Less is known about advertising than we think

It strikes me as very odd when people say things like “we have much to learn about [insert new media], it’s not like TV that we know so well”.

Know so well?!?  How many marketers have heard of the ‘Duplication of Viewing Law’ (Goodhardt, 1966*) ?  How many can predict a repeat-viewing rate for a program, time-slot, or channel?  Even what is known isn’t well known (nor used).

There are so many unanswered questions.  Even simple questions like is an ad spot on the left hand side of a page is worth less or more than one on the right?  And how much?

Not enough is known about how we should best use media to expose category buyers to our advertising.  Let alone how these exposures reach brains.  And this is true for even ‘old media’ like TV and print.  So much that needs to be researched.  It’s extraordinary how ignorant many marketers (and marketing academics) are about our discipline’s fundamental ignorance.

Byron Sharp, July 2015.

* Published in the most cited journal in the world, Nature (and yes the date is correct, 1966).  Yet try to find a marketing textbook that covers it (not counting this one).

What causes the Double Jeopardy law?

I was recently asked for a causal explanation of marketing’s Double Jeopardy pattern.

This is discussed in How Brands Grow (e.g. table 3.3 and surrounding text). Also see page 113 of my textbook. Though the most complete explanation is in the forthcoming “How Brands Grow part 2″.

It’s worth noting that causal explanations turn out to be ‘in the eye of the beholder’… e.g. what caused that window to break?
… the speed and mass of the ball resulting in sufficient force to break the molecular bonds in the glass of that window
… Jonny playing baseball on the front lawn when his Mum told him not to
… the wind, the pitch, the sun in Jonny’s eyes
… the Smith’s skimping and not installing double glazing ignoring their builder’s advice

All are better or worse explanations, depending on your point of view.

It’s the same for Double Jeopardy.

One explanation is simply that it’s a scientific law, it describes a bit of the universe, and that’s it… it’s simply how the world is. We don’t tend to ask why is there an opposite and equal reaction for every action (Newton’s first law), there just is.

The statistical explanation of Double Jeopardy is that it is a selection effect. Because  brand share depends largely on mental and physical availability, rather than differentiated appeals of different brands.  For marketers this is pretty important, pretty insightful, we wouldn’t get Double Jeopardy if brands were highly differentiated appealing to different segments of the market.  Since we do see Double Jeopardy all over the place that suggests that real-world differentiation is pretty mild.  Mental and physical availability must be a much bigger story than differentiation.  That’s a very important insight.

Conflicts in the marketing system

I do sometimes hear an ad agency people say “we don’t care about creative awards, we are totally dedicated to each client’s business objectives”, especially when in front of clients.  It makes me wonder whether they are lying (that’s bad), or that they are deluding themselves (which may even be worse), or if they are admitting that they simply aren’t good enough to win creative awards (and that’s not good either).

I think it is important to be grown-up, honest and up-front about conflicts of interest.e.g. Martin Sorrell wants to sell marketers stuff, his empire (like his competitors) will sell whatever marketers will buy that he can deliver profitably.  This matters far more to the agency than whether or not it is the best way to build their clients’ brands.

Creatives want to win awards.  And if this doesn’t sell a single extra of your product they aren’t really worried.

Media agencies want to do what they know, what’s easy, and they have to sell media space they have committed previously to buy.

Market research agencies want to sell standardised products, ideally that use automated data collection and analysis, or low-level people.  They can’t make big profits from stuff that requires in-depth analysis by expensive people.  They do far more R&D into reducing data collection costs than into better research.

Retailers want to win share from other retailers.  They don’t care if this means selling another box of your product or not.

So partners yes.  But there are conflicts in the system.  This is fine, so long as everyone understands the conflicts then they can be managed – it’s possible for everyone to win.  But pretending these don’t exist is dangerous.

Professor Byron Sharp

July 2014.

Apple could charge a lot more – but should they?

Most of the things we own are OK, but a few special few are works of great craftsmanship, things of beauty. They give us pleasure in the same way that some houses, some architecture, is beautiful to look at. It’s something about being human that just looking at a building can be pleasurable yet we aren’t benefiting in any way from its function, we don’t own it, and may never even step inside it.

Beautifully crafted things usually cost more, which is understandable. In fact they often cost a great deal more – we have to pay a lot for small increases in quality, especially at the top end.

