Brand is the only Marketing that Compounds

Every founder receives two kinds of information about marketing. The first arrives daily and in detail. It says how many people clicked, what each click cost and how many of them bought. The second hardly arrives at all. It concerns how many people have heard of the company, what they think it does and whether they would consider it when the need arises.

Budgets follow information. The work that reports back every morning gets funded, defended and increased. The work that reports back in two years gets called a nice-to-have. Over time a company can end up spending almost everything on the first kind while depending, without knowing it, on the second.

This article sets out the case that the second kind is the more valuable, and explains why its value behaves differently: it accumulates.

Two kinds of work

The clearest account of the difference comes from Les Binet and Peter Field, who analyzed 996 campaigns submitted over thirty years to the effectiveness awards of the Institute of Practitioners in Advertising in the UK. Their 2013 report separated marketing into two jobs.

Sales activation aims at people who are ready to buy now. It is targeted, rational and quick, and its effect fades almost as soon as the spending stops. Brand building aims at everyone who might buy one day. It is broad and emotional, and its effect in any given week is small. What it does is persist. Each period adds to the last, and by their analysis its contribution overtakes that of activation after roughly six months and keeps growing.

Their headline finding was that the most effective companies put about 60 percent of their budget into brand and 40 percent into activation. The ratio is an average across established consumer brands, drawn from campaigns good enough to be entered for an award, and should be read that way. Their later report, Effectiveness in Context, shows the right balance varying widely by sector and by how established a company is. The underlying point travels further: the two kinds of work operate on different timescales, and a company that measures only the short one will systematically starve the long one.

The attribution trap

The reason this happens is that short-term marketing is very good at taking credit.

In 2019 Simon Peel, then global media director at Adidas, described what his company found when it stopped trusting its dashboards. Adidas had been putting 77 percent of its budget into performance marketing and 23 percent into brand, on the understanding that digital advertising was what drove online sales. "We had an understanding it was digital advertising driving ecommerce sales," he said, "and as a consequence we were over-investing." When the company commissioned proper econometric modeling, it found that brand activity was driving 65 percent of sales across wholesale, retail and e-commerce. The dashboards had been attributing each sale to the last thing the customer clicked. They had no way of recording why the customer was searching for Adidas in the first place.

The most rigorous evidence comes from an experiment at eBay. Thomas Blake, Chris Nosko and Steven Tadelis switched off the company's paid search advertising for parts of the market and compared the results. When eBay stopped paying for advertisements against its own name, almost all of that traffic arrived anyway through the free results beside them. People who typed "eBay" were already on their way. The advertising had been reporting, as its own achievement, sales that the brand had made. The rest of eBay's search advertising did have an effect, though mainly on people who had rarely or never used the site, which is to say the ones its brand had yet to reach.

This is the trap. A known company's performance marketing looks excellent, because much of what it harvests was planted by something else. The better the brand, the more flattering the dashboard, and the stronger the case appears for moving money out of the thing that is doing the work.

What happens when it stops

Because brand effects fade slowly, a company can cut brand investment and see nothing happen for a long time. The damage shows up later and all at once.

Nike is the most visible recent case. Under its previous chief executive the company shifted toward selling directly to customers, cut ties with long-standing retail partners and, by Fortune's account, moved its marketing from brand storytelling toward search and digital advertising. For a while the numbers held. In June 2024, after a bleak forecast, the shares fell 20 percent in a single day and $28 billion of value went with them. Several things went wrong at Nike at once, and no single cause explains it. Even so, the diagnosis offered by the incoming chief executive, Elliott Hill, was specific. "The mistake we made," he said, "is that when things started to normalize, we didn't shift back to running the offense that we know so well." His stated plan was to put sport back at the center and to accept a hit to near-term results in exchange for the long-term view.

Airbnb shows the same mechanism from the other direction. When travel collapsed in 2020 the company cut its marketing spending sharply. As bookings returned, the traffic came back without the advertising. In early 2021 it reported that around 90 percent of its traffic was direct or unpaid, and it chose to keep performance spending low and invest in brand campaigns. Brian Chesky described the role of marketing as education and said it was never "to buy customers."

A caution belongs here. Airbnb could do this because it had spent a decade becoming a name people use as a verb. A young company that switches off its advertising will simply become quieter. The lesson is about what the brand had already stored up, and how much of the company's demand turned out to be drawing on it.

Most of your buyers are not buying today

For companies that sell to other businesses, the argument is stronger still.

