I worked in advertising from 1989 to 2013. While it was most certainly the least rewarding period of my life, it was also a valuable learning experience as I witnessed first-hand the decline of a once-powerful industry. More importantly, I witnessed first-hand an unnecessary reliance on advertising by marketing managers who know no better and advertising agencies with a vested interest.
In 2021, the ‘advertising era’ is drawing to a close. The cognitive era is gradually replacing it’ – an era characterised by an increasingly scientific approach to marketing – reflecting a growing recognition that marketing is – or should be – all about the consumer and, more specifically, the management of consumer behaviour. Certainly, cost-effective marketing is all about finding the most efficient means of influencing consumer behaviour.
- Embrace the decline of advertising – and the advertising agency.
The 1990’s to 2020’s has a time of rapid change for advertising. It was a period during which threats to the existing advertising business model undermined the viability of the industry, and questions about its lack of accountability were destroying confidence in the industry.
Technology was beginning to erode advertising agency income streams, including commissions on film making, plate making, and printing. Digital technologies were changing the very definition of advertising and how media was purchased.
As a result, once expensive processes such as typesetting, photography, and artwork preparation became simpler, easier, and cheaper.
The move away from print, radio, and television advertising to online media started to reduce production costs, thereby lowering media commissions and agency revenues. The increasing number of provider options and more efficient competition began to put pressure on advertising agency revenues and profitability.
There was also increased questioning, by business, of the value of advertising and advertising agencies. More and more of the advertising process was being assigned to low-cost specialists or simply brought in-house, thereby marginalising many advertising agencies. The industry was also fragmenting with the advent of direct marketing practitioners, digital agencies, and social media practitioners etc.
There was increasing concern about poorly qualified media representatives providing advertising services and pretending to provide marketing services. There was also a growing concern about the value of the ‘creative’ expertise offered by agencies, most of which had never produced anything original while overstating the importance of originality in the first place.
Embrace the beginning of the end for advertising the advertising agency.
- Question the emphasis you place 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% (despite there being nothing exceptional about economic conditions). In other words, while advertising spend was significantly down, sales for P&G were up – suggesting that the original advertising spend may have been too high.
And P&G were not alone. It was one of many businesses – large and small – reducing advertising expenditure – not because they want to save money (although they might) but because they suspected there were other, more cost-effective ways of marketing their business than spending big on advertising.
In the 2019 financial year, Myer reported AUD$24 million EBIT with its multi-million-dollar advertising budget. This was better than any of the previous five years but still well below a commercially acceptable level. In 2020, Myer reported a substantial loss (although, to be fair, this was impacted by COVID 19). On the other hand – with NO advertising budget – in 2019, Zara (international) reported a US$1.71 billion profit on the back of a 7% rise in sales and a 56.8% boost in margins in 2019. In the same year, Zara (Australia) reported a 35% increase to AUS$12 million – again with no advertising.
Instead of using advertising as its principal marketing tool, Zara prioritised being truly customer-focused and maximising the lifetime value of each customer:
- Leveraging customer data.
- Developing product customers want.
- Offering an excellent customer experience.
- Leading the market in range.
- Sophisticated merchandising.
Krispy Kreme and Rolls Royce are also businesses that do not advertise. Despite this- Krispy Kreme has a market capitalisation of US$925 billion, and Rolls Royce has a market capitalisation of 614.96 billion Stirling. The success of these businesses and the successful marketing of these businesses has been achieved without relying on advertising.
Growing by 7.56% year on year, supermarket giant Costco reported a US$19.8 billion gross profit in 2019. Trading across the world, Costco is the second-largest retailer in the world and the second most profitable bricks and mortar retailer in the United States. These results were achieved with no traditional marketing.
The marketing strategy for Costco is built around value pricing and a limited range of unique products – sold in bulk. The communication strategy for Costco involves:
- Ambush marketing.
- Documentary marketing.
- Database marketing.
