Smart marketing and executive teams have long known that building a powerful brand that changes consumer behavior takes time. The ROI is there, even if it may never be quantifiable within a given quarterly timeframe.
Of course, strong brands aren’t just built with things that show up in a media budget. Product matters. Pricing and placement matter (to round out the four Ps), but so do creative, customer service, community, design and PR.
Despite consumer privacy advances like Apple Tracking Transparency (ATT) and the popularity of research like How Brands Grow and The Long and the Short of It, directly measurable performance-marketing spends have a ton of momentum both within marketing teams and with vendors. At the horizon: the allure of digital transformation and 1:1 relevance and customer centricity. Along the way: big-ticket infrastructure.
In their Q3 2022 investor call, Airbnb made waves by touting their divestment from performance marketing alongside a 28% reduction in overall marketing expenditure. And over the span of the three years between 2020 and 2022 Airbnb’s reported marketing spend, as a percentage of revenue, dropped from 38% to 23%. (The absolute spend stayed relatively flat over that timeframe, from $320 million to $340 million, while revenue grew from $800 million to $1.5 billion.
Brian Chesky said at the time, “We think of performance marketing as more of a way to laser in to balance supply and demand rather than a way to just purchase a large amount of customers.
Dr. Grace Kite and Tom Roach have referred to this overall phenomenon as a Performance Plateau – when the efforts that were once helping the company grow hand-over-fist have leveled-off and no longer deliver the returns necessary to get to the next level. In this article, Tom cites “friction in the system that creates massive delays in brands’ ability to recognise they have an issue, and get themselves geared up to kickstart their growth again,” noting that this stems from skills and structures that are tuned more for the old way than the new one.
Notably: it’s not just about just spending more. There’s a system of enablers that allow a business to make this leap off the plateau.
When we diagnose marketing teams in these areas – focusing only on their operating model for a moment – we find that the biggest differences between high-performing teams that successfully balance performance marketing and brand building diverge from lower performers in four key areas:
- They create, and actually use documented decision rights (rather than freewheeling or relying on tradition/culture)
- They own their budget and can spend it as they see fit (rather than relying on some other, outside authority)
- Their team is known for playing well with others (in tension with owning their budget!)
- The strategy of their team is tightly aligned to the strategy of “the business” (rather than being aligned to the strategy of their capability, function, or leader)
Other areas, like aligned rhythms with the rest of the business or strong feedback loops or decisions that don’t get reopened, show smaller differences between high and low performers.
So while we can’t speak to the internal drivers of Airbnb’s recent (and continued) top-line growth and profit performance, the general lesson we’ve learned from working with similar teams is that operating models deliver the results they’re designed to deliver.
Clear rights, trusted spending, aligned strategy… can’t lose.