You could be forgiven for thinking that the importance of long and short in markets is only related to the positions you or your clients hold, or your tech that facilitates, clears, monitors and informs trading activity. However, there is an equally important long and short in marketing in the markets.
If we were to take a look under the bonnet of your company, I am pretty sure, 80-90% sure in fact, that you are mostly short marketing. You do a lot of product marketing, pumping out content like an HFT mostly through digital, run campaigns over a few months, a sprinkle of events, and acquiring the best giveaways, or I believe my American cousins call them premiums. Oh, the time spent discussing those for FIA EXPO!
Maybe 10-20% are doing something different like multi-year sponsorships of sports teams, maybe even a TV ad or print.
Whatever you are doing, the right balance between long and short marketing is crucial not only to your marketing but to the ultimate success of your firm.
So what is the long and short of marketing all about?
The long and short of it
In futures and options we have Melamed and Scholes, and in marketing we have the equally illustrious Les Binet and Peter Field. Over the last decade or so, Binet and Field have published some of the most compelling, data science-based research on the most effective way to employ marketing. In their seminal text, ‘The Long and Short of it’, Binet and Field show through over 30 years of real world empirical evidence the optimal balance marketing firms should employ to improve not only effectiveness and efficiency of marketing, but also sales and profitability. Those in turn affect the intangible value of the brand, and therefore the very tangible valuation of a firm.
When we talk about the long in marketing, it means the resources spent in longer term brand building activities, typically lasting longer than a year. The short in marketing has no universal definition, but can be described as performance marketing, demand generation, or sales activation, activities designed to drive or close sales in the shorter term of a year or less. The table below surmises the key differences between the two.
Now we can see the difference between long and short marketing, and following the rationale that most firms’ marketing is short, what does this mean for sales? This is where things get interesting, as the following chart illustrates.
The red line shows what happens when we deploy a short term marketing campaign; let’s say for the sake of argument it is a digital campaign that runs for a couple of months. The data and experience verifies that short term campaigns generate an increase in sales quickly, but as soon as the campaign stops, sales drop off back to near zero, and there is little if any incremental value from the campaign and spend. By contrast, brand building campaigns run over 1-3 years are slower to show results, but the investment is incremental and over time provides a greater sales uplift than the short.
Any idiot can do the short term. Any idiot can do the long term.
Much like bulls and bears, there is an ongoing difference of opinion on the long and short in marketing, and this is where markets and marketing differ, unless you are running a 60/40 investment portfolio – more on that shortly.
The CFO of Pepsi, Hugh Johnston, adroitly put it like this, “Any idiot can do the short term. Any idiot can do the long term. The trick is to do both.” I would argue that Pepsi knows a thing or two about successful marketing.
To be more successful, then, you need to have both the long and the short of marketing and that begs a couple of questions, why and how?
The answer to the first question is that the long and the short work together in tandem when deployed correctly. Long term brand building creates brand equity and short term sales activation exploits brand equity, and this results in a higher profit effect when combined rather than individually. In very simplistic terms, if I know your brand at the top of the sales funnel I am more likely to click your call to action banner or pop-up on a website at the bottom of the sales funnel.
What portfolio managers can tell us about marketing
To answer the how question, we can turn to our friends in portfolio management. Until recent times the 60/40 portfolio split was often viewed as the golden ratio. 60% stocks, 40% bonds and happy days. Well, that ratio also applies to the long and short of marketing; portfolio managers would have the perfect ratio for the marketing of fast moving consumer goods (FMCG) with 60% of resources spent on the long brand building and 40% on the short sales activation.
But we aren’t in FMCG, I hear you cry, and you are of course correct. Thankfully Binet and Field’s research has gone to a number of categories. As you can see in the chart below, the ratio varies between goods and services, consumer, B2B and not for profit. These are very broad categories, but provide a useful starting point of what roughly a golden marketing ratio may look like for your firm.
