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Marketing Without Advertising 2: The Myth of Advertising’s Effectiveness

Thursday, January 3rd 2013. | Marketing

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Why Online Marketing2The argument made by the proponents of advertising is almost pathetically simple-minded: If you can measure the benefits of advertising on your business, advertising works; if you can’t measure the beneficial effects, then your measurements aren’t good enough. Or you need more ads. Or you need a different type of ad. It’s much the same type of rationalization put forth by the proponents of making yourself rich by visualizing yourself as being prosperous. If you get rich immediately, you owe it all to the system (and presumably should give your visualization guru at least a 10% commission). If you’re still poor after six months, something is wrong with your picture. It reminds us of the man in Chicago who had marble statues of lions in front of his house to keep away elephants: “It works,” he said. “Ain’t no elephants in this neighborhood.”

James B. Twitchell, the author of Adcult, notes, “Although elaborate proofs of advertising’s impotence are available, the simple fact is that you cannot put a meter on the relationship between increased advertising and increased sales. If you could, agencies would charge clients by how much they have increased sales, not by how much media space they have purchased.”

Paradoxically, even though some small business owners are beginning to realize that advertising doesn’t work, many still advertise. Why? For a number of reasons: because they have been conditioned to believe that advertising works, because there are no other models to follow, and because bankers expect to see “advertising costs” as part of a business proposal.

It’s important to realize that your judgment regarding advertising is likely to be severely skewed. You have been surrounded by ads all your life, and you’ve heard countless times that advertising works. To look at advertising objectively may require you to reexamine some deeply held beliefs.

Advertising budgets have doubled every decade since 1976 and grown by 50% in the last ten years. “Companies now spend about $162 billion each year to bombard us with print and broadcast ads; that works out to about $623 for every man, woman and child in the United States” (Laurie Ann Mazur, Marketing Madness, E: The Environmental Magazine, May-June, 1996). Information Resources, a global marketing resource firm (www.infores.com), studied the effect of advertising and concluded, “There is no simple correspondence between advertising and higher sales …. The relationship between high copy scores and increased sales is tenuous at best.”

To illustrate how pervasive the “advertising works” belief system is, consider that if the sales of a particular product fall off dramatically, most people look for all sorts of explanations without ever considering that the fall-off may be a result of counterproductive advertising. Skeptics may claim that you simply can’t sell certain consumer products-beer, for example-without an endless array of mindless TV ads. We refer these skeptics to the Anchor Steam Brewing Company of San Francisco, which very profitably sold 103,000 barrels of excellent beer in 1995 without any ad campaign. They believe in slow and steady growth and maintain a loyal and satisfied client base. (See Chapter 13 for details on how.)

In 2006, the fabulously sucessful discount warehouse, Costco, continued to outperform Wal-Mart and Sam’s Club thanks largely to their cost-cutting business approach-which includes absolutely no advertising.

Even apparent successes may not be what they seem. The California Raisin Advisory Board ran an ad campaign that produced the most recognized ad in the history of advertising. In the mid-1980s, its advertising agency, Foote Cone and Belding, used the first popular national clay animation campaign. (Claymation is a trademark of Will Vinton studios.) The annual budget was over $40 million. The dancing raisins and their song “I Heard It Through the Grapevine” created such a popular image that sales from dolls, other toys, mugs, and secondary products generated nearly $200 million in revenue and resulted in a Saturday children’s television program using the raisin characters. Raisin sales went up for the first two years of the campaign, largely because cold breakfast cereal marketers were so impressed with the popularity of the ad campaign that they increased the raisin content of their raisin cereals and joined in the advertising.

After four years, the dancing raisin campaign was discontinued. Sales were lower than before the ads started (Forbes, June 17, 1996). By the early 1990s, the California Raisin Advisory Board had been abolished. The Internet and World Wide Web have introduced a new test of advertising effectiveness. Billions of dollars had been spent on advertising before the advent of the Web, yet no major offline advertiser was able to create an online presence of any significance. Even Toys “R” Us, the major American toy retailer, ranked far behind eToys in brand awareness online, despite the fact that Toys “R” Us is a 25-year-old company and eToys lasted barely two years. For Toys “R” Us, decades of advertising simply had no staying power (The Industry Standard, March 20, 2000). One of the biggest successes on the Internet, eBay, used no advertising at all.

The hugely successful Craigslist is a community-based operation headquartered in San Francisco. Eminently useful, the on-line bulletin board accepts classified ads for just about anything, from jobs to apartments, football tickets to electronics. What is noteworthy about Craigslist is that it lets users post the vast majority of these classifieds for free-only job ads posted in three United States cities require a fee. It also has an unadorned, simple website and does no advertising. Craig Newmark started his list ten years ago as a way to keep friends aware of events in the Bay Area. Craigslist now has websites in 65 cities in the United States, and prompted by users’ feedback, also has sites in Toronto, Paris, Belgium, Tokyo, and Sydney, with more planned in the near future.

One magazine with a significant audience on the Internet is Consumer Reports, a magazine that carries no advertising. By eliminating advertising from its business model, Consumer Reports is able to maintain a high degree of integrity and cultivate trust among its readers, who value the magazine’s objective information.

