- THE AGE OF STUPID DECISIONSStupidity is certainly not the preserve of 2021. It has always been a feature of human decision making. In 2021 however, the mountain of knowledge available to us all should make stupid decision making less common. Alas, it is still all too common.
Stupidity is certainly not the preserve of a few. It is certainly not only stupid people who make stupid decisions. We are all capable of making stupid decisions. I know I have made many stupid decisions – or at least decisions that, on reflection, appear to have been stupid.
In this article, I am using the term ‘stupid’ to describe decisions that are – poorly thought through, irrational, or the result of groupthink. I am referring to decisions that fly in the face of evidence – motivated more by intuition than data.
Stupid decision making is unhelpful because it almost certainly delivers outcomes that are less than optimal. However, stupid decisions can be avoided with a rock-solid commitment to objective, critical and lateral thinking – drawing on data and applying intuition only after an analysis of that data.
TOO MANY STUPID DECISIONS
- Stop Thinking You Are Smarter Than You Are. Remember Dunning-Kruger.
A few years ago, I had the occasion to meet with a neuroscientist at a prominent university. We had a fruitful and most interesting discussion of work he was doing commercially and in his academic role to understand how human beings, more specifically consumers, process and respond to marketing messages. Enlightened and inspired by his work, I asked this academic – which commercial clients he was currently advising. He responded by proudly showing me his wall of client logos. On this wall were the logos of some of the world’s largest corporations.
More than impressed by this wall of fame, I asked this neuroscientist whom he worked within my home state of Western Australia. He responded with – ‘I will not work with Western Australian businesses.’ When asked why he responded – ‘Because CEOs in Western Australia know everything.’ He explained that in his experience, Chief Executives in Australia and especially Western Australia place a very high level of faith in their intuition, most often ignoring the science. As a result, he found them hard to work with and not good decision-makers.
While the neuroscientist might have been exaggerating – there is little doubt in my mind that there is something in what he said. I have certainly found that the entrepreneurial spirit in Western Australia has created an arrogance (perhaps necessarily so) among CEOs. This has caused them to think they know more than they do – which has encouraged stupid decisions.
This story brings to mind the Dunning- Kruger effect – based on the research of scientists David Dunning and Justin Kruger. The Dunning Kruger effect suggests that – people of high intelligence tend to underestimate their intelligence while people of low intelligence tend to overestimate their intelligence. The reasons for this effect are well documented. Evidence of it is found in statistics like the following:
- 65%of people believe they have an above-average IQ.
- 80%of drivers think they are above-average drivers.
- 94%of academics think they are above average lecturers.
Whatever the cause, I would argue that far too many business people are making far too many stupid decisions – decisions lacking the intellectual rigour so central to making the optimum decision. Decisions based on intuition – generally supported by an inflated ego – rarely lead to optimum decision making. I am reminded of the anonymous quote:
‘The ego is the biggest enemy of humans.’
Put your ego away, apply intuition after reviewing the data and make better decisions.
- Stop reducing the staff who deliver the value your customers are buying.
If you have recently been into a Myer or David Jones store, you will have noticed the lack of staff on the floor providing service. I have it on good authority that in some stores David Jones can reduce staff numbers to as low as one or two per floor in some stores. I know from personal experience that getting served in a Myer or David Jones store can be very difficult indeed – requiring a search for staff. And then when you eventually find someone, they are busy serving at least one and sometimes two other customers.
How STUPID is this? There is nothing much sold in David Jones or Myer that cannot be purchased somewhere else. What is more, the product range available is at best average – and is often better in speciality stores. The prices in these stores, while not outrageous, are rarely anything better than average – about the same as speciality stores. And the service is generally worse. Given all of this – why shop at Myer or David Jones? When they could have made a smart decision to employ the staff needed to offer service that constitutes a competitive advantage – they instead make the obvious and intuitive decision to cut costs.
This reminds me of the Murdoch, Stokes and Nine media empires in Australia, where staff number – and specifically journalist and editor numbers – have been reduced so much that quality journalism is at best – limited and at worst – a rarity. There are so few journalists and editors in these organisations that maintaining the quality of journalism is nearly impossible. As a result, these organisations have fallen into a vicious cycle – where reducing staff reduces the quality of the product and reducing.
