A discussion with Rachel Zimmer (GM, Entrepreneur First) and Rob Palumbo, (CEO, OutPoint)

Introduction

Should high-growth companies treat Marketing as an Art or a Science? Are traditional marketers or growth marketers more effective in their roles?

The role of Art vs. Science in the field of Marketing is a classic debate, recently amplified by an ongoing barrage of new technology and the rise of ‘growth hacking.’ Flavors of this debate take many forms inside Marketing teams: from deciding whether to invest in brand marketing vs. performance marketing activities, weighing quantitative data vs. qualitative insights, hiring another growth marketer or a brand-oriented marketer, and much more.

Improving Marketing’s effectiveness is a multi-billion dollar opportunity, given the dollars in play. This year, global advertising spending will jump 10.2% to a record $651 billion in 2021 after falling 4.1% in 2020 (source). But behind the record growth numbers lies a concerning problem around waste: according to data pulled from 70 studies, the median estimate is that 40% or $260 Billion of paid media spend will go to waste (source).

We think the best way to solve the effectiveness problem in marketing is to blend the best practices of traditional and growth marketing. This post features a discussion with Rachel Zimmer (GM of Entrepreneur First, and an experienced “traditional” brand marketer) and Rob Palumbo (CEO of OutPoint, a growth marketing optimization platform).

As Rachel and Rob uncover, there is no scenario in Marketing that deviates from the core effectiveness outcomes that both Traditional and Growth Marketers want to achieve: do you understand the human being on the other end of the message? Can you influence them to take action? Can you maximize the efficiency and effectiveness of your marketing resources?

Marketing as Art (The Fundamentals)

Rachel Zimmer, General Manager at Entrepreneur First & former CPG Marketer

I kicked off my career in consumer goods marketing at Johnson & Johnson, where I deployed well-established "traditional" Marketing frameworks, including Positioning Statements, Customer Insight, and Creative Development.

Now working in technology, I see many companies jumping right to data-driven "growth hacking" instead of doing the crucial heavy lifting required at the outset of Marketing. I think that core Marketing fundamentals are undervalued in the current "growth"-driven Marketing world. Good consumer insight work, value proposition strategy, and discipline on brand creative are making a significant comeback.

Digging back to my consumer packaged goods roots, here is a summary of those learnings:

Defining a Positioning Statement:

• What is a positioning statement? A positioning statement is a concise definition of your competition, target market, the problem that they face, and the defensible solution your brand offers. It Is also known as a value proposition.
• Every Marketing decision that a brand makes should align with a well-defined strategic framework.
• Hubspot has an excellent overview of a variety of positioning statements from Tech to CPG here.

Customer Insight Generation:

• The foundation of any effective positioning statement is a rich customer insight. Brands can unlock insights through thorough customer research using qualitative principles like those found in The Mom Test or Talking to Humans.
• A useful customer insight is a problem statement expressed by the customer independent of hearing a solution. For example:
• Bad Insight: “we use many internal tools, making it hard to keep track of what’s going on.”
• Good Insight: “my number one frustration is working with external freelancers. When we share large files (like video) with external team members, we struggle to capture feedback efficiently and clearly. This leads to misinterpreted feedback, additional revision cycles, and ultimately a longer timeline to get our videos out in the market. This leads to foregone revenue.”

The Creative Brief

• Once the customer insight is identified and the positioning statement is defined, a brand now has the foundation for drafting a solid creative brief.
• The creative brief is an asset to be shared with the creator of their choosing (for instance, a designer, videographer, agency, etc.).
• There are lots of brief templates, but below is one that I use most often:

1. Context

• Provide an overview of your company and brand Details about your company & brand
• Share an overview of what your project is trying to achieve, including business goals and KPIs
• Include existing assets or facts that may be useful for the project such as the brand’s positioning statement and of course, the underlying consumer insight
• If it exists, include brand guidelines that detail how a brand should communicate from tone of voice to font

2. Deliverable

• Indicate exactly what you are looking to have created
• Note the number of assets, file formats, method of file delivery

3. Timeline

• Detail the time and date for each iteration or deliverable in the project. Here is an example list of milestones for a simple project:
• Brief Delivered
• Project Proposal
• Project Approval
• First Cut
• Feedback
• Second Cut
• Feedback
• Final Deliverable

4. Budget

• Provide a range that you expect to spend on the project so that the ideas presented are affordable

Assessing Creative

From my experience in CPG marketing, effective creative accomplishes three things:

1. It Breaks Through. Customers are inundated with thousands of messages everyday so any creative that you develop needs to stand out from the rest. Good creative catches the audience’s attention in the medium that you are delivering the message.
2. The Brand is Memorable. The creative does a good job of making sure the brand is prominent and memorable. If your customer sees the creative but doesn’t remember your brand, what was the point?
3. It Persuades Purchase. Does the creative communicate a compelling message to the audience that motivates them to buy the product or service.

