July 01, 2013

Do Advertisers Know What They're Buying?

On April 23 of this year, Apple reported...
“We are pleased to report record March quarter revenue thanks to continued strong performance of iPhone and iPad,”
This report was remarkable for two reasons: First, it is generally believed that Apple has not introduced any new products or features of major interest to consumers in about two years. This in an industry whose oxygen is new products and features.

Second, it is also believed that Apple's advertising has fallen from the lofty standard it had established over previous years, to a point that it is now inferior to its rivals in the tech industry.

So how did they achieve record revenues?

I am not qualified to comment on the product part of the equation, but I do have a strong opinion about the advertising part.

The answer is this: advertising serves two functions. The first function is the one that every marketer focuses on -- sales. But the second one is at least as important. Advertising is business insurance. Advertising builds equity so that when you have a fallow period you still can generate income.

This is how Apple was able to report record revenue during a period of widely acknowledged creative foundering.

One of the reasons people continued to spend their money to purchase Apple products was not likely the result of advertising that they ran in that quarter. It was because of the advertising that Apple had run the previous 25 years. It bought them insurance.

Apple products were still believed to be technically superior, even though that is questionable. Apple products were still believed to be of higher quality, even though they may not have been. (Ironically, Apple's toughest competitor, Samsung, is also one of its primary suppliers.) 

The hundreds of millions Apple spent on "insurance" over the years paid off with billions in sales in the first quarter of 2013.

It is the rare marketer that truly understands this aspect of advertising value.

Several months ago I wrote about Coca-Cola's "senior manager for marketing strategy" who ragged on social media because, "We didn't see any statistically significant relationship between our buzz and our short-term sales."

It's not my habit to be defending social media (much of which I consider misguided and ineffectual) but the prevailing attitude among marketers that everything is immediately measurable completely ignores the insurance value (or in marketing jargon, "brand equity") that accrues to them through advertising.

One of the frustrating aspects of business is that when marketers engage in advertising most don't understand what they are buying or appreciate what they are getting.


Brian Jacobs said...

Excellent piece - to build on what Jim says concerning the average Mktg Director tenure now being around 18 months, this inevitably means that the average guy is looking to short-term sales gains to support his plans for promotion.
If you're faced with this situation you're pretty well bound to act in your own short-term interests over and above the company's longer-term success. Maybe the way these people are evaluated needs to be looked into? Or maybe, as was the case with Apple, the brand's reputation and marketing should always be the responsibility of the CEO - who certainly should have an eye on something beyond next quarter's results.

Agencies always used to know more about their clients' brands than the average marketing guy. I remember that when a new brand guy joined Kellogg's in the UK he was given a 'bible', the first page of which stated 'it is not your job to change the ad agency'. The agency enjoyed a security of tenure that allowed them to act authoritatively as the brand guardian. I'm not sure that this is so common nowadays!

Mike McGrail said...

That is not an angle I've thought of before. Perfect ammo for a difficult conversation I have coming up this afternoon! Ads as insurance. But only when done well.

Cecil B DeMille said...

I can cite a real-world example. The insurance effect does not require a bazillion dollars. It merely requires consistency of message and presence.

One of the first clients i worked for was a hospital system. We did lots of ads for them. TV and print, for the most part, with some outdoor. They maintained a presence at all times, where their competitor merely did blitzes with a few regular ads.

When our client did some third party research, the researchers asked people who had the best "stroke" unit in the area. The answer was 90%+ that our client did.

They decided that was a pretty good reason to create one. It didn't even exist, but people naturally assumed if it was a hospital and it was the best, our client had it. Not a difficult lesson to learn, nor is it terribly surprising. Advertising is an investment. Always has been.

AZ said...

Great article. I was at a ballgame this evening in Washington DC and Geico had this clever little race between former Presidents that the fans loved...it's become a staple at the stadium. It made me think about their ads over the years and the characters in them...the Gecko, Caveman, Pig, etc. All hilarious characters that have little to do with insurance, but extremely memorable. They've been doing these (ads) since the 90's and consumers seem to love them. They're not trying to sell you anything or get sign-ups, but everyone associates the brand when they see, and laugh at these characters. They're providing us with entertainment and tugging at our emotions. I would argue this might be the best "insurance" Geico offers.

Martin Weigel said...

If you haven't already checked it out, have a read of 'The Long And The Short Of It' by Peter Field and Les Binet. Published by the UK's IPA, it's an analysis of 1,000 case studies submitted for the IPA Effectiveness Awards. It's an absolutely invaluable analysis of how long- and short-term advertising effects work differently. Essential reading. Indeed it should be required reading for every client and every ad professional.
Hope you're well, sir.