The Innovation Deficit Tax:Advertising Want an easy way to know whether By G. Michael Maddock your product or service qualifies as and Raphael Louis Vitón sufficiently innovative to get people May 26, 2010 talking about it? Look no further than your ad budget. “Advertising is the tax you pay for a bad idea.” The flip side of this argument is that if you don’t have an — Robert Stephens, founder, Geek Squad idea that really meets a need in a distinctive fashion, you will need to pay more and more to get it noticed. People Here’s a startling fact: For what equals a rounding error won’t do you the favor of passing on ideas that have little in most big-brand ad budgets, companies could create a to no relevance to their lives. You will, in effect, be taxed meaningful new product that would eliminate much of in media dollars for what you failed to spend in research the required ad budget, thus saving themselves — while and development. We contend that the price of this tax also earning — millions and millions of dollars. will increase as your relevancy deficit increases. In our experience, many leaders nod their heads in agreement when presented with this concept, then Innovation Saves Marketing Money continue feeding a system that advertises too much Why do we care about how much companies spend and invents too little. on advertising? First, because we see a direct corollary between true innovation and marketing expenses. Answer this question: How many apps have you Truly innovative products typically require a smaller purchased? Since some one billion apps were reportedly investment in marketing and advertising. Why? Because downloaded worldwide in nine months, we’ll assume true innovation means a company has identified a: that you’re like us and the number exceeds a few. How many of those apps did you download because a friend 1. Significant need told you about them or because you “heard” about them online? Conversely, how many did you purchase 2. Product, service or business model that meets because you saw an ad? Come to think of it, how many that need ads for specific apps have you ever seen? 3. Means of communication that connects the two Therein lies our point. Great ideas are increasingly turning viral. We say increasingly because with the When you successfully meld these three variables, you advent of techno-charged social media, people can tell don’t need to spend as much on marketing. As we said each other about their favorite innovation in the blink earlier, good news now travels really fast. Case in point: of an eye, with a click of a mouse. If something qualifies Have you noticed that the world knows about the next as truly great, you likely will hear about it from your generation of iPads before Apple (AAPL) has made it network, not from advertisements. available? This is similar to how the stock market reacts to “word on the street,” rather than actual company reports. People are sharing news that matters to them with their powerful, growing networks.
The second reason we care is that advertising can A final thought: Around this time for the past six years,be an unhealthy addiction that can often drive we’ve reported the results of an annual research studyorganizations out of business. Rather than address about the impact of Super Bowl ads. Year after yearthe true issue — undifferentiated products and we’ve shown that most of the ads have minimal impact,services — companies spend to get the attention of despite millions in spending. This year we decided theconsumers, rather than invest in reinvention. This study wasn’t worth our time or yours.results in shrinking margins and less differentiationwhile costing more and more to get noticed. Ad We were right. Nobody on Madison Avenue is listening.agencies often exacerbate this downward spiral by Again this year, the majority of the money went towardinsisting that more media dollars will solve the problem. ads for beer, diet soda and cars. In nearly every case,Let’s face it: Telling people that they need to buy the ads trumpeted the benefits of products we alreadyinsurance or else something bad will happen to them knew about, products that were imitations of somethingis far less desirable than having customers call you already in the market, or the promise of some upcomingto order your new product. When you find yourself innovation that would eventually, some day, blow us away.pushing a product instead of responding to requests,it often means your addiction has taken over. The production values were superb. The gags were great and the budgets were freely spent. Now who wants to tellArchimedes said: “Give me a lever long enough and I their friends about the new products? (Insert sound ofshall move the world.” We ask you to think of innovation crickets here.)as your lever. The bigger the need you are filling, the G. Michael Maddock is chief executive, and Raphael more novel the solution you create, and the more Louis Vitón is president of Maddock Douglas, an appropriate the communication, the longer your lever innovation consultancy that helps clients invent, becomes. The longer the lever, the less weight — the brand and launch new products, services and business less advertising — you need to move the world. models. Maddock is author of the upcoming book Brand New: Solving the Innovation Paradox —No Innovation? Save Your Ad Money How Great Brands Invent and Launch New Products, Services and Business Models (Wiley, April 2011).We started this article by saying that for a fraction oftheir ad budgets, most companies could create innova-tions that would then cut those budgets dramatically.It is absolutely true. And the solution is pretty simple:Don’t advertise until you have invested enough to createa product, service or business model innovative enoughto go viral. If you don’t have anything innovative anddon’t care to invest to create it, then for God’s sake, stopadvertising. At least your business will last longer. Mike Maddock, CEO email@example.comIn the social media age, we encourage you to ask the 630.563.6415question: “Why do they need to advertise so much?” Wealso suggest you reexamine your marketing budget to seeif you’re spending so much money because your product,service or business model lacks innovative qualities.