What shouldn’t have escaped your attention is the far right column on the above chart, and this is a critical point. What is actually happening in marketing, based on Binet and Field’s and others research, is the marketing ratio most firms are employing is at least 70% short term sales activation and only 30% or less in long term brand building. Marketers, like their markets counterparts bulls and bears or portfolio managers, can get their balance or ratios wrong, and the results are rarely good when they do so.
As I said at the start of this article, most of the marketers marketing in the markets, 80-90%, are short marketing. In fact, based on my experience working across a wide array of firms in the markets ecosystem, that 80-90% of marketers are spending 80-90% of their budgets in short term marketing. We can discuss budgets and efficiency in more depth another time, but I am sure you can see now that that employment of resources is not optimal for sales and profitability.
The shorts are getting shorter
So why are so many marketers getting it wrong? That’s a complicated question and I could write another article just on that. But with the pun fully intended, here is the short answer: education, targets, metrics and budgeting.
According to Professor Mark Ritson, about 50% of marketers have no or a low level of quality marketing training, and I put this as being higher in marketers within markets. Often marketers find themselves fully involved almost exclusively in communications at the short end of marketing and its execution. This plays out by firms missing the importance of proper market and customer research to develop an informed marketing strategy with the correct golden marketing ratio, and therefore less effective tactical execution.
In businesses driven by quarterly sales targets and results, the pressure is on marketing to produce more short term marketing to drive short term sales. Unfortunately, pasting together 2 years of quarterly marketing campaigns does not provide the incremental increases and combined effects of long term brand building and short term sales activation that was illustrated earlier. To use an idiom from the City of London in the 13th century, you are robbing Peter to pay Paul.
Metrics for the short end of marketing are typically easier to measure, particularly for digital, and long end brand building can be more challenging to measure. Therefore many marketers shy away from doing it, as they can’t provide the evidence to justify the budget allocation with the CFO – by the way, it isn’t just marketers that need to be better educated in marketing!
The three previous factors lead to a misallocation of budgets and marketers not taking a more strategic, longer term view of budget allocation over multiple years. Again, budgets are an article in themselves, but I’m sure you see the point.
The general trend in marketing is leading to shorter shorts, and thus compounding the issue that already exists.
The overly familiar tale of the perpetual Fintech start up
With marketers becoming increasingly short term in their thinking and campaigns, where does that leave firms?
The golden marketing ratio for your individual firm can be impacted by other factors beyond sector and customer type, such as what stage of growth the firm is at and how long your sales cycle is. To illustrate my point, let me tell you a little story about a firm selling trading support software to the full breadth of trading firms on the sell-, buy-side and trading venues.
This firm was over twenty years old, had a good product, a prestigious list of clients and a sales cycle average of 2 years. However, things were starting to reach a standstill, as they had largely exploited the opportunity to sell to existing clients, margins were eroding through continual discounting to maintain clients, and attracting new customers was difficult as they kept losing out to other brands.
When you looked at their marketing over the last twenty years, they had spent around 90% of their budget and resources on short term sales activation for product.
Now pay attention, some important golden marketing ratio lessons here:
– When you are a start up it would be perfectly acceptable to spend almost all of your budget on short term marketing to pick up some initial customers. You need customers to be viable and establish the firm as a brand.
– If customers or potential customers don’t come to market often and/or your sales cycle is longer than a year, you need to weight your golden marketing ratio more towards long term brand building, as short term sales activation may miss when the customer is looking for a solution and deliver an irrelevant message. According to work by LinkedIn and Professor John Dawes at the Ehrenberg-Bass Institute, only about 5% of B2B buyers are in market to buy at any given time. It could be years before they come to market. When they do come looking, will your brand be top of mind with the buying committee?
Beyond the start up phase, short term sales activation works best with existing customers who already know your brand, long term brand building works best with new customers, but when combined with the short it works better still. Excuse the different measurements of the charts, it does not impact the point being made.