These are just some of the businesses that are learning that advertising is now necessarily an essential part of their marketing strategy and that even when external communication is essential – that communication need not be advertising.
Remember that marketing is a great deal more than advertising and may not always need to involve advertising.
- Rethink your definition of marketing.
Google defines marketing as ‘the action or business of promoting and selling products or services, including market research and advertising.’ This definition reflects a view held by many, including most businesspeople, that marketing is all about ‘promotion and selling, market research and advertising.’ The fact is, however – marketing is about a great deal more than advertising and digital communication. Indeed, marketing need not involve advertising or digital marketing, and effective marketing can reduce the need for advertising and digital communication. While often the most expensive component of marketing, advertising and digital communication is only a small part of a far more complex and interesting discipline.
Marketing also need not involve market research, although, in my experience, many businesses would be a great deal more profitable if they invested a little more in market research (which, of course, advertising agencies who know best and want the money spent on new creative or additional media will almost always discourage) with a view to spending a lot less in advertising.
Philip Kotler, the North-Western University doyen of marketing, whom some call the – ‘father of modern marketing, defined marketing as the discipline of – ‘satisfying needs and wants through an exchange process.’ Highlighting that marketing is or should be all about the consumer, this definition focuses not on tools used to influence consumer behaviour but rather on the consumer whose behaviour is influenced. This was one of the first definitions of marketing to put the customer front and centre.
My problem with this definition is that it makes no reference to why an individual or organisation would want to satisfy the needs and wants. It is also limited in that it appears to focus on a commercial transaction (an exchange) when marketing can also be used to address social issues where very often no transaction takes place. Marketing can, for example, be used to encourage people to stop smoking and reduce drinking – this discouraging an exchange.
Kotler has also defined marketing as the discipline of – ‘… identifying unfulfilled needs and desires. It defines, measures, and quantifies the size of the identified market and the profit potential. It pinpoints which segments the company can serve best, and it designs and promotes the appropriate products and services.’ While this definition overcomes the lack of a commercial orientation, it excludes the possibility of a non-commercial objective (other than profit) and remains focused on exchange. This definition also fails to get to the heart of what marketing is and how it can help a business, government agency or not for profit.
The American Marketing Association defines marketing as – ‘…..the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.’ I would argue that the strength of this definition is its focuses on delivering value to stakeholders. My main quibble with this definition relates to the fact that marketing need not involve communication or an exchange.
I will resist the temptation to list and critique any more definitions of this complex discipline and instead offer one of my own. I liken ‘marketing’ to social psychology – defining it as:
- Managing human behaviour to achieve social and or commercial objectives.
This paper will demonstrate not only the veracity of this definition but also its cost-effectiveness.
Here is an excellent demonstration of marketing that involves managing consumers to achieve a behaviour (accuracy) but does not involve advertising (communication) or an exchange. The marketing objectives are achieved without advertising and in an environment in which advertising (signage) had failed previously.
To reduce careless behaviour that causes splashing, researchers in the United States painted an image of a fly at the base of a urinal. What followed was a stream (pardon the pun) of men aiming at the fly when they used the urinal. This led to a 50% drop in spillage on the floor – significantly reducing cleaning costs. A second study at the University of Louisville in Kentucky involved placing a rival university’s emblem at the bottom of the urinal in their changing rooms. Similar results were achieved.
I would argue that no amount of signage or advertising would have achieved this outcome.
Your definition of marketing – to focus on the consumer and their behaviour.
- Marketing is all about managing human behaviour.
Social psychologists recognise the close parallels between marketing and psychology – and the marketer and the psychologist. Psychology is the study of the human mind and its functions – especially those impacting the behaviour of human beings. A psychologist leverages the understanding generated by this study to influence human behaviour.
Marketing is or should be the study of the consumer mind and its functions – especially those impacting consumer behaviour. Marketing managers and others involved in marketing should be in the business of achieving social or commercial outcomes by influencing the behaviour of target audiences. Cost-effective marketing is about using leveraging data to manage consumer behaviours.