How stupid is this? The reduction of journalists makes the product less attractive, which reduces the appeal of the publications, which reduces sales, which means more journalists have to go – and so on. Why would anyone buy a newspaper that is declining in quality – as indeed most are. The journalist creates the product, and it is the product that consumers are buying – or now – not buying as newspaper circulation declines at about 7% per annum – year on year.
None of this is to suggest that there is no merit in or a need to reduce costs. It is being suggested that cutting costs that reduce the appeal of the product, kill a potential competitive advantage, or make it less appealing to buy is STUPID!
Make sure your product is as good as it can be.
- Stop expecting consumers to believe your ubiquitous rhetoric – they don’t.
I walked past a women’s clothing shop the other day, almost tripping over an A-frame sign on the pavement. The sign read – ‘Best women’s fashion at Perth’s lowest prices.’ On another occasion, I walked past a jewellery store in the CBD, noting a sign that read ‘best price on diamonds – any quote beaten.’ Neither sign was a-typical of signs all of us see every day, and the messages articulated were no different to those we see in advertising every day. Nothing unusual here.
That this is not unusual, however, does not make it any less stupid. Ask yourself this – ‘Having seen either sign, would you be inclined to believe it?’ I know I wouldn’t. So, then ask yourself this – ‘If you would not be inclined to believe such a message, why would anyone else?’. They almost certainly would not. Despite this- signs and advertising messages making similar claims are ubiquitous, and business people who seem to think that such messages will attract business are legion. For some obscure reason, many business people and, in particular, marketing managers seem to think that their customers will believe and respond to messages they would not believe and respond to.
Research suggests that 96% of consumers don’t believe advertising messages.
Given this, instead of saying – ‘Best women’s fashion at Perth’s lowest prices, would it not make more sense to have an outfit on display with a price that tangibly demonstrates the fashion available and the prices it is available for. Surely, given that no one believes advertising messages anymore – it would be better to demonstrate rather than articulate. Demonstration enables the consumer to draw their own conclusions based on solid data.
The other message – ‘best price on diamonds – any quote beaten’, I would argue, is beyond redemption. Not only is it a message that few will believe because they don’t believe advertising – but it is also a message that is inconsistent with the fact that diamonds have a market price – and as such, the message is less than incredible. Having a market price suggests that diamonds will have a roughly similar price everywhere. As such, not only is this message unlikely to be convincing, it is highly likely to damage the credibility of the business.
Stop articulating and start demonstrating.
- Maximise profitability with a great product, not the advertising.
In a recent public lecture, New York University marketing professor Scott Galloway asked his audience – ‘What do Facebook, Apple, Amazon, Netflix and Google all have in common.’ After a period of silence, Galloway answered his own question with the words – ‘A fucking great product.’ And he is right. All five of these five businesses have a fantastic product – or more specifically, a product that is viewed as fantastic by their target market. His point was that the foundation stone of every great strategy or campaign is a great product.
I am not an advocate for any of these brands, other than perhaps Apple and Netflix. However, I agree that all five offer a great product that lies at the heart of their success – just as it lies at the heart of the success of brands like IKEA. You know, I despise everything about IKEA, including their products, their shops, their car park, their food and their organising of customers. Despite this, I consider IKEA one of the world’s great brands because its target market loves its products and everything that goes with them.
For many years now, and at the urging of advertising agencies, business has been devoting more and more budget to advertising and less and less budget to research and development. Many businesses have made the stupid decision to drive their product or brand using advertising rather than a great product. As a result, while Businesses like Apple can spend a fraction of a percentage of revenue on advertising, businesses like Telstra spend close to 10% of revenue on advertising. Apple has a great product that sells itself, while Telstra has a piss-poor product and needs advertising to sell it.
The foundation stone of every great success story is a great product. The better the product in terms of meeting or exceeding customer expectations – the lower the reliance on advertising and the cost of marketing. By the way, a great product meets and exceeds customer expectations – or in the case of Apple – sets those expectations.
Develop a great product and spend less on advertising.
- Clearly understand and leverage what your customer is buying.
Blind taste tests consistently find that consumers prefer the taste of Pepsi to the taste of Coke. This was one of the drivers of the decision by Coke to launch New Coke on April 23, 1985. As the records now show and as we all know, New Coke was a huge failure:
- Creating the perception that Pepsi had won the cola wars.
