How bad incentives ruin good marketing

“Show me the incentive and I will show you the outcome.”

So says Charlie Munger, one of the greatest investors in human history.

Over the past 10 years, the rules of marketing effectiveness have become clearer and clearer, thanks to the valiant efforts of academic stalwarts like the Ehrenberg-Bass Institute and independent researchers like Les Binet and Peter Field.

But the remarkable thing isn’t how much we’ve learned about marketing – it’s how few marketers are actually following the evidence.

Are B2B and B2C marketing really any different?

Why do marketers invest in disproven strategies? The most common explanation is ignorance. Most marketers have never heard of How Brands Grow, let alone read it.

However, in this week’s column, we’d like to offer a less common – but more plausible – explanation: the marketing industry is paid to make the wrong decisions.

Marketers are in fact neither ignorant nor stupid. We’re just responding to incentives.

The incentives behind segmentation

Who is your target customer?

Let’s start with the evidence: your target customer is anyone who buys your category.

If you are the CMO of Coca-Cola, your target is pretty much anyone with a mouth, which is about 7.8 billion humans. If you are the CMO of Microsoft, your target is anyone who influences IT decisions, which, according to LinkedIn data, is at least 14 million professionals in the US and UK alone.

In marketers’ imaginations, brands grow by hyper-targeting specific sub-segments of the market or by focusing only on their highest spending customers. But here on Planet Earth, brands grow by targeting the category and acquiring many customers across many segments. The ‘Law of Duplicate Purchase’ shows that brands in the same category sell to the same customers, not to some ownable niche. And the ‘Law of Double Jeopardy’ shows that brands grow by acquiring new customers, not by increasing customer loyalty. These laws hold true across every category and every market, in both B2C and B2B, as the evidence makes clear.

But even if every marketer knew the ‘laws of growth’, would we actually follow the evidence? Well, let’s look at the incentives to understand the outcomes. B2C CMOs often spend hundreds of thousands of dollars hiring consultancies to build elaborate models that segment the category into a dozen customer personas, each one given a cute name like ‘Upwardly Mobile Millennials’. B2B CMOs do something similar, spending months building propensity models that predict growth will come from a hyper-targeted ABM strategy directed at six financial services accounts in Estonia.

Of course, if we replaced complicated segmentation with simple segmentation like ‘reach everybody with a mouth’, an army of research consultants would have to find different jobs. And the CMO would have to admit to wasting large sums of money on useless reports. And the programmatic vendors who claim to be able to target ‘Upwardly Mobile Millennials’ with pinpoint accuracy would see sales fizzle faster than a freshly opened can of Coke. ‘We’re going to target everyone who can buy from us’ doesn’t sound nearly as smart as ‘We’re going to target only the most valuable sub-segments’. And nobody wants to sound stupid in a meeting, virtual or otherwise.

Segmentation is simple, but the incentives require it to stay complicated.

The incentives behind creative

Should you develop new ads, or re-run old ads?

The evidence is crystal clear. You almost certainly do not need as much new creative as you think. The idea that creative wears out is a myth. In fact, saying the same thing over and over again is how you make your brand more memorable.

Unless every single buyer in the category has seen your old creative, why would you possibly need new creative? And since most buyers forget ads, it probably makes sense for you to show the same creative, spaced out over time, to remind buyers that you still exist. In some cases, you can run the same exact ad for 27 years without any diminishing returns. We know this to be true because Coca Cola has been doing exactly that with its Christmas ad in the UK.

But would 99.9% of marketers re-run the same ad for 27 years? Of course not. After all, what would the CMO talk about in their upcoming Marketing Week interview? And Cannes doesn’t hand out Lions for dusty old campaigns. You get promoted for changing things, not keeping things the same. Oh, and the creative agency, which gets paid to develop new creative, strongly objects to our recommendation.

Running old creative may make the brand famous, but it won’t make the marketer famous. To borrow a quote from Upton Sinclair: “Don’t count on somebody understanding something when their job depends on their not understanding it.”

The incentives behind ‘optimisations’

How frequently do you need to ‘optimise’ your marketing?

How about once every year? All available evidence indicates that marketing is a long-term game: 95% of the buyers that you reach are not in-market right now and won’t be for months or even years. Given that companies only buy business banking once every five years and consumers only buy cars once every 10 years, the likelihood of driving an immediate sale is slim-to-none. If the average B2B sales cycle is six months, then you need to wait at least that long to measure incremental sales.

Assuming you have well-branded, attention-grabbing creative, and assuming you are reaching as many buyers as you can in the right media channels, your job is pretty much done. You can sit back in your swivel chair and twiddle your thumbs.

Ok, by now we can hear you screaming at us through the computer screen. “Bullshit!” you say. “That’s gross negligence.” Sure it is. Or maybe you’re worried about what the 5,000 marketers in your company are going to do all day if you adopt a ‘set it and forget it’ strategy. You need constant reporting, or so you were told by the people you pay to deliver constant reporting. And what are you going to tell the sales director? That your campaign is working hard to deliver future cash flows while you chill and explore new sour dough recipes?

Brands need a light touch, but the incentives require a heavy hand.

To fix the outcomes, fix the incentives

To be clear, we’re not suggesting anyone has bad intentions – just bad incentives. The problem isn’t the people, it’s the system. As an industry, we need to explore new solutions that might realign the interests of the business and the marketer.

• Could we pay consultants to make things simpler, not more complicated?
• Could creative agencies get paid more the longer the ad runs?
• Could we promote marketers who leave their (successful) campaigns alone?

We don’t have the answers. But we can tell you this for certain: you won’t change the outcomes until you change the incentives.

Peter Weinberg and Jon Lombardo are the heads of research and development at the B2B Institute, a think tank at LinkedIn that studies the laws of growth in B2B.