Which Half is Wasted?

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Rick Webb, writer, entrepreneur and investor, gave this presentation at "Ambidexterity," the VCU Brandcenter's executive education program for account planning, on July 19th, 2013 at the VCU Brandcenter in Richmond.

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Which Half is Wasted?

  1. 1. WHICH HALF IS WASTED? N.B. (Almost) All images come from 2
  2. 2. HI I’M RICK. 3
  3. 3. I USED TO WORK HERE.4
  4. 4. 5 +
  5. 5. THEN I DID SOME INVESTING. 6
  6. 6. THEN I WORKED HERE.7
  7. 7. 8
  8. 8. NOW I WORK ON THESE THINGS: 9
  9. 9. 10 I’VE BEEN WORKING ON A BOOK CALLED WHICH HALF IS WASTED.
  10. 10. LET’S TALK ABOUT ECONOMICS Without talking about Ron Paul or Schumpeter. And even really not much Keynes. 11
  11. 11. 12 COLLEGE.
  12. 12. 13
  13. 13. 14 Robert Malthus Adam Smith
  14. 14. 15 HOMO ECONOMICUS
  15. 15. 16 “[POLITICAL ECONOMY]...IS CONCERNED WITH [MAN] SOLELY AS A BEING WHO DESIRES TO POSSESS WEALTH, AND WHO IS CAPABLE OF JUDGING THE COMPARATIVE EFFICACY OF MEANS FOR OBTAINING THAT END.”John Stuart Mill Mill, John Stuart. "On the Definition of Political Economy, and on the Method of Investigation Proper to It," London and Westminster Review, October 1836. Essays on Some Unsettled Questions of Political Economy, 2nd ed. London: Longmans, Green, Reader & Dyer, 1874.
  16. 16. 17 ONE PROBLEM: HOMO ECONOMICUS DOES NOT EXIST.
  17. 17. 18
  18. 18. 19 Alfred Marshall John Maynard Keynes
  19. 19. 20 AN EXTERNALITY IS A COST OR BENEFIT THAT IS NOT TRANSMITTED THROUGH PRICES. Arthur Cecil Pigou
  20. 20. EXTERNALITIES CAN BE POSITIVE OR NEGATIVE. This is a big deal
  21. 21. 22 ADVERTISING IS AN EXTERNALITY. BUT POSITIVE OR NEGATIVE?
  22. 22. 23 FOR ANYONE WONDERING IF WHAT WE DO IS EVIL, THIS IS NOT A SMALL QUESTION.
  23. 23. 24 A PENDULUM HAS SWUNG THROUGHOUT THE HISTORY OF ADVERTISING
  24. 24. 25 – JOHN WANAMAKER, CIRCA 1920 "HALF THE MONEY I SPEND ON ADVERTISING IS WASTED; THE TROUBLE IS I DON'T KNOW WHICH HALF."
  25. 25. 26 RATIONAL EMOTIONAL
  26. 26. 27 - DIRECT MARKETING - “SCIENCE-BASED” ADVERTISING - “SELLING COSTS” - BRAND MARKETING - CREATIVE ADVERTISING - TRADEMARKS
  27. 27. 28 THEORY #1: INFORMATION
  28. 28. 29
  29. 29. 30 THIS IS NOT FOR LACK OF INFORMATION
  30. 30. 31 THEORY #2: SIGNALLING
  31. 31. 32 A POSITIVE ASSOCIATION BETWEEN ADVERTISING AND QUALITY. ADVERTISING THUS MAY SIGNAL QUALITY, REGARDLESS OF WHAT THE AD SAYS.
  32. 32. 33 NOTHING KILLS A BAD PRODUCT FASTER THAN GOOD ADVERTISING. – BILL BERNBACH
  33. 33. 34 THEORY #3: BRANDS.
  34. 34. 35 Joan Robinson Edward Hastings Chamberlain
  35. 35. 36 THE MOTHER AND FATHER OF ADVERTISING ECONOMICS.
  36. 36. 37 IN 1933 CHAMBERLIN BROKE DOWN ADVERTISING’S ECONOMIC ROLE INTO TWO PARTS: THAT OF THE TRADEMARK, OR BRAND, AND THAT OF “SELLING COSTS,” OR THE SPREADING OF INFORMATION AND THE REPETITION OF THAT INFORMATION, AKA DIRECT. Theory of Monopolistic Competition. A worthy read.