So luxury watches, handbags, wines (even business schools) cost an awful lot more even though functionally they may be rather similar to much cheaper alternatives. Luxury watches still cost tens of thousands of dollars more than throwaway watches that now are just as accurate at timekeeping.

Apple, under the guidance of chief designer Sir Jonathan Ives, makes beautifully crafted products. No tablet comes close to the build quality and sleek lines of the iPad Air, and the new Mac Pro looks like something developed using futuristic superior alien technology.

If these products came out from a company in the LMVH empire they would be priced many times higher. So why doesn’t Apple charge more? Even just a little bit more would do little to dampen demand and would add dramatically to profits. So why not?

Firstly, because Apple is in the technology business, where product features are very important and where it’s difficult to gain much of a technological advantage, certainly not one that lasts for any time. In handbags it’s taken for granted that they can all hold stuff, so design (both looks and build) matter enormously. In technology, basic functional factors like speed and screen size really matter, and Apple will never be far ahead of competitors.

Secondly, because Apple wants to build penetration and scale. They want lots of customers for their beautiful products who will then buy music, movies, books and apps from Apple – and of course future products. Getting an Apple product into someone’s pocket or bag gives Apple a medium through which to build mental availability for other Apple products. This is the same reason Amazon massively subsidies their Kindle price.

Thirdly, because Steve Jobs hated price premiums. He always wanted a lower price. Not a discount – he understood the need for profits to fund new product development and marketing, but as low a price as possible to still be profitable. He wanted his products to change the world, which meant getting them into as many hands as possible. Like Jonathan Ives he wanted people to see his art.

Anyone can have a price premium, it isn’t necessarily a sign of strength or good strategy.

So there are arguments in both directions, Apple should lower its prices and more aggressively chase share (closer to the Amazon Kindle strategy), or Apple should increase its prices and reap enormous profits. I guess from their perspective that means their prices are where they should be.

Out-take for marketers: a price premium might be nice for profits today but it holds back reach and scale, and that increases the riskiness of future profits.

PS A related interesting question is whether they should launch a cheap, minimal feature smartphone to bring kids and ‘light users’ into their fold? But they already sell the iPod touch and still have the iPhone 4S on the market so maybe this simply wouldn’t do much for them?

The heavy buyer fallacy

It seems obvious, a brand’s currently heaviest buyers generate more sales and profits (per customer) so they should be the primary target for marketing.

This is commonly held misconception. The rise of direct marketing and CRM gave this fallacy a big plug, after all it can be hard to justify sending expensive letters to light customers.

But if our aim is to grow sales then our efforts should be directed at those most likely to increase their buying as a result of our attention. It takes only a moment of thought to realise that customers who already buy our brand frequently are going to be difficult to nudge even higher.

If, instead, our aim is to prevent sales losses then heavier customers would seem more promising – after all they represent a lot of sales we might lose. But then again, they are more loyal, other brands make up less of their repertoire, their habit to buy our brand is more ingrained, our brand has rather good mental and physical availability for them. In short, they aren’t particularly at great risk of defecting nor of downgrading.

So the idea that heavy buyers of your brand (“golden households” or “super consumers”) are your best target is flawed. Dangerously simplistic.

Apple’s mythical price premium

I’ve written previously questioning the marketing orthodoxy to aim for a price premium, and specifically on the myth of Apple’s price premium.

Here is another nice quote from Steve Jobs, interviewed on stage alongside Tim Cook (current CEO). He was asked if Apple’s goal was to win back dominant share of the PC market

“I’ll tell you what our goal is…to make the best personal computers in the world and products we are proud to sell and would recommend to our family and friends. And we want to do that [raises voice] at the lowest prices we can, but I have to tell you there is some stuff out there in our industry that we wouldn’t be proud to ship, that we wouldn’t be proud to recommend to our family and friends…and we just can’t do it, we can’t ship junk”.

Advertising Age votes “How Brands Grow” the best marketing book

Readers of Advertising Age have voted “How Brands Grow” the best read of Summer 2013.

The competition was large, many books, some awful, but also some very worthy research-based books such as:

Thinking Fast & Slow by Daniel Kahneman
The Halo Effect by Phil Rosenzweig
Decoded by Phil Barden
Applying Scientific Thinking to Marketing by Terry Grapentine
Everything is Obvious by Duncan Watts
Viral Marketing: the science of sharing by Karen Nelson-Field