How Today’s Digital Brand Marketers are Like Hedge Fund Managers (Part 2 of 2)

So if we accept the premise of my previous post, namely that today’s brand marketers are like hedge fund managers constantly on the hunt for ‘alpha’, the obvious question is, how do they find it?

Why is Alpha so Elusive?

First, let’s explore why digital marketing alpha has gotten so difficult to obtain. Just like the hot housing market, it is a case of demand exceeding supply exacerbated by cheap money. Specifically, where there were once just a couple dozen brands in any given consumer market, now there are literally thousands. I recently estimated the number of beauty and personal care brands on Amazon and my best guess was 60,000! And a select few of those brands have raised so much cash that they can afford to bid up the prices for digital ads so they can blitzscale.

These dynamics probably aren’t going away anytime soon – it remains incredibly inexpensive to start a new brand, so they will just keep coming. And apparently there is $1.9 trillion in dry powder with PE and VC firms, meaning money will continue to flow into marketing budgets. So smart marketers need to figure this out.

Strategic Alternatives

In the face of this intense competition, it’s worthwhile noting that there are at least a couple of alternative approaches to the search for digital marketing alpha.

Sticking with our investing analogy, companies can take a “passive investor” approach, focusing on the equivalent of a diversified portfolio of low-cost index funds. This approach would involve solid SEO and possibly investing in branded keyword searches (typically high-ROI) but not overtly focusing on more expensive new customer acquisition. While this is likely to be more profitable in the short term, the downside is slower DTC growth and possibly missing out on the massive shift to ecommerce in most markets.

At the other end of the spectrum, if you can’t beat ‘em, join ‘em. Companies can raise tons of capital, join the money-losing unicorns, fill up the marketing coffers and just pay to blitzscale. The upside is rapid growth while the downside is lack of profitability and the risk that the model isn’t sustainable.

Better, Faster, More Efficient

Assuming most of us want sustainable and profitable growth, there are a few approaches to being smarter about finding alpha:

  1. Be a Fast Follower – this is what most marketers do. Viral video is the latest rage? Let’s go! Tik Tok is next? Let’s go! While this can be lucrative if you get it right, the risk is that the ‘tail starts wagging the dog’ and the message and the medium become divorced from brand strategy;
  2. Play the Long Game with Content & Community – we should all be doing this anyway, and frankly this is the fun part of building a brand. But in addition to developing the content, smart marketers will pay to amplify the right pieces of content to expand the audience and acquire new customers;
  3. Invest in a Competitive Advantage – maybe it’s a content studio and team to do #2 really, really well. Maybe it’s AI to help anticipate consumer trends. Maybe it’s analytics to understand your consumer and what makes them tick. If so, make sure there is something proprietary or else you’re just buying the same off the rack solutions everyone else has and there is no advantage;
  4. Execute & Experiment – given all of the execution items on a typical marketer’s to-do list, it is challenging to dedicate resources to experiments that are likely to fail. But without experimentation, we run the risk of executing an increasingly stale playbook leading to declining alpha.

What have I missed?