  37. 37. 38 David Ogilvy Bill Bernbach
  38. 38. 39 David Ogilvy Bill Bernbach
  39. 39. 40 “I WARN YOU AGAINST BELIEVING THAT ADVERTISING IS A SCIENCE.” — BILL BERNBACH “I DO NOT REGARD ADVERTISING AS ENTERTAINMENT OR AN ART FORM, BUT AS A MEDIUM OF INFORMATION.” —DAVID OGILVY
  40. 40. 41 David Ogilvy Bill Bernbach
  41. 41. 42 Howard Draft Alex Bogusky
  42. 42. 43
  43. 43. 44 “THE PROTECTION GIVEN BY CLOTHES IS EXCLUSIVE TO THOSE WHO USE THEM. BUT WHEN PEOPLE ARE NOT SATISFIED WITH A MERE COVERING AND PROVIDE THEMSELVES WITH FINE CLOTHING PLEASING TO THE EYE, THE ENJOYMENT IS SHARED BY ALL WHO MEET HIM.” – THE NEED FOR FAITH Sir Ralph Hawtrey
  44. 44. 45 BRAND + DIRECT =
  45. 45. 360 DEGREES.
  46. 46. THE NAYSAYERS
  47. 47. 48 “THE QUASI-PEACEABLE GENTLEMAN OF LEISURE, THEN, NOT ONLY CONSUMES OF THE STAFF OF LIFE BEYOND THE MINIMUM REQUIRED FOR SUBSISTENCE AND PHYSICAL EFFICIENCY, BUT HIS CONSUMPTION ALSO UNDERGOES A SPECIALISATION AS REGARDS THE QUALITY OF THE GOODS CONSUMED. HE CONSUMES FREELY AND OF THE BEST, IN FOOD, DRINK, NARCOTICS, SHELTER, SERVICES, ORNAMENTS, APPAREL, WEAPONS AND ACCOUTREMENTS, AMUSEMENTS, AMULETS, AND IDOLS OR DIVINITIES.” – THEORY OF THE LEISURE CLASS Thorstein Veblen
  48. 48. 49 "THE MELANCHOLY DISCIPLES OF THORSTEIN VEBLEN WOULD HAVE DESPISED THIS SHIRT."
  49. 49. 50 “HARMONY THEREFORE, BETWEEN CONSUMER PREFERENCES AND THE PATTERN OF PRODUCTION MAY SIMPLY INDICATE THE ADAPTATION OF MAN'S TASTES TO THE RIGID REQUIREMENTS OF THE PRODUCTIVE SYSTEM, AND THAT WOULD HARDLY BE A CAUSE FOR SELF-CONGRATULATION.” – THE JOYLESS ECONOMYTibor Scitovsky
  50. 50. ADVERTISING HAS US CHASING CARS AND CHOTHES, WORKING JOBS WE HATE SO WE CAN BUY SHIT WE DON’T NEED.
  51. 51. 52 “WHEN ANY SPACE IS BOUGHT, EVEN IF ONLY TEMPORARILY, IT CHANGES TO FIT ITS SPONSORS. AND THE MORE PREVIOUSLY PUBLIC SPACES ARE SOLD TO CORPORATIONS OR BRANDED BY THEM, THE MORE WE AS CITIZENS ARE FORCED TO PLAY BY CORPORATE RULES TO ACCESS OUR OWN CULTURE.” – NO LOGONaomi Klein
  52. 52. 54 “MARKETERS EXPLOIT THE FOCUSING ILLUSION. WHEN PEOPLE ARE INDUCED TO BELIEVE THAT THEY “MUST HAVE” A GOOD, THEY GREATLY EXAGGERATE THE DIFFERENCE THAT THE GOOD WILL MAKE TO THE QUALITY OF THEIR LIFE.” – THINKING FAST AND SLOW Daniel Kahneman
  53. 53. 55 WE ALL HAVE TO COME TO TERMS WITH THESE.
