Silicon Valley has given rise to enormous businesses that won over millions of consumers with convenience but still make losses year after year. A handful of familiar unicorns will reportedly lose around $13 billion this year collectively. In fact, we’re surrounded by losers.
The New York Times recently reported that investors are losing their appetite for the growth-at-all-costs philosophy in favor of a model zeroing in on unit profitability. This will trigger a major shift in the marketing landscape, with customer acquisition no longer being the paramount goal.
Here are four ways for high-growth tech brands -- and their agency partners -- to respond.
1. Re-balance brand and demand
The idea that you can build a brand by buying customers will lose support.
While this approach gave rise to numerous unicorns, you could argue that many of these companies never cultivated real consumer love, which is why they’re hurting now. We see customers pin-balling from brand to brand in categories like food delivery and ride sharing, energized by promotions and discounts but not becoming true brand loyalists.
Marketing for these companies has been heavily biased toward optimizing so-called performance media (read: lower funnel, short-term tactics), ignoring fundamental brand communication principles. Half of brand marketing’s effects are realized within six months of exposure, according to the IPA, so it’s not just about immediate and attributable online actions.
High-growth tech companies are realizing what packaged goods brands have known for decades: you can’t ignore your brand, and your market can’t subsist on promotions alone. It takes courage, but redirecting investment from customer acquisition to brand is necessary.
2. Think like non-profits
Non-profit companies are unsung heroes of the marketing world, so take a page from their books.
The leverage non-profits can achieve from scant resources, fueled by passion for their mission, has produced bold and cutting-edge work that often eclipses what brands with deep pockets and much higher profiles can produce.
The reality is, most tech brands don’t have the means to buy customers as a path to market share. In far greater numbers, there are startups who need to squeeze every dollar, living with the promise that "next year our budget will be bigger."
When you take unicorns out of the equation, what’s left is the mainstream tech industry. And these smaller players need to ground their budgets in more quantifiable, defendable methodologies, similar to how non-profits operate.
3. Rethink the metrics
Data is good. Measuring what you do is good. And since virtually no one is moving resources away from analytics, predicting a future with more analytics is hardly a bold call.
However, the focus of analytics needs to shift from cost to value – specifically, from the cost of acquiring new (and potentially fickle) customers to the long-term value a customer brings to the business.
This shift in thinking will help build a case for investing in brand marketing earlier in the life of a company, since it’s ultimately a long game to build enduring relationships with customers.
Clearly, mishandling metrics can have terrible consequences. For an extreme example, look to Wells Fargo, where employees opened 3.5 million deposit and credit card accounts without customers’ consent to juice their numbers. Company-wide focus on a single metric can lead to that metric being gamed, which is another reason why it’s better to diversify.
Silicon Valley’s mindset isn’t helped by the fact that direct-to-consumer and performance media agencies who work for them make their money by optimizing towards a single metric. At the end of the day, it’s much harder to cheat three referees than one.
4. Reignite creativity
It’s likely that investors’ new expectation of profitability in the short term will shift tech companies toward more accountable, rationalized, data-centric decisions. It may also lead to familiar, "safer" thinking.
That leaves a lot on the table. Algorithms will continue improving their ability to identify likely customers and optimize content, but they won’t create emotional connections with people. They don’t create "P&G Moms", "Dream Crazier," or other creative concepts that can propel a brand beyond the scope of its initial ad budget.
And speaking of creativity, consider the non-profit Foodbank WA, which created a new cereal box called Hungry Puffs, containing nothing at all. The campaign used supermarket shelves as the medium to remind people of what breakfast is for many hungry kids, and ROI from a $15,000 spend was close to 2,000 percent.
The bottom line is this: No matter the sector, brands that win in the future will indeed be brands, believing in -- and fighting for -- creativity as their engine of growth.
is Partner & Chief Strategy Officer at independent media agency, Noble People.