Let’s apply this framework, deconstructing two examples:

Bubly

• Does the creative breakthrough? Yes (though a bit of a cheat) because of Michael Buble (let’s be honest, he can break through anything! Additionally, this ad was shown during the Superbowl which has extremely high viewership. Some may think that the Superbowl is only for big advertisers like PepsiCo, but there are many tech players that have found smart ways to follow suit, like Wealthsimple.
• Do you remember the brand? Yes! Bubly is mentioned in the creative for almost the entire duration of the ad. Additionally, the creative idea of connecting to Michael Buble was tied closely to the brand. If you remember or think of Buble, you now think of Bubly.
• Does this creative persuade you to buy? This is probably the weakest of the three criteria. There isn’t anything that would compel the customer to buy, today. An example of what that could be is a limited time promotion, incentivizing urgency.

Another example, let’s deconstruct this out of home advertisement:

Kit Kat:

• Does the creative breakthrough?  YES! Given the Zoom fatigue that so many are feeling in lockdown, this OOH (out of home) creative does a great job relating to the target with their normal day. By placing the creative in a bus shelter it stands out vs the setting. If this creative were to be a digital ad unit, maybe it would break through less. This shows how the medium and the message work hand in hand.
• Do you remember the brand? Yes! KitKat has historically owned the “break” moment in their target customer’s day to day life. By delivering a message that visually shows the break in a packed COVID-19 work from home day, the brand is memorable.
• Does this creative persuade you to buy? Maybe? The creative is probably more about brand recall than incentivizing immediate purchase.

While the technology, tools, experiences, and data available have evolved, the human, ‘art’ components of Marketing have not, and likely will not, ever change:

• Do you know your audience?
• Do you have a message that meets them where they are,
• ... and drives them to take action or think differently?

Over to you, Rob, to introduce the science side of the marketing debate.

Marketing as Science

Rob Palumbo, CEO at OutPoint & former Startup Growth Marketer

I agree with Rachel that modern, high-growth brands need to balance the strategic, human-centric fundamentals of Brand Marketing with the data-driven thinking of Growth Marketing. It can’t be one or the other.

My background is in data-driven Growth Marketing. I cut my teeth leading Growth and Marketing for several high-growth consumer digital businesses, including Borrowell and Properly, working on initiatives across paid marketing, product expansion, and customer retention. I helped those companies grow products from 0-to-100k+ users and millions in revenue, with data-driven marketing serving as a primary growth lever.

A recurring problem I’ve observed on my teams, and one I’ve been guilty of myself, is that Growth Marketers typically “think” in siloed terms of data, conversion rates, growth loops, and funnels, and not enough in terms of qualitative human needs or brand. After all, the purpose of advertising isn't to predict what will convert. It's to influence people to convert.

Let’s cover some common ground. Both the traditional ‘Art’ side of the coin and the data-driven ‘Science’ side of the coin concur that making effective decisions to reach i) the right customer with ii) the right message at iii) the right time is crucial. Marketing Science builds upon this foundation by leveraging experimentation, data, and technology to optimize typical Marketing objectives such as revenue growth or customer acquisition.

What is “Growth” vs. “Performance Marketing”?

It’s important to make a clarification here. In technology companies, “Growth” is a multi-functional process of improving an objective/output (e.g. new customers, revenue) via experimentation of prioritized inputs (e.g. ad spend, retention emails, pricing, product) across the customer journey. Notably, the field of “Growth” expands beyond the traditional domain of Paid Advertising into product, design, pricing, retention, and other fields. In tech companies, many engineers, product managers, designers and data scientists will work on Growth, in addition to Marketers.

Performance Marketing is a subset of the Growth domain, typically focused on using paid ads to directly grow the business. At its core, Performance Marketing (sometimes referred to as direct response advertising) is a methodology that forces ad spend and Paid Marketing decision-making, such as channel mix investment and customer targeting,  into a system quantitatively mapped to business objectives.

For the purpose of this post, we will dig deeper into the science behind Performance Marketing.

