Marketing’s laws of physics

It’s common to hear early-stage consumer technology companies swear off direct-response paid advertising as a means of aggregating their user base. Companies sometimes adopt this position for philosophical reasons: they feel that advertising is manipulative and exploitative, or that the largest ad platforms are corrosive to social cohesion and potentially even to the democratic edifice.

But in most other cases, companies avoid paid advertising because they believe they can: they point to any number of successful consumer startups that have scaled without needing to allocate budget to advertising. These advertising-averse companies would prefer to circumvent the process of building a performance marketing team internally and empowering that team as the primary engine of audience growth.

This is a completely reasonable and understandable attitude: as I’ve written about extensively, performance marketing teams can become large and complex, and often the work they do is foreign to the core competencies of more product-oriented members of the executive team. It’s understandable that a company would aspire to avoid employing a sizeable, expensive team of people speaking a seemingly alien language to the product team and whose work and output is difficult to evaluate by the company’s management. If this can be bypassed, and an audience can be built through brand development and non-direct response marketing campaigns (which, by the way, are much more fun to orchestate), why wouldn’t a company make that choice?

Companies can certainly take this route, and many have done it successfully. But companies can’t escape marketing’s laws of physics, at least not in the long term, especially when they want to raise money or be acquired. The reality of marketing for mobile consumer products, because revenue analysis can be so granular and exact, is that $1 invested into any marketing channel — whether that be a Facebook ad campaign or a celebrity endorsement — needs to provably yield more than $1 in revenue.

As I discuss in The uncomfortable tension between brand and performance marketing on mobile, brand marketing and performance marketing are not mutually exclusive strategies: everything a marketer does for consumer mobile should fit within the performance marketing umbrella and needs to be informed by a credible growth model. There’s no exemption from the requirements of brand marketing or other initiatives — such as celebrity endorsements, influencer marketing, out-of-home, etc. — to be attributable to revenue and held accountable for yield on marketing spend. And in fact, modeling these activities is, in some cases, even harder and requires more analytical rigor.

Marketing’s laws of physics describe that marketing spend produces impressions and conversions, and for some sets of ratios for both of those outcomes, that spend is profitable. Determining what those values are is somewhat straightforward when the marketing campaigns can be measured and attributed to those outcomes determinstically and with some level of transparency and certainty, as in direct response advertising. This becomes a funnel exercise: some amount of money produces some number of impressions which lead to some number of conversions (revenue), and the amount of money allocated to that can be evaluated with simple arithmetic.

But when a company is promoting an app, or some other digital property, and it chooses to allocate marketing budget to efforts that fall into the brand marketing category, its options for marketing measurement are much more abstracted and difficult to implement. Things like media mix models, holdout market analysis, incrementality analysis, etc. require dedicated efforts that can’t be run in the background, and they require specialists that are likely more difficult to hire (or more expensive to contract) than a direct response media buying and analyst team.

And what’s more problematic for the teams that focus exclusively on non-direct response methods for initial growth is that diversifying away from those methods over time often requires a total overhaul of the product. As I discuss in The Growth Trap, product optimization changes as the composition of traffic does. If a product was built and optimized to not be promoted via direct response advertising, then the product’s monetization schema is unlikely to be viable when direct response advertising is applied to it.

No company can escape or defeat marketing’s laws of physics. Modeling the relationship between growth and marketing spend gets harder and more complex, not easier, the more abstracted away the connection is between the campaign, the impression, and the conversion.

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