- Throwing out a formula that had been successful for 100 years.
- Failing to achieve anything like its sales targets.
The failure was such that New Coke was discontinued on July 10, 2002, after the business burned millions trying to advertise their way to success with the new product. Some have suggested that this is the biggest marketing failure in the history of marketing.
In analysing this failure, it is interesting to reflect on two things:
- While taste tests consistently found Pepsi to be preferred to Coke – this has never been reflected in sales. Coke has always outsold Pepsi – with Coke at 51%of carbonated drinks to Pepsi at 23% of carbonated drinks.
- While there was evidence to suggest that the taste of Coke might need to be adjusted, it was unclear why Coke told consumers the taste had been altered, especially given that the taste of Coke can vary by countryand has been adjusted over time.
Following on from this, I would suggest Coke made two mistakes and that these mistakes are all too common across business:
Coke was not clear enough on what consumers were buying.
It was a mistake to tell consumers a change had occurred.
Even though Pepsi was consistently preferred in taste tests, Coke continued to outsell Pepsi – and continues to do so to this day. Consumers are not buying Coke for its taste – or at least taste is not their primary concern. They are buying a brand and all that it stands for. They are buying into a lifestyle that is associated with Coke but not Pepsi. The same is true of consumers who pay a premium for an Apple I-phone despite not having any idea what sets it apart from its competition.
This is branding in action.
If consumers are not buying Coke with taste as their primary focus, why tell them the taste is changing? Certainly, there may be merit in fine-tuning the product’s taste; it is not clear what is to be gained by telling consumers this has occurred. If changes have occurred without a problem in the past – why tell consumers this time – and in so doing suggest that Pepsi might have had it right all along.
The mistake of not knowing what the customer is buying is all too common, as is telling consumers things they don’t need to know. Empathy-based marketing would have helped in this case.
Understand what your customer is buying and why.
MORE ON STUPID MARKETING DECISIONS
- Stop thinking your customers decide rationally – because they don’t.
Rational thinking, or what Kahneman calls ‘slow thinking’, occurs in the frontal cortex or conscious mind. Irrational ‘thinking’ or what Kahneman called ‘fast thinking’ occurs in the brain stem or limbic system or unconscious part of the mind. Some call irrational thinking – ‘bottom up’ thinking and rational thinking’ top-down thinking’.
The frontal neocortex is where humans consider facts and respond based on the available evidence. The brain stem is responsible for instinctive thinking, and the limbic system is responsible for emotional thinking’. All are essential. Human beings need fast thinking (to drive, for example) and slow thinking (for making complex decisions).
Neurological and psychological research suggests that about 20% of thought occurs in the neocortex and is conscious. 80% of ‘thinking’ (if you can call it that) occurs in the brain stem or limbic system and is unconscious. In terms of consumers’ purchase behaviour, research by Harvard Professor Gerald Zaltman suggests that 95% of decision making is unconscious or what he calls ‘subconscious’.
The point is that consumer purchases are more often irrational than rational, and the purchase decision tends to be more irrational than rational. Perhaps the most significant factor impacting how rational purchase decisions are is bias. Human beings are subject to 25 or more cognitive biases, including the:
- Recency effect.
- Sunk cost fallacy.
- Confirmation bias.
- Competitive sentiment.
- Bandwagon effect.
- Anchoring effect.
- Availability bias.
- Choice bias.
- Placebo effect.
A common mistake for many businesspeople is to think that consumers make purchase decision rationally – or indeed that the presentation of cats and figures will influence purchase decisions. Very often – facts are found not to influence purchase decisions. The related mistake is not taking into account the myriad of cognitive biases that can impact purchase decisions or the strategies that can be implemented to manage them.
Stop considering consumer decision making a rational process.
- Stop considering the intangible when defining a competitive advantage.
One of the first questions I ask a new client or, indeed, a prospect is – ‘why should I buy X (your product) ahead of Y (the product made by the primary competitor).’ This question tends to elicit one of three answers:
Surprisingly, some business people have given little consideration to what sets them apart from their competitors. While rare, this is especially dangerous. Most business people I talk to offer a qualitative point of difference, like:
- Better/best service.