I would argue that marketing almost always involves one of four things:
- Causing a behaviour for the first time.
- Causing a behaviour for or the last time.
- Causing a behaviour to occur more often.
- Causing a behaviour to occur less often.
Marketing strategies can be designed to cause a behaviour to occur – for the first time (say – shop at a specific store or buy a particular brand); for the last time, (say – smoking); more often, (say – visit a restaurant or fast-food brand); less frequently (say – drinking alcohol). The only other thing marketing might do is add value to a product to achieve one of these behavioural outcomes and causing that behaviour to occur at a target price – but even that is focused on causing a designated behaviour to occur (at a preferred price point).
This clearly demonstrates that marketing is all about managing or influencing consumer behaviour, as also demonstrated by this example.
Students at Roskilde University in Copenhagen undertook a two-part study looking at littering. In the first part, they handed out lollies in wrappers in the streets of Copenhagen – and then counted the number of wrappers that were on the ground afterwards. The second part preceded the lolly distribution by placing ‘green footprints’ on the ground leading up to rubbish bins. Then they handed out the lollies – and found a 48% decrease in litter afterwards.
They found that the ‘green footprints’ on the ground caused people to visit the bin more often than just drop the paper. They also found that after the initial people followed the ‘green footprints’, there appeared to be a social norm developing. This, in turn, further increased the proportion of people who walked over to the bins and deposited the wrapper in them.
This is a fantastic example of using marketing to influence consumer behaviour without advertising, utilising a nudge – a psychological trigger – cost substantially less than an advertising campaign.
Understand that marketing is all about the cost-effective management of consumer behaviour.
- Remember the five most important questions in marketing.
Highlighting the importance of behaviour management are the five most important questions in marketing:
- What are the business objectives?
- Whose behaviour are we to manage?
- What behaviour do we require?
- How can we cause that behaviour cost-effectively?
- When should we aim to target behaviour?
Having defined the business objectives (social and or commercial), the next step must be to define the target market (those consumers whose behaviour is to be influenced), the behaviour that is required of that market if the business objectives are to be achieved (purchase, repeat purchase and or referral etc), the easiest way of causing the behavioural outcome sort (the product, price, distribution or a nudge etc), and then when in the purchase process or customer journey the behaviour of members of the target audience can be most effectively influenced.
The first question involves a relatively simple business decision. The second question involves understanding the market well enough to complete a market segmentation, accounting for factors like, but not limited to:
- Personality – traits that impact on behaviour.
- Lifestyle – activities, interests, opinions, and attitudes.
- Social class – upper, medium, and lower.
Question three also involves a business decision, while questions four and five must include assessing the customer journey – and the points in that journey at which behaviour can be influenced.
Recent research found that businesses that embrace all stages in the customer journey increase their return on investment by 54%. Research also found that customer journey mapping and leveraging increases’ upsell revenue by 56%.
Fully leveraging the customer journey involves:
- Mapping the customer journey from the first point of need or want identification right through to repeat purchase and referral.
- Identifying in the journey every point at which the customer interacts or potentially interacting with you and your business.
- Understanding and directly addressing the needs at each touchpoint and establishing the capacity to address those needs fully.
- Identifying a strategy for engaging with your target market at every touchpoint in a way that encourages the purchase of your product.
In my experience, few businesses understand their customer’s journey as well as they should, and even fewer are well placed to identify and fully leverage each touchpoint in that journey. This failure tends to drive marketing costs up and the potential for maximising revenue down.
Embrace the behavioural approach to marketing and the power of the customer journey.
If you embrace putting the customer first, it should be easy enough to accept the notion that marketing is all about the consumer, or more specifically, all about managing the behaviour of consumers – not advertising. Having got to that point, it should be relatively easy to focus on finding the most cost-effective means of managing consumer behaviour, and that need not necessarily involve advertising. It is important to consider the alternatives to advertising before investing heavily in advertising.