IPA: ‘Chasing customer loyalty alone not effective’

Brands shifting advertising budgets to channels such as social media and direct marketing that generate short-term lift at the expense of “mass reach” mediums like television risk harming long-term profits, according to a report.

The right balance of targeting both existing and loyal customers can can double profit, says new study.

A study by the IPA in association with television marketing body ThinkBox based on an analysis of 1,000 campaigns from over 30 years found activity regularly reaching a mass audience is more effective than those that only reaches loyal customers.

Advertisers that target the whole market through channels including TV and print achieve three times as many business objectives – increased profit, greater market share or a reduction in price sensitivity – than those that focus solely on engaging either existing or new customers through methods such social media and direct marketing.

At least 60 per cent of an advertising budget should be invested in channels with a mass reach, with the remainder spent on engaging existing customers with targeted promotions and marketing initiatives. The report warns that although targeted campaigns can boost short-term sales, they can increase price sensitivity and erode long-term profits.

The report says “getting the right balance” between short-term initiatives and long-term brand building is “crucial” to establishing long-term profits. It warns that “too many” brands are focusing on their most loyal customers at the expense of the bigger picture.

Brands investing in advertising campaigns for more than three years or more can double their profits compared to those that adopt a short-term approach, but investing in both delivers higher returns, says the report.

Les Binet, co-author of the study and head of effectiveness at agency Adam & Eve DDB, says: “The broader reach a campaign has then the more efficient it will be. The truth is that the vast majority of people have better things to do with their lives than to form deep and meaningful relationships with brands.

“It flies in the face of advertisers being told to focus on nurturing one-to-one connections with existing consumers and using specific metrics, but from the research we know that campaigns aimed at recruitment and acquisition are three times more effective than focusing on loyalty. Advertisers should not chase loyalty from customers but should speak to as broad an audience as possible and do so over the long term.”

He points to previous campaigns from John Lewis and Volkswagen’s Polo brand, where TV adverts have been supported by integrated social media initiatives, as examples of brands attempting to balance brand building activity with more targeted activations to achieve greater profits.

Industry experts claim that one reason for the growing demand for more immediate results from advertising is because agency relationships with brands are getting shorter.

Marie Oldham, chief strategy officer at MPG Media Contacts, says: “There is not enough time to develop a campaigns that foster long-term relationships with customers in some cases because marketing directors only last 18 months. Client relationships with agencies has got shorter over the last decade and this has shortened time scales.”

The report was commissioned by the IPA in partnership with Thinkbox and measured the different effects of advertising on business performance across a range of outcomes such as profit, sales and price sensitivity using campaigns from over 700 brands in 83 different categories.

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