- Better/best quality.
- Better/best value.
A flick through the newspaper will demonstrate how many businesses position themselves thus. Homebuilders are among the worst. What is the difference between a Dale Alcock home, a Summit home and Plunkett home? If you can tell, you are smarter than me. I would argue that this is why they are so dependent on advertising – and being top of mind. They all say the same thing, and no one believes any of it.
Unfortunately, qualitative responses like this are all too common. What is more, they are no better than the non-committal response. In response to such answers, I find myself asking:
- Define better/best?
- Who determines better/best?
- How do I know you are better/best?
The most productive responses are tangible. Such responses, while less common, are more meaningful and more potent. They might include:
- Same day delivery (when the competition is delivering in a week).
- 10-years warranty (where others offer five years).
- Aluminium frame (where the competition has a heavy steel frame).
Most businesses I come across have not devoted sufficient time and energy to defining a competitive advantage or point of difference that is tangible and therefore:
Still, fewer businesses have established a competitive advantage that, in addition to being tangible, is:
- Directly addressing a known customer need or want.
- Sustainable – over time.
After a great product, I would argue that there is nothing more important in marketing is a tangible competitive advantage that addresses a need, is sustainable and is unique – or at least uncommon.
Reduce costs and increase returns with a tangible competitive advantage.
- Stop targeting a large market – and instead, think small.
Venture capitalist Mark Cuban is reported to receive hundreds of requests for investment funds every week. He is also reported to set people seeking funds three excellent challenges before even considering offering the funds requested. Those questions are:
- Demonstrate your strategic competitive advantage.
- Prove that you understand your customer ‘owns your ass.’
- Prove that your business will target the smallest possible target market.
Cuban’s first challenge relates to the point made in the last missive on this topic of stupid decisions. To minimise marketing costs and maximise returns, it is essential to establish a tangible and sustainable s=competitive advantage or point of difference.
Like any marketer devoted to minimising costs and maximising returns, Cuban is committed to businesses invests in being customer-focused – understanding customer problems, needs and wants and then exceeding expectations in the solutions delivered.
Cuban also highlights the importance of targeting a market small enough that:
- It can be understood very well by the business.
- Can be addressed with a highly targeted competitive advantage.
- Can have its problems, needs, and wants directly addressed.
While most business people I talk to try and define a market that is as large as possible, I have much more respect for business people who define the smallest viable market and focuses on being well ahead of any competitor in that market. Smart businesses have the smallest possible market for each product and then develop a new product or brand for each ‘small market.’ This approach will facilitate reduced costs and both increased sales and higher margins.
Stop trying to be all things to all people and then go a step further and find a niche you can own!
- Never engage an advertising agency to create a brand.
It has been suggested that the Myer brand revolves around it being – ‘the pinnacle of accessible quality on the high street.’ I am not convinced that this is true – but I am convinced that over recent years Myer has struggled with its branding, what it stands for and how it is positioned visa ve’s its competitors. Their website suggests that right now – Myer wants to be viewed as – the home for essentials, the place to buy ‘must haves’, the home of brands we all love, and as offering the best of home. Over time, Myers seems to have positioned itself as providing a good range, good products, good service, good value.
I would argue that such a positioning is unsustainable because:
- It is vague and qualitative.
- It fails to differentiate Myer in a highly competitive market.
- It is not being delivered in practice.
There is nothing tangibly different in the branding of Myer. They are saying pretty much the same things their competitors are saying – perhaps using different words. Look at the Myer website and the David Jones website – and then articulate the difference in branding. I suspect. You will find it very difficult.
No matter what the Myer website and advertising say, I would argue there is nothing distinctive about their products, quality, pricing or service – other than how average they are. Put simply; I would argue that Myer consistently offers products available in many other stores, pricing that differs little from other stores and service that is virtually no-existent.
I would argue that the larger underlying issues relate to the fact that Myer:
- Seems to think that communication creates a brand.
- An advertising agency can create the optimal brand.
Brands are not built on communication. Communication merely tells the audience what the business thinks the brand is. To quote Jeff Bezos (a significantly better retailer than Myer) suggests that your brand – is what your target audience ‘says about you when you are not in the room’. And what Myer customers say about them when they are not in the room depends much more on the behaviour of staff and the customer experience than it ever will on communication. Zara – the world’s 5th largest fashion brand – has no advertising budget.
