How Marketing Adapts to the Networked Age (spoiler: it’s not adtech)

For father’s day this year, HP released a specially commissioned advert. It depicts a father telling his baby son there’s someone he’d like him to meet. He then introduces the baby to his grandfather for the first time. As the baby seemingly touches his grandfather’s face, the camera zooms out to reveal he’s just looking at a photo. The father says, “I really wish you could have met him.” The ad finishes with the tagline, “Keep memories alive”.

This is a moving ad for sure, but prevailing wisdom tells us it’s a total waste of time. Platforms like Facebook have changed the marketing game, they say. Rather than spending on big-budget, brand-building ads shown to wide audiences, companies need to embrace the new paradigm of perfectly targeted, perfectly measurable micro-messaging. This is, after all, what won Donald Trump the US election, delivered Brexit and launched Warby Parker.

But is that really true? There can be no doubt that digitization is changing marketing. Marketers can gather more data on their customers, which can help them to target more effectively. But, in the digital era, attention is increasingly scarce, making it harder for marketers to land those targeted messages, let alone build engagement. And, some aspects of marketing remain stubbornly true, like customers will pay more for brands with which they feel an emotional connection.

The truth is, in the digital age, marketing craft and strategy matter more, not less. And, as if to underline this point, Facebook — the virtual embodiment of the micro-targeting phenomenon — has just hired Antonio Lucio, the man behind this father’s day ad, to be its global CMO.

Attention

In his superb Long Now talk, Paul Saffo eloquently explains how our economy has moved from one centred on maximizing production (to meet a shortage of “needs”) to one centred on financialization and mass marketing (creating and fulfilling “wants”) to one centred on engagement (to hold people’s finite “attention”).

In this context, it is clear that firms can no longer rely on supply-side economies of scale to mass-produce commoditized goods at the lowest possible price nor enter into undifferentiated mass marketing to boost demand. Instead, in the digital age, demand-side economies of scale (network effects) are the golden source of competitive advantage. And while network effects rely on personalization, it does not necessarily follow that the corrective to mass marketing is personalized marketing — or, at least, not in the form the adtech world purports.

Even if you can microtarget the right message to the right person, there is no certainty the ad will get through (as ads have become more prevalent, so have ad blockers); if the message isn’t compelling it probably won’t be viewed; and even it is viewed, it probably won’t be enough to change customer buying behavior (which is essential to grow market share).

The fact is that to trigger network effects and overcome attention scarcity, marketing needs to be highly strategic and highly crafted. It needs to focus on the macro and the micro, the long term and the short term. Practically, this means customer activation needs to take place under the umbrella of brand-building. The reason is that marketing has to do more than getting one customer to buy something, it needs to leverage the power of networked buyers to improve the product and induce others to buy.

Virality & Big ideas

In his autobiography, Confessions of an Advertising Man, David Ogilvy talks of the importance of big ideas. He says,

“Unless your advertising contains a BIG IDEA, it will pass like a ship in the night…Once you decide on the direction of your campaign, play it loud and clear. Don’t compromise. Be strong. Don’t beat around the bush. GO THE WHOLE HOG”

He wrote this in 1963. But is remains truer now than ever. Where once spending enough on TV commercials and newspaper ads could get the blandest advertising onto the collective consumer radar, now the name of the game is rising above the attention deficit and activating the power of network effects. And big ideas are core to this.

To illustrate this, compare the two 2016 presidential campaigns. Donald Trump’s campaign was built on a big idea — that globalization had left millions of Americans feeling left behind. And he went the whole hog — grabbing people’s attention with polarizing messages delivered directly through social media, producing strong emotional responses that mobilized his network of supporters. In contrast, Hilary Clinton led a much more conventional campaign with safer, focus group-driven policies, an anodyne slogan “Better Together” — all of which relied on heavy, TV-based mass marketing for reach. And, as much as we like to point the finger at micro-targeting, it was a big idea that won Trump the election.

The best brand campaigns are also built on big ideas. Nike is exactly the kind of brand that adtech should have theoretically seen off, as micro-targeted new shoe brands picked off its heterogeneous consumer base. But it continues to flourish in large part thanks to its willingness to take risks and embrace big ideas (look at its decision to hire Colin Kaepernick). With Nike+ Running, a groundbreaking campaign kicked off in 2006, its BIG IDEA was to realize that sport is more fun with others. But it went beyond just an advertising campaign. It used technology — allowing people to record, track and share their runs — and wrapped it with the experiential layer of taking part in races all of the world — to unlock the power of connected consumers and create an engaged global community.

