How to Rethink Paid Marketing: Growth and Investment

Paid Marketing (also known as Paid Media) is going through its own renaissance. In years past, marketers viewed paid simply as a spend lever to drive product or service awareness or conversion. This put paid squarely in the cost bucket and not as a revenue generator. However, with the rise of tech companies and SaaS products, paid marketing has become cheaper and easier to scale, and as a result, paid marketing has become a lever for measurable growth and investment. 

1. Growth Lever

With any company, growth is important. Oftentimes, when we refer to growth, we mean topline or revenue growth, which can be defined in the most simplistic way as:

# of customers × $ spend per customer

Growth comes in two forms: organic or paid.

• Organic growth is an increase in customer base or spend overtime without the help of paid marketing (e.g. advertising or promotions). These customers who drive your organic growth tend to be your “loyalists” (aka the ones who are most involved and most bought into your product/service). They are also your best brand ambassadors and can do the marketing for you.
• Paid growth is when you spend money to acquire customers directly or get them to spend more money with you. This usually comes before or after organic growth. For instance, startups will spend to acquire customers at the beginning (e.g. promotions and discounts) and then leverage product/service enhancements to keep growing their customer base organically. Larger companies will leverage paid when their organic growth has slowed and they need to find new customers or new ways for existing customers to spend more (e.g. TV ads).

The goal of any paid marketing is to spend $1 and get more than $1 back in revenue in a period of time. For example, Brand A spends $1 on an ad and attracts a customer who spends $2 on Brand A’s product. This $1 ad generated Brand A $2 in revenue, which means the ad spend returned 2X the spend or 100% in ROI. Different industries and paid marketing activities have different benchmarks for what the multiple or ROI should be to justify the spend.

Paid marketing drives two major growth factors: awareness or conversion. 

• In a customer’s decision journey, awareness means ensuring customers have your brand top-of-mind during their consideration phase. For example, a female customer is walking down the street when she suddenly realizes she needs a new pair of running shoes. Before doing research, 1-2 brands come to her mind. Being in those top two spots during her initial consideration state is where brands spend awareness-driving marketing dollars. This could mean buying ad placements or sponsorships in broadcast TV programs or over-the-top streaming services. This could also mean buying ads on web and mobile. The goal with awareness-driving paid marketing is to increase brand association with a particular customer need/want and is typically a long-term play. Thus, the measurement is usually brand lift pre- and post-campaign and long-term customer spend tracking. 
• Conversion, on the other hand, is a short-term play. It means getting customers to purchase or use your product/service immediately. Using the same example, when the customer does her research and decides at the end between two brands for running shoes, you want to make sure you’re the brand she picks. This could mean offering promotions through a variety of display or search ads to ensure the moment she is ready to purchase the shoes, your brand is there to convert her. The goal with conversion-driving paid marketing is to directly connect the customer to the product/service at the moment of purchase. This is usually measured by customer taking a direct action that you want (e.g. she gave you her email address for further contact or she made a purchase).

2. Investment Lever

Here is where paid marketing has evolved from the Mad Men days. Aside from being a growth lever, paid has become an investment driver. When I think about my paid marketing budget, I think of it as an investment. I see myself as an investor, very much like a venture capitalist (VC), because in actuality, that is who I am. When I spend $XX dollars on a platform to acquire customers or drive brand awareness, I am investing $XX dollars into that platform. The money I spent as an advertiser will go towards growing that business, so I need to consider that platform’s future growth potential. And, thus, I look at both short-term and long-term metrics to justify my spend.

When I make these investments, I consider a few things:

• Can this platform reach customers I can’t easily acquire from other platforms?
• What does the platform’s organic customer growth look like over time? Will this platform continue to get more customers to use its services?
• Are there competing platforms that my customers would use instead? Will those platforms be cheaper for me to invest in?
• Are there partnership opportunities with this platform to build new products/services together that could help my business grow?
• Can this new technology or capability help me scale my investment over time?

For example, I have been looking into new platforms (aside from Facebook/Instagram and Google) to find new customers for my business. I have an opportunity to invest $XX million on digital ads. Instead of spending it on Facebook/Instagram where my competitors are bidding up every ad and where I have already reached the core of my customer segment, I could invest the same ad spend on an up-and-coming ad platform where I expect unduplicated customer reach (from any of my other paid channels) and a growing customer pool over time. In my particular use case, I could consider GIPHY, one of the world’s largest GIF platforms that is incorporated into consumers’ everyday private communications. With over 70 trillion messages sent in 2018 (according to Ad Week coverage) and my belief that memes and gifs are leading indicators of consumer purchase sentiment, there’s a lot of opportunity for my brand to drive awareness through branded gifs on GIPHY, especially if paired well with direct response campaigns in other channels that can drive conversion. Or, I could consider TikTok, a social media platform for creating, sharing and discovering short videos, where Millennials and Gen Z are both the consumers and influencers.

Takeaway

Paid marketing is shifting from being a cost-center to a growth driver. Thus, marketers need to consider paid as an investment strategy into new technologies and customer platforms.