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16 November 2022
Block bets on performance marketing but will it pay off?
Block, the company that owns payment services such as Square and CashApp, is pulling back its marketing spend on brand and building awareness as it seeks to invest more in channels that it believes have “more proven ROI”.
Why it matters
A combination of economic volatility and a shift to digital commerce has seen more marketing budgets shift into performance marketing, as companies seek prompt justification for marketing investment.
Many marketers are struggling to make the case for brand-building activity, in part because of the measurability and apparent efficiency of performance tactics.
Renewed focus on profitability
Block has invested over the past few years to create products and marketing engines that help drive top-line growth and profitable unit economics. But the company’s preliminary 2023 plans will “really significantly” moderate that investment as it focuses on profitability.
Speaking on a Q3 earnings call, CFO Amrita Ahuja said the company intends to pull back on lower ROI and more experimental areas, including brand and awareness spend, on both Square and Cash App. Instead, she said, they will “continue investing in channels with more proven ROI” in 2023.
“We're focused on optimizing our sales channels, which have more predictable returns and where we have the ability to measure performance,” the chief financial officer added. “We believe our sales team will ultimately be a long-term core engine of growth for the business.
“From a performance marketing perspective, this is really the core engine which continues to drive stable proven returns and historically has been a significant driver of acquisition.”
Is Block making the wrong move?
Established marketing science has proven that continued investment in brand-building activity has the best payoffs for long-term growth. This is especially true of B2B brands.
On the flip side, overinvesting in performance media at the expense of brand spend can diminish brand equity and leave the company reliant on costly paid acquisition and promotions for revenue – a lesson eBay and ASOS learned the hard way.
In B2B, where product or service decisions tend to be infrequent, the critical idea is that the vast majority of your potential customers (around 95%) will not be actively in-market. You need to speak to them in order to continue building “future demand”, as marketing effectiveness expert James Hurman called it.
Future demand, argues Hurman, is created when new customers become aware of a brand and add it to their consideration set.
Converting existing demand with performance marketing is predicated on targeting customers already in the market.
Creating future demand requires the targeting of customers who aren’t already in the market, by standing out with engaging advertising and creating an emotional connection.