  54. 54. 56 THE GOOD NEWS
  55. 55. 57 “ADVERTISING, LIKE DEMOCRACY, IS TERRIBLE IN PRINCIPLE BUT BETTER THAN ANY KNOWN ALTERNATIVE IN PRACTICE.” Richard Schmalensee
  56. 56. 58 THE RETURN FROM ADVERTISING AND THEREBY ACHIEVING AN INITIAL SALE MAY BE GREATER FOR A HIGH- QUALITY PRODUCT, DUE TO THE GREATER REPEAT PURCHASES THAT COME FROM SATISFIED CUSTOMERS Phillip J. Nelson
  57. 57. 59 “EVEN THE CENTRAL PLANNERS IN THE OLD SOVIET UNION HAD TO ESTABLISH ‘PRODUCTION MARKS’ TO STOP MANUFACTURERS CUTTING CORNERS ON QUALITY.” http://www.economist.com/node/770992?story_id=770992
  58. 58. 60 ACCORDINGLY, EVEN NON-PRICE ADVERTISING CAN LOWER PRICES, AND THIS ASSOCIATION APPEARS TO DERIVE IN PART FROM THE ENTRY OF LARGE-SCALE FIRMS INTO MARKETS THAT ALLOW NON-PRICE ADVERTISING Lee Benham
  59. 59. 61 “THE NEWSPAPER INDUSTRY PROVIDES ANOTHER EXAMPLE OF SUBSIDISED COMMODITIES, BELONGING TO THIS CLASS; HERE THE SERVICE PROVIDED TO THE PUBLIC IS SUBSIDISED (THE PAPERS ARE SOLD TO THE PUBLIC BELOW COST), IN ORDER TO ENHANCE THE DEMAND FOR ADVERTISING SPACE, BY THE ADVERTISERS.” Nicholas Kaldor Kaldor, N. 1950. The economic aspects of advertising. Review of Economic Studies 18, 1–27.
  60. 60. 62 UH OH.
  61. 61. 63 BUT WHAT ABOUT THE INTERNET?
  62. 62. 64
  63. 63. 65 IN 2011, WEB 2.0 VISIONARY TIM O'REILLY BLITHELY COMMENTED THAT GOOGLE "SOLVED THE PROBLEM POSED BY JOHN WANAMAKER A CENTURY AGO" https://plus.google.com/107033731246200681024/posts/2NU9pZEZ5t1
  64. 64. ADVERTISING IN THE US $114 Billion Total Ad Spend, web is 30% and growing Source: Kantar Media, IAB, E-Marketer 66 0 18 35 53 70 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 US Online Ad Spend, in Billions Projected
  65. 65. BUT THAT MONEY IS COMING FROM PRINT, NOT TV 67 0 10 20 30 40 2006 2007 2008 2009 2010 2011 Online Ad Spend Percentage Print Ad Percentage Source: Business Insider, via Company filings
  66. 66. ANOTHER WAY OF LOOKING AT IT IS TO SAY THAT ONLINE AD MONEY IS COMING FROM DIRECT AND NOT BRAND. 68
  67. 67. THIS DOESN’T SEEM SURPRISING 69
  68. 68. TELEVISION ADVERTISING IS ACTUALLY GROWING 70 Source: Business Insider, via Company filings 40 41 42 2006 2007 2008 2009 2010 2011 USTelevision Ad Spend as a percentage of total (I MEAN, NOT A LOT, BUT EVERYONE THINKS IT’S SHRINKING. BUT IT ISN’T.)
  69. 69. 71 Source: Business Insider, via Company filings -8 -6 -4 -2 0 2 4 May ‘11 June ‘11 July ‘11 Sep ‘11 Oct ‘11 Nov ‘11 Dec ‘11 Jan ‘12 Feb ‘12 March ‘12 Change in Live + Same Day Ratings; Persons 2+;Total Day (percent) AND THIS, EVEN THOUGH THEIR AUDIENCE IS SHRINKING.
  70. 70. 72 SO $48 BILLION IS STILL BEING SPENT ON TV EVEN THOUGH THE AUDIENCE IS SHRINKING.
  71. 71. 73 WTF?
  72. 72. 74 THE INTERNET HAS CAPTURED DIRECT AD MONEY FROM PRINT, BUT IT IS STILL REALLY BAD AT BRAND MARKETING
  73. 73. “THE WEB HAS MEGA- OPTIMIZED THE SMALLEST CHUNK OF ADVERTISING, WHICH IS DIRECT RESPONSE... IT’S NOT INTENDED TO MAKE YOU FEEL SOMETHING FOR THE BRAND.” DAVID KARP, TUMBLR CEO, JULY 2012 75
  74. 74. 76http://www.iab.net/about_the_iab/recent_press_releases/press_release_archive/press_release/pr-101112 81% OF ALL ONLINE AD DOLLARS ARE SPENT ON SEARCH OR BANNERS.
  75. 75. 77http://www.iab.net/about_the_iab/recent_press_releases/press_release_archive/press_release/pr-101112 THIS IS EVEN MORE DEPRESSING - THE CONCEPT OF BRAND LIFT AS A PRICING MODEL IS NON-EXISTENT.
  76. 76. 78 ? AdWords
  77. 77. 79 The First Banner AdWords
  78. 78. 80 THIS HAS BEEN MY JAM SINCE I GOT STARTED IN ADVERTISING.
