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Are startup founders altering the way brands are built?

Startup marketers have been often blamed for employing “earn and burn” strategy over long-term brand building when it comes to advertising.

By  Saumya Tewari and Priyanka NairNov 2, 2022 8:41 AM
Are startup founders altering the way brands are built?
Startups have emerged as one of the key spenders in the advertising expenditure (AdEx) second only to big players such as FMCG and auto. (Representational image via Unsplash)

Recently, a marketer from a well-funded startup in the fintech space made sure his agency partners didn't cut any corners on the brand’s celebrity-led maiden advertising campaign. That may sound reasonable. However, ad executives, aware of the campaign and the marketer's ways, told us the said executive went "overboard". The marketer paid the featured celebrity’s social media agency, make-up artist, stylist, and even her driver out of the brand’s annual marketing budget.

In another episode, an independent creative director was stunned when he saw the cost for resizing videos and photos from a production house that he was working with. The project was for a well-known startup. The marketer had no problem in shelling out about Rs 2 lakh to resize videos for various digital media platforms. At some point, the creative director jumped in and informed the founder that he was overpaying. The founder insisted and happily took care of the bill.

Startups have emerged as one of the key spenders in the advertising expenditure (AdEx) second only to big players such as FMCG and auto. However, the category players and startup marketers have been often blamed for employing “earn and burn” strategy over long-term brand building when it comes to advertising. This has a potential for impacting the advertising and marketing space given how this category is becoming a strong contributor to Indian AdEx. In 2021, for instance, startups contributed around 11 percent to the overall AdEx of around Rs 74,000 crore as per industry estimates. Startups and their marketing budgets depend on various factors including the nature of the business i.e. is it consumer facing or not, the scale and the stage of the business. The budgets can vary from Rs 4-5 crore to over Rs 100 crore.

When such huge money flows in it has the potential to change how startup marketers are approaching advertising and brand building so much so that it can alter the culture of long-term brand building and reduce it to short-term big splash campaigning, believe industry executives.

To be sure, it is critical to define which companies come under the larger umbrella of startups. Technically speaking, a mature well-funded company such as Uber is also a startup while a new firm such as CRED is also a startup. However, the common thread amongst most startups is inflated ad budgets and lavish spending on big media properties such as Indian Premier League (IPL), ICC or BCCI sponsorships or association with media shows such as Big Boss, Koffee with Karan (KWK) and Kaun Banega Crorepati.

Marketing is not about flashy ad films

Drawing parallels between big corporations and startup marketing, Vivek Sharma, independent marketing consultant, and former CMO of Pidilite Industries and Philips India says that a lot of startups founders and marketers are splurging marketing monies as if it’s not theirs. They are not focused on the return of investments.

“In some cases, money is being recklessly spent. This typically happens after startups obtain Series C and D funding. Startups don’t always set a clear business objective. In a large corporation, projections of sales and profitability are made early in the year and marketing budgets are assigned accordingly. CMOs have to work within those budgets. When a startup doesn’t have a sustainable business, there is a tendency that they lean on spending a bit too much on advertising. That’s the biggest misstep,” he notes.

Credit card payment platform Cred, for instance, reported a 45 percent increase in its net loss for 2020-21 (FY21) as the company’s marketing expenses soared manifold during the year, according to an official document shared by the company. Cred’s net loss widened to Rs524 crore for FY21 from Rs360 crore a year earlier, the document showed. During the year, the company spent Rs222 crore on marketing, against Rs57 crore in 2019-20 (FY20).

Cred has caught the eye of the consumers having spent an enormous amount of money on hiring big sports and entertainment celebrities including Anil Kapoor, Rahul Dravid and Madhuri Dixit among others. The firm also signed a three-year deal with the Board of Control for Cricket in India (BCCI) in 2020 to become the official partner of the Indian Premier League (IPL) 2020.

“…marketing is not about creative great ad films. Ad films with no focus on the brand or its service will only satisfy the creative urges of a creative director. This is why you see a lot of startups on expensive platforms like IPL, and there are chances that you may not see them the next year. A lot of startups are built with the aim of selling out which is why they are more focused on getting customer acquisition right. Most valuations are based on that,” says Sharma.

MNC marketers vs startup marketers

Industry executives point out that a lot of founders come without much brand-building experience. To chase hard metrics like acquisition and retention of customers, among many other things, they need a talent pool that can help them achieve those targets. That’s one of the many reasons why mature brands don’t compromise on hiring seasoned marketers. However, there are many startups that run their marketing functions without a marketer or with inexperienced talent on board. For now, all startups are looking for marketers who can strategize on the go, and sometimes during anytime of the day. There are no set patterns.

“A lot of startup marketers don’t work on a quarterly basis and as per seasonal trends. They are fast-paced movers. They don’t want to slow down and lose momentum. There is constant revaluation of what works and doesn’t in startups, that goes on behind the scenes,” says Sai Ganesh, independent marketing consultant, and former head of brand, Dunzo. At times, he admits, there is chaos in this process. “Of course, a lot of them can cut down a bit on over indulgence of using celebrities without sharp insight and purpose,” he adds.

The fact of the matter is some manage funds better than others.

Known for its hyperlocal advertising, Dunzo, for instance, has been able to rationalise its advertising and marketing budgets. Combined with a reduction in operational costs, Dunzo is beginning to display operating leverage and has cut overall burn by 35 percent in FY21.

Arvind Krishnan, founder and CEO, Manja, says a startup is a company often with finite resources. A startup founder is grappling with multiple challenges such as proving a new model and inculcating a new customer behaviour from bringing salon services to home to delivering groceries in 10 minutes.

“There was a lot of focus on performance marketing but that is changing,” he says. “A lot of focus and attention goes to the immediate term. But I think there is resettling of sorts. You know, people are realizing that it's not just about the current market, but it's also about the future market that one needs to think about. I think a lot of this will come from the VCs asking those questions.”

Sound advertising advice matters

Arun Iyer, founder and creative partner, Spring Marketing Capital calls out the advertising industry and agencies which do not give sound advice on efficient ways to delegate ad budgets.

“I think the fact is that people advising these founders are not doing a good job. Because what's happening is that if a startup founder comes to you and says, ‘Hey, I want to do a campaign on the IPL’. I don’t know how many people (in the ad industry) pull back and question them if that is the right thing to do? Everybody will come back with options for big-scale campaign, then there will be a pitch process between agencies who will participate in that pitch,” he notes.

Spring Marketing Capital also actively invests in startups. Companies it has invested in include Juicy Chemistry, Purplle and Bewakoof. The company also advises them on marketing and brand building. Iyer claims that he has told younger companies to often hold on to putting big money on mega campaigns with celebrity faces, for instance, and track the growth of the company first. Vanity can wait.

First Published on Nov 2, 2022 8:41 AM