Principles of Performance Marketing

The classification of Performance Marketing as a Science started with the 1923 marketing classic “Scientific Advertising,” which argued for the importance of measurement and experimentation in advertising. Notably, Scientific Advertising contains an original description of the process of split testing and coupon-based customer tracking (precursors to today’s digital-based customer attribution and measurement tools).

“Almost any questions can be answered, cheaply, quickly and finally, by a test campaign. That is the way to answer them — not by arguments around a table. Go to the court of last resort — the buyer of your product.” - Scientific Advertising

Split Testing (A/B Testing)

A split test (also referred to as an A/B test) is a technique that tests two (or more) elements of a marketing tactic against another to find out which combination of inputs delivers the best results for a desired output. In my experience, a successful split test can increase return on investment (ROI) by up to 10x! But even “losing” tests are helpful for learning what works and what doesn't.

(Source)

Split testing applies to nearly all areas of Performance Marketing and the wider domain of Growth. Some examples of tactics Marketers can split-test include advertising creative, emails, product copy, landing pages, channel mix, and pricing.

Channel Mix

There are a lot of paid marketing channels to choose from. New channels are constantly emerging. Existing ones are evolving. After testing the most popular channels like Facebook and Google, the question "What channel should I test next?" is a common ask.

Performance Marketers ought to think like investors when deciding upon channel mix, in search of winners that provide a favorable return. A first principles approach is to dig deep on the target audience (like how Rachel describes in the customer insights section), do research on where they spend their time (online and off), and then conduct a channel evaluation exercise:

The key attributes we consider at OutPoint when evaluating channels are:

i)  input costs (how much will the channel cost in learning time and money?),

ii) targeting (how well can we target our desired customers?),

iii) context (can we reach customers in relevant buying moments?),

iv) scalability (how much of the target audience is within the channel?)

v) expected value (i.e. return; given all of the above, how will the economics work?)

Combining the above mindset with the following excellent chart from RightPercent should provide a signal in the right direction:

(source)

It is essential to validate product-channel fit and measure consistent performance before expanding ad spend against a given channel. Some quantifiable signs of product-channel fit include:

• Customer Lifetime-Value (LTV)  > Customer Acquisition Cost (CAC)  – To have a sustainable business, the cost to get a customer must be significantly less than the expected lifetime value of a customer (3X is a typical benchmark). A related alternative metric is Return on Ad Spend (ROAS).
• Short payback period (< 12 months) – This is the amount of time it takes for a customer’s profit to “pay back” CAC (a few months is 👍; shorter payback periods imply the biz won’t need to be as reliant on venture capital to grow)
• As a channel is validated, the Marketer should increase spend & diversify to new platforms. To measure performance, an understanding of attribution is necessary.

Brand vs. Performance Marketing

Brand and Performance Marketing should not be viewed in isolation. It’s a false dichotomy.  “Brand marketing” is not diametrically opposed to  “Performance marketing” because all marketing investments should ultimately map to business objectives and value creation.

A marketing leader’s job is to drive profitable revenue growth, not to win creative awards:

“When I write an advertisement, I don’t want you to tell me that you find it ‘creative.’ I want you to find it so interesting that you buy the product.” - Ogilvy on Advertising (1982)

Performance Marketing is typically crafted to directly drive revenue and acquire customers, which helps build brand awareness as more people adopt the product. Similarly, Brand Marketing can impact performance marketing by providing measurable cross-channel lift on click-through rates and conversion rates. They are two sides of the same coin, with different attribution and measurement challenges.

Gaining an understanding of the various mathematical points where marketing channels hit  diminishing returns, whether they are performance or brand oriented, is key. But gaining confidence in achieving this requires a deeper understanding of attribution, incrementality, and forward-looking scenario modelling.

Attribution

In Marketing, Attribution covers the tools and systems by which Marketers map the value or ROI to the various tactics and channels that convert potential customers to the product. In other words, attribution explains the means by which the customer came to know and buy the product.

Attribution information is used by Marketers to analyze past campaigns and understand which tactics were the most effective and influential as determined by metrics such as return on ad spend (ROAS) or customer acquisition cost (CAC).

Additionally, many attribution tools rely on click-based methodologies, which may “over-attribute” click-based media such as Google Search or Display Ads, and “under-attribute” fundamentally view-based media such as audio or video-based channels like online video or traditional “offline” radio and TV.