John Dawes of the Ehrenberg-Bass Institute has pointed out a piece of arithmetic that most sales teams overlook. If a typical company changes a supplier such as its bank or law firm about once every five years, then only a fifth of potential buyers are in the market in any year, and about 5 percent in any quarter. The other 95 percent cannot be sold to at any price, because they have no need. Dawes's conclusion is that advertising to them works by building memory: its job is to raise the odds that the company comes to mind when the buyer's situation changes.

Seen this way, a great deal of activity aimed at immediate conversion is addressed to people who cannot respond, and judged a failure when they do not. The same message, designed to be remembered, would be doing useful work on all of them. When Binet and Field later studied business-to-business marketing specifically, they found the best results close to an even split between brand and activation, which is still far more brand than most such companies fund.

Why it compounds

Compounding is a strong word, and it is worth being precise about what earns it.

A brand lives in memory. Each time a person encounters a company and recognizes it, the existing memory is reinforced, and a reinforced memory is easier to retrieve and slower to fade. The fifth encounter does more than the first because it has four others to build on. This is the same mechanism described earlier in this series as recognition accumulating through repeated exposure.

The benefits then spread to everything else. A known company's advertisements are cheaper to run, since more of the people who see them respond. Its sales conversations start warmer. Its prices meet less resistance. McCain, the frozen food company, won the top prize at the 2024 IPA Effectiveness Awards for nine years of consistent brand advertising, during which its price sensitivity fell by 47 percent while the average price paid for its products rose by 48 percent. The effect on what it could charge was roughly five times the effect on how much it sold. Candidates apply without being chased. Each of these lowers the cost of growth, and the saving can be reinvested.

There is a condition, and it is where design enters. An encounter adds to the memory only if the person recognizes that it is the same company. A business that looks one way on its website, another in its advertising and a third in its proposals is opening a new account each time. So is one that changes its identity every few years. Consistency of name, mark, color, voice and manner is what allows separate impressions to stack. A distinctive identity, applied the same way for a long time, is the mechanism of compounding. Everything in a brand system exists to make the next encounter count on top of the last.

Interest also runs in reverse. Memories that are never refreshed do fade, more slowly than the effect of a promotion, but steadily. A brand is an asset that needs maintaining.

What this asks of a founder

The practical demand is patience, and patience is hard to fund. A new company has to generate sales to survive, and in its first years most of its marketing will rightly be aimed at people ready to buy. The mistake is to let that become permanent. A share of effort, small at first and rising as the company grows, should go to work whose only purpose is to be remembered by people who are not buying yet.

It also asks for different measures. Brand work will always look poor on a dashboard built to count clicks. Its effects appear in other places: the share of customers who arrive by typing the company's name, the proportion of inbound to outbound leads, how often a price is accepted without negotiation, how long a sales cycle takes. Les Binet has suggested a simple proxy that any company can track: its share of all the searches made for brands in its category, which tends to move ahead of market share. These move slowly, and they are the ones worth watching over years.

Finally it asks for restraint. The fastest way to destroy what has accumulated is to change it. Every reinvention, every campaign that abandons the company's established look for something fresher, every drift in how the name is presented, spends part of the balance. The companies that benefit most from compounding are usually the ones that chose well early and then had the discipline to stay recognizable.

The long position

Performance marketing answers the question of how to sell to the people who are ready today. It is necessary, and it will always be easier to justify. Brand answers a different question: who will be ready next year, and whether they will think of you.

A company that funds only the first is renting its growth. One that funds both is building something it owns, which goes on working during the quarters when the budget is cut and the campaigns are paused. Of all the things a founder can spend on marketing, it is the one that is still there afterward.

References

• adam&eveDDB. (2024). When the chips are down, margins matter. IPA Effectiveness Awards, Grand Prix.
• Binet, L., & Field, P. (2013). The Long and the Short of It: Balancing Short and Long-Term Marketing Strategies. Institute of Practitioners in Advertising.
• Binet, L., & Field, P. (2018). Effectiveness in Context: A Manual for Brand Building. Institute of Practitioners in Advertising.
• Binet, L., & Field, P. (2019). The 5 Principles of Growth in B2B Marketing. LinkedIn B2B Institute.
• Blake, T., Nosko, C., & Tadelis, S. (2015). Consumer heterogeneity and paid search effectiveness: A large-scale field experiment. Econometrica, 83(1).
• Dawes, J. (2021). Advertising effectiveness and the 95-5 rule: Most B2B buyers are not in the market right now. Ehrenberg-Bass Institute and LinkedIn B2B Institute.