And here lies the trap of the perpetual start up. After 20 years of short term marketing the firm mentioned still looked and acted like a start up. The firm was not top of mind when buyers came to market, when they were included and considered as an option they were losing out to better known and understood brands in the market. With existing customers their pricing power had eroded through a lack of perceived brand value in relation to competitors. Their growth, profitability and valuation were all experiencing the effects of a myopic focus of short marketing. They were suffering IBM syndrome.
Not investing in brand building leads to what I like to call IBM syndrome.
Back in the 1970s IBM was facing increasing competition and decided to run a campaign with the slogan, ‘Nobody ever got fired for hiring IBM’. Personally I’m not old enough to remember the original, but you still hear that phrase regularly in tech companies and see it in MBA and business text books. The simple subliminal message of the campaign was: ‘don’t risk your job by hiring an unknown brand that may not perform’. In my opinion it is one of the greatest, if not the greatest example of drawing on brand strengths and using them to hit human emotions in the business to business world. Yes, emotions are important in B2B too.
IBM syndrome is where you find yourself continually losing out to other brands because you failed to get your golden marketing ratio correct by not investing enough in long brand building, so nobody really knows who your brand is and what it stands for. Therefore you are discounted largely on the basis that you haven’t built the salience with potential buyers and a level of trust and understanding. Nobody wants to get fired for hiring your firm!
This means you struggle to get new customers and grow market share, and any marketer worth their salt knows you have to keep filling up the hopper to continue to grow in the long term.
IBM syndrome can ultimately effect valuation, in the case of the perpetual start up it did when a private equity firm came knocking.
When I was new to marketing in markets I decided I wanted to understand trading better to inform my customer research of traders, so I promptly signed up for the CISI level three courses in regulation and derivatives trading. Marketers aren’t generally known for their mathematical prowess, but I enjoyed that aspect of the course, using the Greeks for options and calculating fair value of futures. Those lessons stuck in my head, as did some work I had done earlier around brand equity and company valuations using the work of American brand guru Kevin Lane Keller.
Brand equity makes up a considerable part of the intangible assets upon which firms are valued, and the value of intangible assets such as brand equity, trademarks, copyrights, patents, etc. have grown significantly over the last few decades.
The lesson here is simple, if you don’t invest in building your brand and brand equity that results from it, you won’t just be reducing the effectiveness and efficiency of your marketing to generate sales and profitability, but you will be behind the curve to achieve a fair valuation. If you are scaling up, looking for funding, to sell or an IPO, not investing in your brand at the right time in the right way is going to cost you, especially now the era of cheap money is over.
A Last look
Just like my friends in the FX market, I wanted to provide you with a last look at what we have been discussing.
If you want your firm to be more successful, it is crucial you get your balance of the long and short of marketing correct.
You need to work out what the optimal long and short balance is for your firm’s golden marketing ratio. There are many factors to determine this and we have only discussed a few.
The golden marketing ratio applies to all firms big and small with diverse customers in marketing in the markets.
It is important that you take a longer term, strategic view of building your brand – it takes time but pays off significantly and can be measured.
The short marketing brings in the sales to pay for the long brand building, which enhances the short. It’s a virtuous circle when you get it right.
The long and short of marketing in insolation or incorrectly balanced reduces marketing effectiveness, efficiency and performance. That in turn reduces sales, profitability and brand equity. The result, the valuation of a firm won’t be what it could or should be.
To implement this approach it takes a mindset change across the firm, training for new skills and a pragmatism to implementation.
This is only one part of the marketing equation, but it’s a critical part, so don’t ignore it.
If you are at FIA EXPO and would like to discuss this article or anything else brand, communications and marketing related please let me know: firstname.lastname@example.org
Thom Lant is a brand, communications and marketing consultant with over 15 years of international experience working with start-ups through to some of the largest firms in the financial markets and commodities ecosystems.