Further, where there is conflict between what the communication says and the store delivers – the store offering will always win – generally at the expense of the brand.
Advertising agencies are communication experts, and while communication may be absolutely essential for Myer and communicating the brand might be important – the advertising agency is not well placed to either:
- Define the brand.
- Create the brand.
A brand is best defined by a strategist drawing on research and not at all fixated on communication. Creating the brand is ALL about culture, and the business culture is much more about HR than it will ever be about communication. A great brand like Zara is defined based on customer needs and the competitive environment. A great brand like IKEA is created by a culture that consistently ensures the delivery of brand promises.
Understanding these two points is rare in Australian business. Embracing them is even rarer.
Ensure your branding delivers – by having a strategist define it and HR create it.
- To sell more – always put customers ahead of sales.
A short while ago, I ventured into a news agency to buy a newspaper. Yes, I know – how old fashioned of me. I purchased two newspaper – attracting a total cost of $7.50. When I handed my credit card over to the shopkeeper, he said that I could not use it because the sale value was under $10.00 – the credit card minimum sale. Three stupid things happened here. To save a few cents in credit card charges, this shopkeeper:
- Lost a $7.50 sale.
- Destroyed his credibility through an implied lie.
- Lost a customer for life.
I never carry cash, and while the sale was a small one – the newsagent lost it – and the small margin flowing from it. Because he suggested that the bank or credit card business restricted the value of a purchase – in other words, he lied – his credibility was significantly damaged. And based on the first two points – I will never go back to this newsagent, and I have told at least 20 people of my experience.
I had an almost identical experience – with exactly the same outcomes – at a bakery.
I recently made my last purchase at JB Hi-Fi. The item has a tag showing a price of $19.00. The counter staff member processed the purchase and asked for $22.00 (which I understand was the price the item should sell for and that the tag should have highlighted). Then, instead of apologising when the discrepancy was highlighted (and immediately refunding the $3.00), she argued before going through a credit process that cost at least 5 minutes of my time.
On a previous occasion at JB Hi-Fi, I had another confrontation with a shop assistant who was trying to avoid processing a service request. She just did not want to know about it. She would have preferred that I simply buy a replacement.
I will never shop at JB Hi-Fi again – no matter what their advertising or remarketing says.
The point here is that retailers and other business people focus on the sale far too often rather than the customer. The focus was on the $2.50 (less than $10.00 – in the newsagency), a similar amount in the bakery, and the $3.00 in JB Hi-Fi – rather than the customer and that customer’s lifetime value.
For the record:
- I regularly walk past the newsagent in question.
- I regularly drive past the bakery in question.
- Harvey Norman has done well out of me avoiding JB Hi-Fi.
Now, you might read this and think I am a tough prick – and you could be right. But – I am not the only one.
Focus on the lifetime value of every customer.
STILL MORE ON STUPID MARKETING DECISIONS
- Drop your arrogance and certainty – think again and again.
The Blackberry was a Canadian product, launched in 1984. In the late 1990’s and early 2000’s engineers went to John S Chen, the CEO and Chairman of Blackberry and told him that the smartphone would kill his product. Chen brushed them off, suggesting that consumers would always want a phone that focuses on calls and messaging alone. Chen was wrong.
Kodak was also wrong when engineers and marketing staff informed the board that film was on the way out and that the company in the world with the greatest number of digital patents (Kodak) should immediately transition to digital photography. With a view to preserving their non-digital business and damaging the margins in digital photography, Kodak stood its ground.
In the late 1980’s, engineers at Apple went to Steve Jobs and suggested that Apple had to get into the smartphone business. Jobs apparently resisted fiercely, suggesting that Apple was not in the telephone business. After considerable pushing and repositioning the new product as a small computer rather than a phone, Jobs agreed to proceed with the I-phone.
According to Wharton Business School psychology professor Adam Grant, in his book Think Again – these are all examples of people – in this case, senior executives – struggling to rethink an original idea. While conceding that the original ideas developed by Chen and Jobs were fantastic, Grant highlights the fact that once the idea was formed – they brilliant men (and they both were brilliant) struggled to rethink their initial ideas. Grant goes on to highlight just how common this behaviour is.
