There’s a trend that is becoming even more prevalent in the last 4-5 years, especially with online companies. It is “marketing as a last resort” strategy. The scenario goes something like this:
• Company launches without advertising and marketing, depending solely on social media and word-of-mouth
• In early years, company growth explodes and gains critical mass
• They “brag” to other companies in seminars and events that you don’t need advertising. It’s a waste of money.
• Once they gain a mass following, growth slows down as competitors flood the arena.
• Users and revenue (if they had any) begin to quickly erode because of a lack of building a true brand to withstand the onslaught of new competitors.
• THEN, they turn to branding and advertising to rescue them.
• Often, it doesn’t work because it’s too little, too late and they either go out of business or are rendered irrelevant.
• The experience confirms, to them, that they were right, advertising doesn’t work.
The flaw in the story is branding and advertising is not a quick fix or create instant turn arounds. When competitors catch up, all you have left is brand as a differentiator. The window of most “competitive advantages” are about 3-6 months.
Think of it this way, branding is like reputations. It takes time and consistency to build. Consistency in message, frequency and marketing. Sure, you can get “spikes” in your sales charts, but that quickly fades after the promotion. This is why it’s called building a brand.
For example, Groupon has been sliding downhill ever since their IPO. Granted, operations and business model has a lot to do with their deterioration. Because of their initial success, competitors, both powerful and start ups, have joined in the game. The interesting fact is they are currently in talks with advertising agencies about a branding campaign. They claim it’s time to tell their story, but in the opinion of some stock analysts, they could be on the way out. About a year ago, their stock was $26.11. Now (as of the time of this entry) the stock is $5.29. Just now they are telling their story using branding and advertising as a last resort. What they’ve should have done was create a more emotional connection from day one to their users and business partners. Now, everyone is getting into the daily special game and they are considered an aging commodity that doesn’t work for their business partners.
Zynga and Angie’s List are both in trouble as well. Angie’s list launched their first massive national advertising campaign in 2011 hoping to turn their fortunes around. As of this writing, they are still hemorrhaging money ($23.4 million in Q2, 2012 alone.) Zynga is considering advertising for the first time while they are watching their Facebook business erode along with their stock price.
Branding and brand-driven advertising is just as essential at the beginning of a company as it is when a company gets any scale. When you don’t build a strong brand, you leave an opening for competitors to come in and commoditize you because your products and services can, and will, be duplicated. Then it comes down to a couple of scenarios, who brands the best and/or who has the lower price. You lose your “first mover” advantage and are fighting a price war.
So, don’t look at branding and advertising as something to do when you’re in trouble or when multiple competitors get into your arena. It could be too late by then. It’s not that you’ll go out of business, though that is a strong possibility (think Groupon), but you’ll become irrelevant in the market place and be reduced to just a price point. At this point, you’ll need to spend much more in advertising to gain back any ground.
It’s much more effective in the long run to build your business and build your brand at the same time.