Google Analytics Reporting

A common pitfall of many attribution systems is that they underreport the more qualitative aspects of Brand Marketing, such as brand preference, trust, and consideration. To get around this, many Marketers invest in ‘Brand Lift’ studies to understand the lift of advertising on various brand attributes. For instance, Facebook has popularized a ‘Brand Lift’ test methodology to help marketers understand how well campaigns perform independent of other marketing efforts.

Attribution reporting is often valid for historical reporting, but not as useful for forward-looking decision making and understanding cross-channel impacts. To better understand the full channel mix and optimally plan for the future, data-driven Marketers are now turning back to a practice known as Marketing Mix Modelling.

Marketing Mix Modelling

Marketing Mix Modeling (MMM), also known as Media Mix Modelling,  is a subset of Econometrics and employs advanced statistical modelling to map increases and dips in revenue to actions and investments taken by Marketing teams (in addition to other factors).

The goal of MMM is to explain how much each marketing channel contributes to revenue and how much to spend on each marketing channel. It is the foundation for effectively optimizing a paid media budget across different channels, with an understanding of marginal returns and incrementality.

"Media Mix Modeling is a methodology that attempts to quantify the incremental business impact of spend on any given channel within the context of a multi-channel advertising environment… Media mix modeling allows advertisers to map spend to revenue on the basis of incremental value and diminishing returns: it sidesteps completely the complications caused by last-click attribution” - Eric Seufret, Mobile Dev Memo

Incrementality

To maximize performance, it is optimal to make forward-looking ad spend decisions based on an understanding of incremental value, cross-channel impacts, and marginal returns. The “causal” effect of showing an ad to a potential audience or not, often referred to as “incrementality,” is a key question related to advertising effectiveness and budgeting for performance outcomes. If you are curious to dig in on the science behind incrementality, best papers on this topic was authored by Randall A. Lewis, Director of Economics at Netflix.

(source)

Today, many Marketers make media allocation decisions without an understanding of incrementality. Many decisions are made using gut feel, and if data is involved, it lives in spreadsheets, biased attribution from leading ad platforms, and legacy analytics tools that are fine at historical measurement, but lack forward-looking incremental rigor. For example, ad spend decisions are typically made based on reported Average CAC vs. an understanding of incrementality and Marginal CAC. (See: Marginal vs. Average CAC).

A few companies that are known to use incrementality successfully include Booking.com, Stitch Fix, and Netflix:

(source)

It is now possible to leverage data and technology to model scenarios to reduce waste and improve effectiveness of ad spend based on incrementality, but it is challenging, complicated work.

At OutPoint, we think that Marketing is evolving its practices to adopt MMM, incrementality, and brand lift studies in decision making. OutPoint's technology builds upon attribution best practices to apply MMM principles in real-time, using advances in machine learning and causal inference to create a unified decision making system for Performance Marketing.

OutPoint’s models are optimized to simulate brand and performance channels alike to achieve higher revenues, lower costs, or both. Ultimately, Marketers can make reliable spend decisions based on the objective of maximizing return on ad spend (ROAS) across channels.

Putting it all together: The Marketing Budget + Plan

“The tendency of modern advertising is to eliminate waste. Your object in all advertising is to buy new customers at a price which pays a profit.” - Scientific Marketing.

The Marketing Budget (and supporting Plan) is the highest-level decision-making tool at a Marketer's disposal, and integrates all of the brand and performance decisions. The budget outlines all the money a business intends to spend on marketing-related initiatives over a predefined time. Marketing budgets can include costs such as paid marketing, agencies, sponsored content, creative design, new marketing hires, and marketing technology software. The Plan provides the qualitative, tactical, and strategic backing for the budget.

A Performance Marketer aims to use whatever tools and information are available to maximize business performance and eliminate inefficiency in the marketing budget, typically focusing on the Paid Marketing line item. At OutPoint, our definition of wasted spend is media dollars that do not map to business performance (including brand marketing) or are well past the point of diminishing returns.

What's evolved in recent years is the role of automation and data in the practice of setting the marketing budget: software that aids decisions and leverages massive datasets will do more and more of the heavy lifting to maximize efficiency and effectiveness. To solve this issue and empower brands, OutPoint applies econometric and media mix modeling principles to the challenge of effective budget allocation.

Read about how OutPoint works

Conclusion

We think the Marketing practice is best tackled with a foundation of understanding of marketing fundamentals (the art) paired with a data-driven, systematic rigor (science).

To maximize Marketing effectiveness in 2021 and beyond, high-growth companies need to nail both the Art (qualitative fundamentals) and Science (quantitative pursuit of performance) of Marketing.

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