Nike’s latest “Just Do It” campaign shows it is not afraid of stirring controversy or going the whole hog

And we shouldn’t underestimate the impact of content marketing to build brand and create an engaged community — all the more so when based on big ideas. Andreessen Horowitz, the VC firm, is a great example. Its content isn’t just informative, but frequently leads and shapes opinion on major new trends - just consider Marc Andreesen’s seminal article “Why Software is Eating the World”. As such, the content isn’t just consumed and valued, but sees people actively engage with and share it, turning them into the distribution engine. In turn, this generates massive long term brand equity, which while not directly or immediately convertible into revenue, creates the bedrock for mobilization and monetization (in AH’s case, raising money, attracting the best people and finding the best portfolio companies).

False precision and displaced spend

Adtech is to the marketing profession what mathematics is to the economics profession — a bogus attempt to make something precise that inherently isn’t.

For a thorough and entertaining debunking of many of the adtech industry claims, I recommend following Mark Ritson on twitter and reading his weekly column. Suffice to say here that, beyond the issues of reaching the audience, there are problems in measuring the impact, not least separating causation and correlation. For example, if someone clicks on an ad for a Porsche and then buys one, the data would indicate causation. But the likelihood is that the person was already intending to buy one since, for most, this is not an impulse buy induced by an online ad. And so we must be cautious not to overstate the effectiveness of online targeted ads — noting that many big companies have seen little impact on sales from reducing their spend. As Marc Pritchard, P&G’s chief brand officer, said in a WSJ interview,

“As we all chased the Holy Grail of digital, self-included, we were relinquishing too much control — blinded by shiny objects, overwhelmed by big data, and ceding power to algorithms.”

Another inconvenient fact of paid advertising is that while it may have once been a relatively inexpensive customer acquisition channel, this is no longer the case. This excellent Inc article on the rise of Direct-To-Consumer (DTC) startups makes the point that the price of advertising on Facebook is increasing fast — by nearly 200% in the first six months of 2017 alone. To quote the article:

“ Comcast’s Gulati has a phrase for this phenomenon: “CAC is the new rent.” In other words, for companies reliant on paid marketing, their digital customer acquisition cost (CAC) is a lot like paying for brick-and-mortar stores in the old model, or selling wholesale. Essentially, this undermines one of the most basic precepts of the DTC movement, that these companies are cutting out the middleman and therefore can afford to charge much less for higher-quality goods.”

The analogy with the wholesale sales model is especially interesting since, if social networks become the shopfronts for many companies, these companies lose the direct customer relationship. This not only locks them out of many demand side network effects, but also — like their indirect-to-consumer forbears — means that brand-building becomes critical as a means of creating loyalty and repeat purchases.

Wastage works

If you fly into Geneva airport, you’re likely to see one of several giant billboard advertisements for Nespresso featuring George Clooney.

According to proponents of adtech, these ads are wasteful — they’re expensive, there’s no way to track their effectiveness and they’re reaching a much broader audience than the narrow segment that a brand should be targeting.

This is wrong, for several reasons.

First, there is a signalling effect. George Clooney is expensive to hire. George Clooney is well known and respected. Thus, we infer Nespresso is a high quality product.

Second, there is a value in broad targeting. As Byron Sharp illustrates in his book, “How Brands Grow”, buying behaviors are much more skewed than we may think between heavy buyers and the long tail of light buyers, such that there is more scope to get a large number of light buyers to buy a bit more than to get heavy buyers to increase spend. As he puts it, “sales growth won’t come from relentlessly targeting a particular segment of a brand's buyers. Yet this targeting fantasy continues to appear in marketing plans.”

Lastly, brand-building through above-the-line promotion remains important to create an emotional connection. This emotional connection is born of common social and cultural associations which, by extension, need to be created at a collective, not solely individual, level. It is triggered through distinct imagery and carefully crafted copy — since making us think, laugh or cry is key to making a brand memorable. And it is this collective emotional connection which translates into higher loyalty and the ability to charge more.

Indeed, one could make the case that brands as a navigational device are even more important in the attention economy, since we are now so overloaded with choices and content. However, that said, the ability of advertising alone to create a reliable signal of quality, to change buying behaviors and to create an emotional connection is not what it was. This is a great quote from Jeff Bezos in an interview with Charlie Rose,

“Before you could win with a mediocre product, if you were a good enough marketer. That is getting harder to do. The balance of power is shifting toward consumers and away from companies…the individual is empowered… The right way to respond to this if you are a company is to put the vast majority of your energy, attention and dollars into building a great product or service…If I build a great product or service, my customers will tell each other.”

