Freakonomics: A Rogue Marketer Reveals the Hidden Side of Marketing Agencies
The other day, the team and I were shopping around for new office spaces when we met a property manager who seemed particularly curious about what we did.
“I don’t understand how all these folks half my age seem to be growing businesses twice as fast as I ever could,” he said. (Bless his heart.) “You know, there are a lot of marketing agencies around. What makes you guys different?”
Before I could really think of an answer, I began to utter the following:
“Have you ever read the book Freakonomics?”
***
Freakonomics is probably one of my favorite books of the previous decade. Freakonomics examines how certain incentives affect our lives in counter-intuitive ways. There’s a chapter in there on the incentives of realtors that I readily recounted in my answer to the property manager. But since coming up with the idea for this post, I revisited the book to see if I could draw from additional lessons.
I could, and I could apply them to my own industry. Here’s my thesis: In markets where informational asymmetry exists, experts can use their informational advantage to exploit people for their own economic benefit. — Okay, that wasn’t my thesis. It was Steven Levitt and Stephen Dubner’s.
Here’s mine: the marketing services market is a complex market built on informational asymmetry. Experts in this market have an incentive to look out for their own interests — not yours. You may think their incentives are aligned with yours, but they’re not. And this, perhaps, is the single biggest reason why marketing agencies continue to fail their clients time and time again.
Lesson 1: Experts can use their informational advantage to exploit people for economic benefit.
Consider how people rely on their realtor to sell a house on their behalf. Realtors have access to information their clients often do not, such as information on market trends and property prices. Presumably, a realtor is motivated to get the best price possible on a house to raise his/her commission. However, the realtor’s incentive isn’t to get the best deal possible. It’s to close on a good deal as quickly as possible. Getting the best deal often entails leaving a house on the market longer. But for the realtor, the increase in commission from doing so is marginal — and not worth its personal cost.
How this relates to marketing agencies:
It’s not news that professional marketing services providers have access to information their clients do not. But all else being equal, marketing agencies tend to get a higher return on the marketing investment they make for themselves, than on that which they make for their clients.
This means that marketing agencies are incentivized to keep their own budget lean and cost-effective while getting the most out of yours. Have you ever been provided a service that you thought you needed, but didn’t? This would explain it. Or have you ever been sold a big-ticket item that only went on to disappoint? This would explain it too.
Lesson 2: Experts can use fear and anxiety to cheat people.
Consider how a stockbroker can instill the fear that if you don’t invest in a certain stock now, you’ll miss out on the opportunity of a lifetime. Or a funeral director steering you toward a more expensive casket. Fear and anxiety undermines our ability to make rational decisions, and we are likely to feel at least a little bit of anxiousness in areas in which we have little knowledge about. Sales people know this and frequently use it to their advantage.
How this relates to marketing agencies:
Starting and running a business is as much of an emotional journey as a mechanical one. All business owners share similar hopes, dreams, and desires. They want their brand to be admired and appreciated by many and fear backlash and dismissal by even a few. It is this anxiety that allows marketing agencies to push fuzzy concepts like “brand-building” and “creating awareness” as tangible solutions, with vanity metrics to back them up. And clients buy into this. They buy into it until their patience runs out — only to find that the eyeballs don’t translate to conversions in the end.
Lesson 3: People often assume that just because two things happen simultaneously, one is causing the other.
“Correlation does not equal causation.” We know this principle. We learned it in grade school. But the fact that it still doesn’t guide our interpretation of information suggests that many of us experience cognitive dissonance when it comes to the causal fallacy.
Consider the topic of money and politics. Most people would agree that money has a strong influence on the outcome of an election. And overall, the historical data does show that the most expensive campaigns usually win. This might lead us to believe that raising the most money is a necessary condition for winning an election. However, studies (and recent history) suggest otherwise. A winning candidate can cut his/her spending in half and lose just 1% of the vote, whereas a losing candidate can double his/her spend and gain just 1% of the vote.
How this relates to marketing agencies:
Does a candidate make the money or does the money make a candidate?
Similarly, does marketing make a business succeed or is the propensity to succeed written into a business’s DNA?
Go on any reputable marketing agency’s website and you’ll find a portfolio bolstered by impressive names and even more impressive results. As a prospective buyer, you look to examples of previous work for social proof. You want to be like Company X, after all. Agency Y has worked with Company X. Therefore, you should work with Agency Y.
This is exactly what marketing agencies would like you to think. While there’s no doubt that an agency ought to showcase their best work, the challenge for you is to weed out the fake displays of merit from the real ones. You can do this by asking further questions. Ask the agency to walk you through the process of how they achieved their results. Ask how long it took them to do so and how much it cost. If something is published, it’s fair game for questioning.
Now let’s address the elephant in the room. I’ve spent 1052 words so far trashing an industry of which I am a part. Heck, I’m not just a marketer. I own the agency behind the blog you’re reading now. Why would I air my dirty laundry like this?
Because I believe this laundry isn’t mine. Going back to the property manager’s question of what makes us different, here is what I said:
“We’ve been able to grow so fast because we’re mandated to keep our incentives aligned with that of our clients. We’re VC-funded and in this for the long haul. I don’t have to worry about billable hours or paying the bills. I’m on a mission to learn what serves my clients best to one day disrupt the professional marketing services sector. This puts me in a comfortable position to do what’s in the absolute best interest of my clients.”
“– Even if it comes at a cost to myself in the short run.”
Originally published on The Incubator Marketing Blog.
