How Marketing Can Increase Revenue Without Driving Sales

I worry that my colleagues are starting to tire of me. I'm always talking about "brand building" in an agency which has historically focused on more direct forms of marketing.

Some marketers are missing out on potential long term success by being too focused on driving immediate results. Binet and Field (the Morecambe and Wise of Marketing Effectiveness) would call this "short termism" - being so focused on driving immediate conversions that you fail to invest in brand equity.

I get it though, if you haven't read the research, brand equity can feel like marketing fluff compared to the immediate impact of driving enquiries and sales. That's why I'm on a one man mission espousing the virtues of investing in building your brand.

In this post I'll explain how brand building can help you charge more and how that can have a much bigger impact than driving new sales. I'll also show why this should be a priority in an age of rising costs.

Here's the basic idea: building your brand helps you to be "price inelastic" which means sales are less sensitive to price increases. This means you can charge a higher price without causing sales to fall. This is a worthwhile investment as price increases improve the value all your sales, whereas advertising only impacts additional sales.

Choose Your Own Adventure

Here are two scenarios which compare the hypothetical results of investing your marketing budget entirely into either short-term activation activity or long-term brand building:

Scenario A: Driving Extra Sales

Last year you sold 500,000 widgets and made £10 of profit per widget sold. This gave you £5m in profit.

This year you invest £50,000 into short-term activation focused advertising campaigns aiming to drive sales. These campaigns are successful and generate an extra 10,000 sales, on top of your baseline, which equates to an extra £100,000 in profit. Taking into account the marketing spend this gives you an extra £50,000 profit.

Your overall profit for the year is £5,050,000.

Scenario B: Increasing Prices

Last year you sold 500,000 widgets and made £10 of profit per widget sold. This gave you £5m in profit.

This year you invest £50,000 in brand advertising, aiming to build positive associations of your brand in the mind of your potential buyers. This increases positive sentiment about your brand and allows you to increase the cost of your widgets, without reducing sales. As a result you put up your prices and make £13 of profit per widget sold.

You sell 500,000 widgets, as you did last year, but this time at a profit of £13 per widget. This gives you £6,500,000 of profit from which we remove the marketing costs.

Your overall profit for the year is £6,450,000.

As you can see, scenario B gives you an extra £1.4m in profit from the same marketing spend. 💸

Disclaimer: Obviously things are never as straight forward as this example. It supposes that your brand building activity will provide a return in the same timescale that activation activity would, which is unlikely. Plus, it ignores the lifetime value of the new customers reached in scenario A.

Despite these limitations, this example hopefully illustrates that increasing prices without causing a drop in sales can drive much more profit much more than just increasing sales.

The Power of Brand

Products from certain brands feel superior, even if we know they might not actually be that different. For example, we may buy branded groceries even though we know that they are likely to be made in the same factory as supermarket own brand products.

Similarly we might buy a watch that is handmade in Switzerland for thousands of times the cost of a cheap digital watch. The luxury watch doesn't technically do anything the digital watch doesn't, but we value it much more because of how we feel about the brand. How we feel about the brand is a result of every interaction we've had with it, from advertising to customer service, and even the way the brand is discussed in the media.

Brand building isn't just about making a product or service known; it's about creating a positive and lasting impression. Effective brand building makes a brand synonymous with certain values and experiences that resonate with the target audience. When consumers have positive feelings towards a brand, they are more likely to trust and choose it over competitors, even if it means paying a premium.

Countering Rising Costs with Pricing Power

The perceived value created by brand building marketing activity is crucial for businesses as it not only boosts profitability but also creates a loyal customer base that is less sensitive to price changes. This is where pricing power comes in. Pricing power measures price sensitivity and elasticity. The more pricing power you have, the less likely your customers are to swap to a cheaper alternative.

Businesses focusing only on marketing for quick sales may struggle when they need to raise prices due to increasing costs. You can push people who are looking to buy your product or service to your site, but if they don't value your brand why would they buy from you if your competitors are able to charge less?

6 in 10 adults are spending less on non-essentials because of cost of living increases. With this backdrop your brand needs to work harder to convince consumers to spend.

This is where investing in your brand puts you in a stronger position. It goes beyond short-term gains; it's about building a foundation that can weather economic fluctuations and competitive pressures. When your brand is strongly positioned and carries positive connotations, customers are more forgiving of price increases. They understand and appreciate the value behind your product or service, which they perceive to be worth the extra cost. This perception is not just about the quality of the product itself but also about the status, experiences, and emotional connection the brand offers.