The vast majority of B2B marketing messages could be falling on deaf ears, with up to 95% of businesses not in the market for most goods and services at any one time.
This deceptively simple fact has a profound implication, according to the Ehrenberg-Bass Institute’s Professor John Dawes, author of the latest installment of a major new study carried out for the LinkedIn B2B Institute.
According to the report, companies change their providers of services such as banking, legal advice, software or telecoms around every five years. This means that only 20% are in the market for those services in a given year and just 5% in a given quarter. The other 95% are not in the market at all.
“If I’m chasing clients in commercial banking then it’s useful to realise that in any given year only one in 10 of them will be looking to appoint a new bank or switch their lead bank. In a quarter or a month, it’s a tiny proportion,” says Dawes. “The cycle happens over quite a number of years.”
Global head of the LinkedIn B2B Institute, Jann Martin Schwarz agrees that the power this insight is not that it’s a complicated proposition, but a far-reaching one.
“It is the case that a lot of companies haven’t fully realised yet that most people are not in the market for any product at any given time. You need to target them with a long-term lens,” says Schwarz.
There aren’t that many business clients that will say ‘You know what, I’m comfortable signing a contract with a company that I’ve hardly ever heard of before.’
Professor John Dawes, Ehrenberg-Bass Institute
This insight relates not just to targeting marketing messages more effectively, but also to broader strategies. Dawes says the report’s findings prove that advertising mainly works by building and refreshing memory links to a brand – rather than by directly driving sales. This means when customers are in the market they remember brands which have advertised effectively in the past, and usually over a long period.
“If your advertising is better at building brand-relevant memories, your brand becomes more competitive,” he explains.
This does not mean that brands should completely abandon short-term tactics to concentrate on brand building, however.
“There are some clients that will have come into the market recently,” says Dawes. “If we can identify clients that are in the market we can try to reach them with campaigns. But it is the case that brand familiarity is super-important. To grow a brand, you need to advertise to people who aren’t in the market now, so that when they do enter the market your brand is one they are familiar with.”
Depending on the category, this may influence the kind of marketing messages used in campaigns to achieve the desired outcome. The argument also further supports the view that companies should not cut back on marketing budgets to reduce costs during an economic downturn, as this gives rivals a chance to raise their own profile with customers.
“It does seem paradoxical that if a business is going through tough times and its sales are reduced that the antidote is to stop investing in marketing,” says Dawes.
While he recognises that marketers may be under pressure to reduce outgoings, in some cases Dawes believes marketers should do a better job of demonstrating how the money being spent is actually worthwhile.
Forget short-term ROI
Proving the value of marketing at board level is a challenge familiar to many. According to Dawes, the report emphasises that marketers should cease using misleading ROI figures that show a short-term sales increase in response to a stimulus, and concentrate instead on illustrating how long-term investment in brand pays dividends.
Showing how more consumers can correctly attribute an ad campaign to a particular brand, or recognise distinctive brand assets such as a logo or corporate colours, compared to a rival company, might be a way to do this.
“If your boss tells you ‘I want all of our marketing initiatives to show a positive ROI within the next two months’ you’ve lost the game before you’ve even started it. You are mis-measuring what success means and therefore you are going to mismanage your marketing activities. There is a lot of that happening and it needs to change,” adds Schwarz.
“Marketing, and especially brand, has the potential to create tremendous value for companies. I would say that maybe 20% of companies in the world understand that.”
A lot of companies haven’t fully realised yet that most people are not in the market for any product at any given time. You need to target them with a long-term lens.
Jann Martin Schwarz, LinkedIn B2B Institute
Namechecking the likes of Unilever and Procter & Gamble as companies that really ‘get’ branding, Schwarz argues that lots of companies don’t treat brand building as a strategic, entrepreneurial initiative and so they leave a lot of value on the table – especially in B2B.
The B2B sector often concentrates too hard on sales without really understanding brand, he adds, with investment in brand seen as discretionary.
“Nothing could be further from the truth. We all know from real life how much trust and confidence in a brand is important. And how it is about building memory structures in the long term,” Schwarz says.
He describes this latest installment of the research as a “mental model” marketers can explain to a CFO and CEO, whereby he or she will immediately get it.
“One of the problems marketers have created for themselves is that they speak in a language that they understand, but no one else seems to comprehend,” Schwarz adds. “This is how you get the CFO and CEO to pay attention to you.”
Building marketing memory
The 95% figure calculated in the report is not a precise one for every sector. However, according to the Ehrenberg-Bass Institute it shows advertising does not work by stimulating customers to buy, rather by building connections to brands in consumers’ minds, ready for activation when they have need at a later date.
This behaviour will see customers gravitate towards familiar brands when buying, or when searching for suppliers when they are in a position to buy. This explains why online click-through to lesser-known brands is lower than for well-known brands.
It also highlights how difficult it can be for new suppliers to enter a market when faced with established competitors. The way that buyers of services rely on memory and association to draw up shortlists builds a barrier to entry for new companies and creates a line for established players to defend.
“There aren’t that many business clients that will say ‘You know what, I’m comfortable signing a contract with a company that I’ve hardly ever heard of before.’ That plainly isn’t the way the world works. People operate using their memory,” says Dawes. “Overcoming that familiarity disadvantage does take years to do.”
Schwarz believes successful business strategy is about creating an unfair advantage, meaning it is in the interest of established companies to continually invest in their brand to protect their position.
“Once you have a strong brand you want to make sure that the mental availability of that brand continues in perpetuity,” he adds.