Performance at the top of the funnel

In recent years, the importance of strengthening the brand has been somewhat discredited. To prove that this is true, just follow the money: there were many companies that migrated almost all of their budget to performance marketing – which became unbeatable in delivering extraordinary results in the short term. That's how people turned leads and success began to be measured by clicks. Meanwhile, the brand stayed there: forgotten. Malnourished. Weakened.

But, over time, these same companies began to realize that the return on investments in performance began to become increasingly lower. And that leads were becoming increasingly expensive. Growth stopped while investment reached its maximum level. This scenario provoked mixed feelings among most managers. On the one hand, they felt the urgent need for a new approach that would put them back on the path to growth. But, on the other hand, change seems almost impossible, since the company depends on investment in performance to maintain its results and is already investing everything it can in this format.

If this scenario sounds familiar, know that you are not alone. This phenomenon even has a fancy name: “Performance Plateau” – which is explained brilliantly by Tom Roach in this article. According to the author, companies that follow an approach exclusively focused on performance, at some point experience the plateau, which is the point at which investment in performance media reaches its maximum degree, while company growth remains stagnant.

One of the main reasons why the plateau happens is attributed to the 95/5 rule described by professor John Dawes from the Ehrenberg-Bass Institute, a famous institute that researches marketing efficiency. The rule says that only 5% of buyers in a category are looking to buy the product right now, while the other 95% represent future demand. Performance marketing seeks to impact 5% who are at the point of purchase and, once they are all reached by the media, growth stops. Now, investment in a brand, which generally has a less niche reach, is capable of sustaining sales in the long term even if current buyers are not reached by a brand message at the time of purchase. Therefore, a more balanced approach would avoid the emergence of this performance plateau (graphic below). 

The short-term return culture is also seen as a villain for brands' sustainable growth. According to a McKinsey report, 80% of CFOs at 400 of the world's largest companies would sacrifice their company's economic value to meet this quarter's earnings expectations. In other words: we start to value the immediate at the expense of almost everything else. O turnover of C-level executives helps explain this movement: when investing in the long term, many of them will no longer be in the company when the time comes to reap the results. So the system is organized in a way that makes it difficult for brands to recognize that they have a problem and prepare to boost their growth again.  

Contrary to this movement, we have recently seen some brands burst this bubble: they revisited their investments, changed strategies, reaped promising results and returned to advocate in favor of a more balanced approach – in which the long term is not sacrificed by the pressures of the quarter. This is the case with Airbnb. Since the pandemic, the platform has changed its marketing strategy to be more brand-driven and less reliant on search engine media. As a result, it saw its revenue grow like never before, exceeding pre-pandemic rates by 38%. Last year, CEO Brian Chesky stated that Airbnb now looks at the role of marketing as “education” rather than a tool for “buying customers.” News like this spread through the industry at speed and served as a warning to many who are facing the “performance plateau” without knowing how they will get out of it. 

Even with all these red flags indicating the danger of an exclusively performance-oriented approach, it is possible to understand how we ignored these signs along the way and got here. Before digital marketing became ubiquitous, branding might seem like a dubious approach in the eyes of executives. Advertising agencies relied too much on emotion and forgot to look at the business. And so, performance and its sophisticated dashboards arrived to occupy this space. Today, a new space is opening up and, instead of returning to the previous model, marketing dreams of combining the best of both worlds (graphic below).

In this new moment, marketers must pursue an idea of “Performance for the top of the funnel”, in which efforts to generate awareness, desire and attention from consumers are as important and data-driven as the conversion stage is today. It sounds simple, but this will require a complete re-learning of the ropes by marketing teams, as many performance-oriented brands lack the skills, experience, people and partners needed to take them to this next level.

While there are many proven tools and techniques to drive this balanced approach efficiently, there is no cake recipe: each brand must find its ideal investment, measurement and balance model in a full-funnel approach. But, despite knowing that we have a period of great learning ahead, we can be encouraged by the possibility that the time is coming for brands that were forgotten, malnourished and almost dead from starvation to receive the attention they so desperately need. Even if belatedly, companies seem to be realizing that investing in brands is not a luxury, but rather a guarantee of cash flow in the future. 

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