All too frequently, we see businesses, even those as successful as Apple, Kodak and Blackberry, fail to grasp changes in the market or technologies available to address the market. I have found this in my many speeches on e-commerce. While appreciating the growth in e-commerce and the problems associated with bricks and mortar, many an audience member has refused to embrace the need for change.
Making this issue more important than ever is the rate of change in markets and technology in 2021.
Journalist Paul Kelly once wrote a book entitles – ‘The End of Certainty. While this book is about Australian politics, the core message is equally relevant to Australian and world commerce.
Lose your sense of certainty and be prepared to think again – often.
- Stop thinking it is all about price – because most often, it is not!
The taxi industry was outraged by the introduction of UBER. And well, they might be, given how much owners had paid for their taxi licences. To this point, I absolutely empathise with their position. Where the taxi drivers and owners went wrong, however, was in relation to the reasons they cited for the success of UBER. They suggested that UBER was hurting taxi’s because catching an UBER was cheaper than catching a taxi.
They were wrong! What is more, they continue to be wrong. While the lower price of an UBER ride might have sweetened the offering, the reason for the success of UBER and now other ride-sharing businesses is – a superior product and through it – superior value for money. I would argue that UBER would have killed taxis even if they were more expensive. Unlike taxis, UBER offers:
- The avoidance of the need to call and make a booking.
- The avoidance of the need to speak with an abrupt woman saying – ‘next available’.
- The capacity to track the approaching ride online.
- A more responsive service.
- Cleaner vehicles.
- More polite and friendly drivers – with a capacity to rate them.
- The ability to pay online without doing anything.
For me, there was also the opportunity to stick it up an arrogant non-competitive taxi industry that offered a poorer service than they needed to.
The point here is not to beat up on the taxi industry but rather to illustrate that price is not always the primary driver of consumer behaviour. Value is almost always more important than price, and value has two aspects:
- The price
- What consumers get for that price.
All too often, especially in Australia, businesspeople focus on price – attempting to boost sales but bringing the price down rather than what the consumer gets for the price up. This is not to suggest that price is never the issue. It sometimes is – but more often than not, we should be focusing on value – and given the impact, this can have on margins – it is difficult to understand why businesspeople display such stupidity by focusing on price alone.
Stop focusing on price and start focusing on value.
- Stop focusing on solutions and start focusing on problems.
I just read one of the ‘HBR’S 10 Must Reads’ series of books entitled ‘On Strategy – vol. 2’. Among the many issues discussed was the notion of a ‘transient advantage’. A transient advantage is the corollary of a ‘sustainable competitive advantage’. While a sustainable competitive advantage is a long-term proposition most relevant to a stable industry and marketplace, a transient advantage is a short-term proposition that will change when the market changes. The article by Rita Gunther McGrath proposed that in a rapidly changing environment – say digital technology – a sustainable competitive advantage is no longer feasible or advisable. A brand’s point of difference needs to evolve as the market changes, and more particularly, the industry innovates.
To not recognise the rapidly changing nature of the market and innovations driven by industry is stupid. To think that any business can stay the same in a rapidly changing environment is certainly stupid. Such stupidity is also reflected in the efforts of so many businesses to extend the life of a product or brand as it nears the end of its life cycle. Every product has a lifecycle involving a launch, development, exploitation, maturity, and ‘death’. It is stupid or perhaps a sign of blindness not to see the approach of death. Death can mean the product is no longer needed – or that a competitor has developed a superior option. In either case, impending death should be recognised.
To fail to recognise that competitive advantage, or indeed a product, is approaching the end of its viable life is to focus on the ‘solution’ rather than the ‘problem.’ The Blackberry was arguably the best solution to a problem when it was launched in 1999. By 2002 the Blackberry was no longer the best solution with the market determining that the smartphone and especially the I-phone was. Despite the mountain of evidence supporting this eventuality, the manufactures of the Blackberry stuck with the same product and the same competitive advantage – choosing to focus on the solution rather than the best way of solving the problem.