  79. 79. 81 Viral Marketing AdWords
  80. 80. 82 YouTubeAdWords
  81. 81. 83 BuzzfeedAdWords
  82. 82. 84 TimelineBrand Pages
  83. 83. 85 New Profile Pages Old Twitter Pages
  84. 84. 86
  85. 85. 87 THIS IS NOT ACADEMIC.
  86. 86. 88 “STUDIES... INDICATE THAT COMPANIES WITH STRONG BRANDS OUTPERFORM THE MARKET IN RESPECT OF SEVERAL INDICES. IT HAS ALSO BEEN SHOWN THAT A PORTFOLIO WEIGHTED BY THE BRAND VALUES OF THE BEST GLOBAL BRANDS PERFORMS SIGNIFICANTLY BETTER THAN MORGAN STANLEY’S GLOBAL MSCI INDEX AND THE AMERICAN-FOCUSED S&P 500 INDEX.” BrandChannel
  87. 87. 89 “ADVERTISING SHOULD NOT BE ABOLISHED, BUT IT MUST BE REFORMED.”
  88. 88. 90 ADVERTISING IS THE EDGE OF WHAT PEOPLE KNOW HOW TO DO AND OF HUMAN EXPERIENCE AND IT EXPLAINS THE LATEST WAYS PROGRESS HAS CHANGED US TO OURSELVES. FOR ME, THAT DEFINITION OF ADVERTISING IS REALLY INTERESTING AND IS PROFOUNDLY DIFFERENT FROM THE LATEST SILICON VALLEY DEFINITION OF ADVERTISING – WHERE YOU HAVE PEOPLE PAY FOR WHO THEY CAN BE CONNECTED TO....Jaron Lanier
  89. 89. Apologies and thanks to the source: Luma Partners. Hate the game, not the player.
  90. 90. Apologies and thanks to the source: Luma Partners. Hate the game, not the player. SERIOUSLY. SCREW THIS.
  91. 91. 93
  92. 92. 94 WEB ADS ARE NO LONGER ALIGNED WITH OUR MEDIA
  93. 93. WEB IS GROWING AT THE EXPENSE OF PRINT 95 0 10 20 30 40 2006 2007 2008 2009 2010 2011 Online Ad Spend Percentage Print Ad Percentage Source: Business Insider, via Company filings
  94. 94. MORE OF THE AD DOLLARS FUND UTILITY RATHER THAN OUR MEDIA 96 Source: eMarketer, Sept 2012 33% 2% 7% 7% 7% 44% Other
  95. 95. MORE OF THE AD DOLLARS FUND UTILITY RATHER THAN OUR MEDIA 97 Source: eMarketer, Sept 2012 33% 2% 7% 7% 7% 44% Other X X
  96. 96. IT’S EVEN WORSE ON MOBILE 98 Source: eMarketer, June 2013 18% 30% 52% Everything Else
  97. 97. IT’S EVEN WORSE ON MOBILE 99 Source: eMarketer, June 2013 18% 30% 52% Google Other Facebook NEWS IS A SUBSET OF THIS SMALL SLICE ALL THIS IS “UTILITY”
  98. 98. , THE LARGEST NEWS SITE ON THE WEB, GARNERS < 0.1% OF ONLINE AD DOLLARS Source: Neiman Lab, eMarketer, PaidContent
  99. 99. SUPPORTING OUR MEDIA IS WHAT MADE MOST ECONOMISTS AGREE ADVERTISING WAS A POSITIVE EXTERNALITY
  100. 100. NOW, INSTEAD OF SUPPORTING OUR MEDIA, IT’S SUPPORTING OUR SOCIAL NETWORKING AND SEARCH. IN SHORT, UTILITY.
  101. 101. THE GREAT UNANSWERED QUESTION
  102. 102. IS UTILITY ≥THE MEDIA?
  103. 103. THE MORALITY OF OUR INDUSTRY DEPENDS ON THE ANSWER
  104. 104. 106
  105. 105. 107 THE DEFINING ADVERTISING ISSUES OF OUR TIME:
  106. 106. SOCIAL: BRING BRANDS TO THE PEOPLE.
  107. 107. 109
  108. 108. 110 BRAND: BRING BRAND TO THE WEB.
  109. 109. 111 SOCIETAL: BRING BACK THE NEWS. This I should rework with the graph of where the money is spent and the is utilith > news question
  110. 110. 112 SOCIAL IS ERODING THE ABILITY FOR A BRAND TO CONTROL THE NARRATIVE.
  111. 111. 113 SOME BRANDS DO IT WELL, BUT THEY ARE THE EXCEPTION, NOT THE RULE.

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