ROBERT GRACE: Executives risk wasting much of their budget assigned to pursuit of growth

SA escaped a technical recession in the fourth quarter of last year by the skin of its teeth, according to Stats SA figures released in early March.

This was not a surprise — every executive in the country is acutely aware of the business operating conditions and no doubt scouring their businesses to find ways to boost efficiency, cut costs where possible and drive growth.

However, without absolute clarity about where sustainable growth will come from, businesses run the risk of perpetuating the status quo and channelling the majority of their marketing budgets into strategies and tactics that don’t work, and certainly don’t deliver any impactful return on investment.

That’s most likely startling to read, especially as we live in an age where the promise of digital is its laser-sharp ability to link spend to return on investment. The truth is more nuanced, and many businesses are at risk of wasting a significant chunk of their marketing spend.

Karen Nelson-Field, globally acclaimed researcher in media science and the founder of Amplified Intelligence, conducted a study of more than 130,000 online advertisements and found that 85% failed. The actual findings were that the attention threshold for advertising that has an impact on brand building was 2.5 seconds.

That doesn’t sound long, but the frightening statistic is that 85% of the 130,000 adverts failed to reach that critical benchmark. Any CFO would have sleepless nights knowing that this much marketing spend is spent on the pursuit of growth and is instead poured down the drain.

Rise of digital marketing

To understand how we arrived at this point we must cast our gaze back to the rise of digital marketing. Economic conditions were better and many brands were enjoying double-digit growth. In this environment, businesses poured money into marketing while enjoying growth in the belief that something was working, but in all honesty not knowing quite what or why.

Digital marketers had a spring in their step, telling businesses that they could show executive officers exactly what was happening and where their return on investment was coming from. However, businesses were only seeing what was happening in the short term. They couldn’t see what was happening over the medium and long term.

Why does this matter? Consider that not too long ago there was no Netflix or Uber. They’ve radically changed our world. We can only imagine — probably with a healthy dose of trepidation — what the world and marketing will look like in 10 years’ time. In the build-up to this future, economic conditions are unlikely to be much different from now, so executives need to have a plan for sustainable growth. I often ask clients: where will sustainable growth come from over the next three to five years? Not knowing that answer is frightening.

The risk of being caught up in the short term should raise red flags for executives who want and need precision and real return on investment. A few years ago Adidas went through a moment of enlightenment. We can call this the big Adidas wake-up call that should be sounding alarm bells for all brands. Accidentally, they turned off their search marketing in South America. They didn’t know they’d done it, and the reason they were in the dark is that their sales were unaffected. They’d been attributing their sales to the significant budget assigned to search marketing.

Brand advertising

Their moment of clarity arrived when they realised they had been incorrectly attributing sales. They believed their short-term media spend was delivering their sales, when in fact those sales were coming from brand advertising, despite over-investing in digital and performance marketing at the expense of the selfsame brand advertising.

Airbnb slashed its performance media budget by about 90% two years ago and is sticking to it, saying that the move is paying off. The business has shifted its strategy from buying customers to brand education, which it said had boosted direct bookings and, as a result, profits.

This is a wake-up call for the marketing industry, which waxes lyrical to CEOs and CMOs about digital’s efficacy and their ability to prove it, when in reality it may not be working quite so precisely and it may not be delivering sustainable growth because it is too focused on the short term.

This is not to say that performance and digital marketing are irrelevant. This could not be further from the truth. They are extremely powerful tools when used in a broader toolkit. The difficulty is that the name “performance marketing” tends to lull brands into a false sense of security. What brands should demand is marketing that performs at the moments that matter.

Businesses need to invest in deep brand awareness to best prepare themselves for a rapidly evolving world and to embark on a journey of sustainable growth. It is evident that the only way to achieve this is through absolute clarity on positioning, equity and demand. In other words, do you have the most precise positioning in the market? Do you know what you want to be famous for? And, are your marketing efforts performing at the moments that matter?

It is only through this precise clarity that efforts will deliver the growth brands desire and the return on investment executives demand. Business leaders should ask themselves these two questions today: do I definitely know where growth will come from, and how am I positioned to harness it?

• Grace is cofounder and chief strategy officer of M&C Saatchi Group SA.