The smartest operators, like Apple, focus on the problem and developing the best solution for that problem, leveraging innovation to develop new and better solutions – with new transient advantages. The smartest operators look for changes in the problem and build their new innovative solutions around the evolving problem. Focusing on the problem and offering the best possible solution will always be a more cost-effective and productive approach to marketing. Solutions tend to change faster than problems, and the target market will invariably seek out the best – or best value – solution.
Focus on solving problems, not a solution.
- Stop wasting so much on advertising.
In 2017/2018, Proctor and Gamble reduced its advertising budget in Europe by $750 million and sacked 50 advertising agencies. In the first quarter after the cuts, sales increased by 3%. This is one of many examples of leading businesses reducing their reliance on advertising after suspecting they were spending too much. I would argue that they are one of many businesses – large and small – that are currently paying too much.
On the other side of the ledger, businesses like Zara, Rolls Royce, and Krispy Kreme have no advertising budgets at all – and some others like Apple and Ikea spend very little on advertising percentage of revenue. These are all brands that reflect the comments of NYU marketing professor Scott Galloway who suggested that the thing great businesses have in common is a – ‘fucking great product’. Indeed, these were among the businesses cited by Galloway.
It is, of course, very difficult to determine what any business should be spending on advertising – especially given the fact that all formula for calculating the right advertising spend are as stupid as the concept of a formula that applies to all businesses, in all markets, at all times. Many advertisers also find it difficult to differentiate between not the effects of too little advertising and bad advertising. Which every way it is considered, it is hard to determine the optimal advertising budget.
However, what is clear from the research is that a great product can reduce the dependence on advertising, as can an excellent customer experience, a brand community, focusing on lifetime value, more effective distribution, competitive or indeed premium pricing strategies, and so much more. In my judgement, too many businesses are spending far too much on advertising or communication – both traditional and digital. I have now resolved not to buy from a business that bombards me with remarketing – and I know others who hold the same view. Too much advertising can be damaging.
It is essential, in my view, that every business review critically their advertising budget – at least every year. Ideally, this review should be undertaken as part of a broader marketing audit – drawing on external independent assistance. All assumptions, preconceptions and bad habits need to be set aside before the review is undertaken. Such a review should never:
- Involve the advertising agency.
- Involve just the marketing manager and staff.
- Use any kind of formula.
- Involve an amount that is related to the previous year’s expenditure.
Have your advertising budget independently audited.
- Cause your target audience to complain and then listen.
I was standing waiting for service in a Westpac bank branch for 20 minutes. When I raised the lack of service, the brand manager informed me that – ‘No one else has ever complained.’ Quite apart from doubting the honesty of this comment, I struggled to see the point in it. So-what if no one else had complained? That did not make my complaint any less valid. It would seem that the manager just did not want to hear or deal with the complaint – and she is not alone in not wanting to listen to complaints. She was also not alone in being stupid.
Complaints are gold! Complaints give you the insights needed to make the changes needed to enhance the customer experience and increase each customer’s lifetime value.
The real problem lies in the research finding that 96% of people who have a bad customer experience don’t complain. Indeed, not only do 96% of people having a bad experience not complain but:
- Some 91%simply don’t come back.
- They tell an average of 15 people about their bad experience.
The associated problem is that few people who have a good experience tell you it was good, with the cumulative result being that you lack the data required to develop the optimum offering and continually fine-tune that offering in a way that addresses the needs wants, and expectations or the market. The bottom line here is that while trying to ensure customers have nothing to complain about – it is important to do what you can to ensure that those who are unhappy do complain. This might involve:
- Requesting critical input ideally in person.
- Inviting critical comment online, perhaps in a follow-up email.
- Monitoring and responding to social media comment.
- Taking each complaint seriously and responding gratefully.
- Demonstrating an openness to complaints.
Requesting or inviting critical input involves telling people that you understand that nothing is perfect and that you welcome any input – so that you can move closer to perfection. This also represents good public relations and can enhance the image of the business.
Encourage complaints and use them to improve.
My mission in marketing is to – encourage a world inspired by a moral heart and delivered by objective, critical and lateral thinking. In particular, I am alarmed at how much businesspeople rely on intuition and best guest – and concerned about how rarely marketers and executives in general commit to objective, critical and lateral thinking.
The application of more objective, critical and lateral thinking can save money and drive income by reducing waste and applying science. Marketing can be and should be more scientific.