It’s difficult to argue that product isn’t more important than in the past, nor that a great product with mediocre marketing wouldn’t win most of the time over a mediocre product with great marketing. However, even if we accept the power of advertising might not be as strong as before, this doesn’t necessarily change the importance of marketing overall. Instead, it places more importance on doing marketing well — what you want is a great product and great marketing — and it changes the relative importance of promotion vis-à-vis the rest of the marketing mix.

Hidden marketing

Such emphasis is given to promotion that we sometimes forget that marketing has three other P’s — price, product and place. And such is the emphasis given to promotion that companies that market in other ways — like Tesla — often claim not to spend anything on marketing.

But all companies spend money on marketing, even if it isn’t recorded in the sales and marketing expense line. Every time Elon Musk tweets about Tesla, this is marketing but isn’t recorded as such. And Tesla — like Zara — does most of its marketing by dint of its stores. Strategically located in the most prestigious parts of town with giant windows showing off their prized products, why would either company invest in billboards? Even Brandless, the SoftBank-backed retailer which as the name suggests has jettisoned branding (but which is in itself a conspicuous act of branding), is engaging in lots of marketing — from price promotions to product curation.

Zara store at 666 Fifth Avenue in NYC: a building which was once the most expensive ever sold in Manhattan

The fact is that so much of marketing gets overlooked because it is practically invisible.

The customer feedback loops it provides get translated ever more seamlessly into product design, development and placement — think of Amazon’s personalized recommendation engine.

But it is in customer acquisition, notably pricing, that marketing is maybe most underappreciated. Since customers today represent not just consumers, but an essential part of the product itself, customer acquisition and retention is both critically important and highly strategic. Many of the tools marketers use today, traditional ones like email campaigns or new-fangled ones like paid online ads, don’t cut it. Instead, new levers are needed to get the flywheel of network effects started. Here are some examples:

  • Giving the product for free. One obvious way to this is to charge advertisers instead. But, not only have advertisers been oversold, but this model creates a conflict of interest between customer and advertiser. There are better alternatives, such as freemium pricing. If you have a great product, then letting customers experience it for free is an excellent way to spread the word. And once a customer is hooked on the product (and since the relationship is direct), the firm can upsell them premium features (e.g. Dropbox) or give them access to a premium service (e.g Spotify).
A Facebook advertisement in a non-digital medium apologizing for its use of customer data (illustrating the conflict between advertiser and consumer)
  • Shared-value transactions. Perhaps a better model still than freemium might be what Eric Feng calls shared-value transactions. This a pricing model wherein a firm gets almost all revenues from the heaviest users of its service and uses this revenue to improve the product for all. This in turn attracts new users, most of whom will pay little or nothing, but some of whom will become heavy, very profitable customers. It is superior to ad-based marketing, where increasing revenues involves hitting all consumers with more advertising (i.e. making no differentiation between customer types) and gives an advantage over many subscription-based models, where all users — again regardless of level of usage — tend to pay the same amount.
Spotify is the king of Freemium — its conversion rate is almost 27%
  • Giving money away. Cruder, but still effective are referral fees. Paypal built its network of customers in part thanks to giving money to people for referring their friends (which were paid into the recipient’s PayPal account). Dropbox does the same — only giving referrers extra storage as compensation
  • Making customers investors. One way to build initial excitement for a product launch and acquire an early group of engaged customers is to give them to chance to invest through crowdfunding platforms like Seedrs. This is what challenger banks like Revolut have done. Another way, still nascent, will be to issue utility tokens to simultaneously raise money and build a customer base. By meshing together investing and consumption, tokens provide a way to reward financially the users on which network effects are built.

The future

It may be that one day, we have surrendered enough data about ourselves for a bot to be able to make better choices than we can. But up until that happens, marketing remains critical to attracting and engaging consumers.

Marketing has become harder. Many of the marketer’s tools have been blunted. The media over which to reach customers have both changed and proliferated, putting attention at a premium. But this calls for greater craft and more strategy, not a search for snake oil.

Marketing has also become more important. Marketing today is more than just about finding a buyer for a service. It is about activating the power of networked consumers, which form a central part of the service creation, promotion and distribution.

To be effective, marketing needs to do more than translate consumer insights into more accurate targeting. It needs to work above and below the line -building brand equity and mobilizing consumers - as well as making full use of the marketing mix. And over time it is likely to rely more on behavioral science, a move from objective analytics to a rational understanding of irrationality and what drives an emotive response to capture attention — building on Tony Schwartz’s idea of “the Responsive Chord”.

But, for now, marketing is definitely not dead.

Many thanks to Dan Colceriu, Laura Kemp, Simone Micheli and David Galbraith for their comments on the draft. And special thanks to Dan Colceriu, whose bi-weekly digest has greatly improved my reading diet.