Earn It or Pay It
If you doubled the value of a penny for 30 days, how much money would you have?
Most people guess something low like $50
Which is why you’ll probably be shocked to learn the answer is $5 million!
This phenomenon is called compounding. Compounding is a difficult concept for most people to grasp because we tend to expect the future to look a lot like the past. Since the first week of doubling the value of a penny only amounts to $1.28, it is almost impossible to believe that the pay-off after 30 days will be $5 million.
But then the 2-week mark hits, and suddenly you have over $100.
And then over the next 2 weeks you find yourself with $5 million.
This is the subtle but explosive power of compounding trends.
In literature, Ernest Hemingway put it best: “gradually, then suddenly.”
In mathematics, Albert Einstein put it best:
In business, compounding is a major driving force behind almost every sustainable competitive advantage. Compounding assets are like insurmountable, alligator-filled moats: the company in the castle earns every advantage, and the competitors that want to breach the moat pay every price.
Brand is one of the biggest compounding assets in business. Look at Coca-Cola: it has been advertising heavily and distributing widely for over a century. Its marketing budget has grown from $100,000 in the early 1900s to over $4 billion globally in 2019. But while its investment has grown steadily, the value of that investment – the value of the Coca-Cola brand – has grown exponentially. By some brand consultants’ estimates, it would take $81.5 billion for another company today to replicate the brand Coca-Cola has built.
So how does compounding work in marketing and advertising?
It works in two stages.
Stage 1: Effective ads compound to build famous brands.
Effective ads build high mental availability, which is “the probability a brand comes to mind in a future buying situation,” and thus a key driver of future sales.
And since 95% of buyers in any given B2B category are “out-market” – not ready to buy – at any given time, investing in mental availability to make future sales is necessary to building a profitable brand.
There are many creative and branding components that help build mental availability, namely distinctive brand assets like characters, taglines, and logos. Marketers should measure the uniqueness of these brand assets and then invest consistently and heavily to make these brand assets famous. Unique and famous brand assets create a “mental moat” that protects companies – and their profits – from their competitors.
System1’s data on top-performing Coca-Cola and Aldi ads shows how running effective ads consistently and heavily over time creates a compounding effect that makes unique brand assets more famous – which drives higher pricing power and long-term market share growth.
Stage 2: Famous brands compound to build valuable businesses.
The most famous brands are generally the most famous because they win the most current and future sales and thus generate the most cash flows. It is very hard to be famous and known, yet bought by few buyers.
However, the most famous brands don’t only earn enormous amounts of compounding profits over time. The most famous brands also earn compound interest for their businesses. They attract the best talent, command more pricing power, get more meetings with clients, and raise capital at cheaper rates.
As you can see, brand is a compounding asset that drives all strategic objectives and profitability outcomes.
Marketers, treat every decision as an opportunity to either earn or pay compound interest.
For every ad campaign you invest in, ask yourself:
- Is this an investment in my brand at scale, or just the sale?
- Am I earning value on my distinctive brand assets with continued creative investment, or am I paying the opportunity cost of allocating those funds elsewhere?
- Am I earning excess share of voice with my media investment, or am I paying for my competitors’?
So far, very few B2B marketers are adopting an earn it strategy: investing in brand to earn benefits across hiring, marketing, and selling objectives. For the most part, they’re investing in lead-generation that has no compounding value. The notable exception to this is Salesforce, which has been investing in its Trailblazer brand campaign since 2019. And by our estimate, they’re already at a strong head start – investing a few billion dollars on marketing since then.
Brand is the single biggest opportunity to earn a competitive advantage in B2B today.
The choice is clear, but it’s up to you: are you going to earn it, or pay it?