there is still plenty we can learn from history to navigate the current economic climate. For example, Les Binet outlines five lessons from past economic recessions that marketers should learn from.
Summarised below (though the full video is worth a watch), these lessons are sprinkled with a few examples from brands that exemplify the lesson, or in P&G's case, contrast with it. Also, we quoted Mark Ritson.
Growth prospects and pricing pressures will differ by category. Understand how inflation and consumption (and the type of cuts to consumer spending) will affect your sector. Insights gleaned from this can be used to inform marketing strategies.
For example, Hyundai’s 2008 Assurance program, which allowed people who lost jobs to return leased or financed cars, probably won’t work for other categories. Empathy, which is a recessionary necessity, will look different sector by sector (more examples below).
Profitability rests on healthy margins. To survive and thrive during turbulent times, Binet recommends optimizing prices through a ‘demand, supply, cost, and pricing’ analysis’ as this will guide appropriate strategies for profitability. Then, understand price elasticity as profitability will be impacted by how sales volume reacts to price increases. Finally, beware of promotions as they can cannibalize sales and commoditize the brand.
Time horizons and cash on hand matter. While Mark Ritson describes the “seven perils” Tesla faces with their promotions, it's worth noting that Tesla's dominant EV market share has been declining as cheaper EVs arrive. Nasdaq reports that Tesla sales are growing post-price promotion. The question is - will this be a longer-term market share play?
For context, P&G successfully used promotions during the 2000 recession to increase market share for Huggies (claiming the #1 spot from Kimberly Clarke) by taking a longer-term view (& further exemplifying the importance of understanding your sector). Similarly, Mint Mobile drew attention to competitor price increases with their own promotion in 2022. It was vintage Ryan Reynolds.
Focus on maximizing shareholder value as this will help balance advertising investment for maximum profitability and guide Long & Short-term tactics. After providing a basic formula for calculating shareholder value (NPV minus investment), Binet says that “short & long-term investments should be dialed up and down depending on five factors: profit margins, growth prospects, investment costs, the cost of capital, and investment efficiency.” Brand advertising is more profitable than direct response, particularly in the long term.
As interest rates rise, the cost of capital increases – & with it – associated risk. Brands can mitigate risk through research. Beware attribution, which overestimates the impact of short-term ROI by a factor of two and underestimates long-term impact by 90%. A recent Meta analysis of 3,500 campaigns reveals “across media, the long-term effect made up 60% of the Total ROI.” Attribution alone is “no longer enough.”
Instead of attribution alone, use MMM and econometric studies to understand the true ROI and impact of media choices. Take it a step further, as Nestlé did with Meta. By integrating CreativeX data into an MMM, Nestlé demonstrated the impact of their creative decisions directly on offline sales.
Jenny Bullis, VP of Marketing Science, EMEA at Meta, says, “This is one of the most sophisticated uses of creative data and MMM we have experienced and importantly helped Nestlé scale the advantage.” Read the WARC write-up here.
Exploiting cheap media can help reduce investment costs. Binet presents the decade-old Data2Decisions data in a new light and reminds the audience that “Peter Field and I have shown that with outstanding creativity you can make your budget go about 11 times further.”
Despite this knowledge, since the 2008 financial crisis, the industry has gone to great lengths to automate who sees an ad and when they see it. Brands scaled content production faster than they scaled their capabilities to measure and improve it. This is changing.
Ben Jones, Google’s Global Director of Creative Works, talks about the future of creative and mentions two ground-breaking tools that are helping brands move up the creative maturity ladder by systematizing and scaling their creative processes and measurement: CreativeX and Smartly (Thanks for the shout out).
Aude Gandon, Nestlé’s CMO, proudly describes this process to Nestlé’s investors: “[CreativeX] has really helped us to make sure that we have an amazing kind of effectiveness. We have increased our effectiveness on our digital assets by 66 percent over the past 18 months.”
To help marketers get more from their media spend through creative improvements like Nestlé’s, we’ve produced a ‘Recession Playbook.’
Focusing primarily on media investment, where lower investment, not declining ROI, has seen two-thirds of losses in incremental sales, this playbook provides practical and validated research to help marketers use a new asset - creative data - to invest, allocate, and attribute their advertising investments for greater media efficiencies.
2023, as a result, marks an opportunity for marketers to go back to the basics and focus on the marketing fundamentals that have a long history of building profitable brands.
It also means (borrowing from Worthington) that brands must pay close attention to signals that are the most likely to shape society: “interest rates, inflation, working-age population, income inequality, wage growth (or stagnation), political dysfunction, health outcomes, education, climate, etc.” The 1970s energy crisis and inflation have had long-lasting effects on society (as seen through these charts).
From an advertising perspective, this means creating consistent, creative, and memorable work. It means understanding both the Category Entry Points that consumers use when purchasing products and brands, as well as the storytelling elements, like the ABCDs, that can help capture and maintain the attention of those consumers (as measured through increased sales lift).
Just as the 2010s offered brands the opportunity to become more advanced in their uses of media, the decade that marks the 2020s will witness brands, and the marketers that make them great, leverage new creative-first innovations to put creative and its underlying data at the core of their digital transformation efforts.
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