“Unlike many others who dispense online advice, Consumer Reports does not accept advertisements, does not earn a referral fee for directing customers to specific merchants, and does not repackage and sell its data as market research to the companies whose products are reviewed” (The New York Times, March 22, 2000).

Consumer Reports also maintains a list of companies that pledge to keep their websites honest. This is their statement about the 300 companies that are highly rated: “The companies and Web sites listed … have taken a pledge to abide by our guidelines to improve online credibility. They know that unless their sites are trustworthy, you won’t come back. So we will continue our efforts to expand this list, to make the Web a safer place for consumers everywhere.

One giant aircraft manufacturing company, to look at the effectiveness of heavily advertising an in-house computer service through one of its subsidiaries, conducted a survey to find out how its 100 newest customers had found out about it. The results: 13% of these new customers came because of the advertising campaign, 23% because of sales calls, 56% signed up because of recommendations from other satisfied customers and professionals in the field, and 8% weren’t sure why they had chosen that computer service.

This is actually a fairly common survey result. Yet, as we can see from their bloated advertising budgets, very few companies act on the information. If they did, they would obviously budget funds for promoting personal recommendations. Indeed, some businesses are apparently so unwilling to believe what market research tells them-that personal recommendations work and advertising doesn’t-that they spend money on ads like the one on the following page.

Google is one of the most successful companies in history. Started by two students on credit card borrowings, and bootstrapping the business at every point along the way, the company became profitable in its third year. It was worth $50 billion in a little over five years, with fewer than 2,000 employees.

Google has kept its opening search page refreshingly stark, white, and blatantly free of ads. It also doesn’t accept advertising (like banners on Yahoo). It only sells listings, and the listings are kept separate from the search results and have no influence on them. This policy is virtually unheard of in magazines, TV, and newspapers.

It’s not only large national corporations that are disappointed in the results of advertising. Local retail stores that run redeemable discount coupons to measure the effectiveness of their advertising usually find that the business generated isn’t even enough to offset the cost of the ad. Despite this, supporters of advertising continue to convince small business owners that:

• The ad could be improved; keep trying (forever).

• All the people who saw the ad but didn’t clip the coupon were reminded of your business and may use it in the future. Keep advertising (forever).

• The effects of advertising are cumulative. Definitely keep advertising (forever).

But what about the favorable long-term effects of continuous adver- tising? Isn’t there something to the notion of continually reminding the public you exist? Dr. Julian L. Simon, of the University of Illinois, says no: “[attributing] threshold effects and increasing returns to repetition of ads constitutes a monstrous myth, I believe, but a myth so well- entrenched that it is almost impossible to shake.”

Using advertising to make your business a household word can often backfire; a business with a well-advertised name is extremely vulnerable to bad publicity.

Take the Coors brewery as an example. Thirty years ago, after it had vastly expanded its original territory and become a household word throughout much of the country with heavy advertising ($100 million per year in the 1980s), the Teamsters’ Union waged a very effective consumer boycott against it. In Seattle, a strong union town, less than 5% of the market in the 1990s was drinking Coors. The Coors of the 1960s, known primarily to its loyal customers in the Rocky Mountain states, where it had a third of the beer-drinking market, was far less vulnerable to such a boycott.

Or how about the stockbroker E.F. Hutton, which spent many millions creating a false advertising image: “When E.F. Hutton talks, people listen.” The image backfired spectacularly when Hutton was caught engaging in large-scale illegal currency transactions. The many jokes about who really listens when E.F. Hutton talks contributed to the dramatic decline of the firm, which was ultimately taken over by another broker at fire sale prices. Similarly, the huge but little-known agricultural processing company Archer Daniels Midland, headquartered in rural Illinois, made itself a household name by underwriting public television programs. The public was well acquainted with “ADM, Supermarket to the World,” by the time it became embroiled in a price-fixing scandal and had to pay $100 million in fines.

Becoming a brand name has its disadvantages. Martha Stewart, the self-promoted diva of gracious living, saw herself ridiculed, and her business empire plunge in value, after she was accused of improper stock trading.

The price of Omnimedia stock (the company that owns the Martha Stewart brand) fell from $20 per share to $5 per share after the criminal charges against her were made public, losing shareholders three-quarters of a billion dollars. It took more than three years and Martha’s release from prison before the stock returned to its earlier levels.

The moral of these little stories is simple: If these companies had relied less on advertising, their problems would have been much less of a public spectacle.

Sadly, many small businesses make sacrifices to pay for expensive ads, never being certain they are effective. Sometimes this means the quality of the business’s product or service is cut. Other times, business owners or employees sacrifice their own needs to pay for advertising. We think it’s far better to use the money to sponsor a neighborhood picnic or take the family on a short vacation or to put the money into a useful capital improvement to the business. As John Wanamaker, turn-of-the-century merchant and philanthropist, put it, “Half the money I spend on advertising is wasted, and the trouble is, I don’t know which half.”

Source: Michael Phillips & Salli Rasberry, “Marketing Without Advertising: Easy Ways to Build a Business Your Customers Will Love and Recommend,” Nolo, 2008

Republished by Why Online Marketing

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