Long-term and short-term

There is no doubt that a long-term brand building strategy brings many advantages. Strong brands deliver premium margins, have lower price sensitivity, have better mental availability and attract more repeat buyers. A brand is a tool that provides value to consumers and companies. However, in recent times companies shift their resources and attention from building strong brands to short-term activities. IPA data bank, analysed by Peter Field and Les Binet, indicates the rise of short-term case studies in their database. Watch full presentation.



Why are marketing resources moving towards short-term activities?

Marketer’s job is to meet specific business objectives by developing a strategy, then use marketing tactics to achieve it. Tactics are measured by key performance indicators, which help steer marketing interventions towards the objectives of the marketing strategy.

However, changes in the business climate and technological advancement are pushing marketing activities towards short-term goals. Let’s take a look at changing business objectives and marketing tactics and how they swerve companies towards short-termism.

Business Objectives

A company, especially a publicly listed one, exists to deliver profits to shareholders. Corporate governance, internal culture, pricing policy, products, brand equity, technology, innovation and other objectives only exist to increase profitability and create shareholder value. Some companies such as charities and non-profits do deliver other value than profit to stakeholders, but they are merely an exception.

Business objectives have shifted dramatically towards short-term goals. In the pre-internet days in the 60s, the average stock holding period was around seven years, but now it has fallen to 8 months. Please, pause for a moment and put in perspective an idea that an average shareholder owns a piece of a company for less than one year. New York and London stock exchanges have progressed similarly.

NYSE FTSE stock holding average period

Michael Mauboussin, former Head of Global Financial Strategies at Credit Suisse said that back then most stocks were held by individuals rather than investment funds, transaction costs were massively higher than they are today, quarterly earnings information appeared only in the 70s, and there were no computers, which made people less active in the market.

Today shareholders measure companies with quarterly earnings only. Business analysts do not possess any other objective data points to compare the performance of separate firms. If there is an opportunity to earn more by selling off shares, make no mistake, the investors will use it. Internet and low transaction costs increased the frequency of trading and eased movement of capital. To keep the company’s stock evaluation high, executives must deliver quarterly earnings all the time. Market pressures on growth are so high that executives are forced to cut costs, even value-creating investment.


“A 2005 survey of 401 financial executives by Duke University’s John Graham and Campbell R. Harvey, reveals that companies manage earnings with more than just accounting gimmicks: A startling 80% of respondents said they would decrease value-creating spending on research and development, advertising, maintenance, and hiring in order to meet earnings benchmarks.”

Alfred Rappaport, economist, best known for developing the idea of shareholder value.


Short-termism is so prevalent that PepsiCo’s now-former CEO Indra Nooyi had to be stopped by her colleagues while she was ranting about number-crunching-analysts that suggest to blindly cut costs without any value consideration. The whole Towards Better Capitalism session in Davos turned into a discussion about the shortcomings of the short-termism and quarterly earnings.

The business objective is quite clear; a company has to deliver shareholder value quarterly and do it all the time. Cutting long-term investment is a healthy option for shareholders to increase earnings in the short-term. For example, if an investment in a large marketing project, R&D or any other activity will hurt profits this quarter, then a profit-seeking investor’s best bet would be to sell shares now while the share price is high and repurchase them later after reduced quarterly earnings are announced.

Focus on quarterly earnings is the reality every department in a company must face with when planning any value-creating activities, including marketing.


Marketing tactics

The emergence of digital technologies, e-commerce, data analytics and social networks has introduced new opportunities and tactics on how to reach, deliver value, and communicate with consumers. Marketing budgets are allocated more and more towards these new tools. However, most of these new tools are remarkably well designed for the last steps in the marketing funnel that lubricate short-term activation and serve customers at the last stage of the buying process. No doubt, digital tools are mandatory for any organisation along with analytics, but their focus on efficiency rather than effectiveness must be seriously taken into account. The most popular but very far from perfect KPI is ROI (return on investment).

Although ROI brings clarity and accountability, it can be misleading. ROI is based on a profit and investment ratio; therefore, it is too easy to deliver ever-increasing ROI at the expense of profit. Moreover, oversimplified ROI does not include either time or discounted cash into the equation and therefore is not an accurate representation of investment.

Various digital metrics (cost-per-lead, cost-per-conversion, search engine rankings, click-through rates, social media footprint) focus on immediate activation and efficiency of a sale rather than growth. Digital tactics do deliver value for a company but limit the potential of a brand. “The more data we have, the better decisions we can make” is the mantra of digital marketing. The overabundance of data comes only from existing brand’s customers. Therefore, all focus of marketing and its budgets is shifting towards existing buyers. Of course, there is nothing wrong to serve existing customers well. The problem is that brand growth comes from increasing the brand’s customer base, not from existing customers. Brand building and reaching category buyers that are not aware of your brand yet is crucial for growth. However, all technological and analytical development in media has been focused on either serving existing customers or helping customers at the last step of the purchase.


Reinforcing short-termism

The increase in short-term marketing campaigns is driven from two directions. Firstly, shareholders have reduced business objectives to quarterly earnings that reduce any long-term investments such as brand building or R&D. Secondly, the development of marketing technologies has seen remarkable improvements in serving existing customers or helping customers on the last steps of a purchasing journey. These technologies are focused on the efficiency of short-term sales.

At the moment, there are no new technologies that would assist marketers to increase their customer base with more effectiveness and efficiency. Therefore, it created a vicious cycle with shareholders’ pressure from above to increase returns this quarter and new marketing technology that can deliver only short-term efficiency.

Both shifts occurred because of a massive change in technology. Indeed, nobody in any company has ever ordered to execute more “short-term” activities, on the contrary, everyone is talking about the “speed of growth”, the speed that can be achieved by employing up to date technologies. Those same technologies that shift focus from the next quarter to the end of this month.


Article illustrated with Tiffany’s 6” silver and walnut ruler, priced at $450