The presence of advertising in our daily lives is akin to that of water in the life of a fish. It’s everywhere, and yet often, we remain oblivious to it — blind to the brightly colored billboard on the highway, or the flashing neon lights outside a roadside motel. Our conscious minds, however, were never the targets of traditional advertising. The most effective advertising campaigns of the last 50 years were the ones we eventually forgot were there — the McDonald’s television ads delivered to us as children, the Coca-Cola slide in left field at AT&T park in San Francisco, the slogans that somehow made insurance more than a hedge against disaster. (“You’re in good hands”, “Nationwide is on your side!”, “Like a good neighbor, State Farm is there!”)
In the old world, before Facebook and Google, there was no effective way to target individuals searching for niche products, so the companies that succeeded offered products that appealed to broad swaths of people, and advertised by reaching thousands, and in many cases, millions of people at once. The companies that ran successful advertising campaigns through these mediums tended to be of a certain ilk: restaurant chains, car brands, department stores, insurance agencies, or brands under the umbrella of a larger consumer goods company.
Enter the modern era, and the internet has flipped the traditional retail model — one characterized by retail locations and brand advertising — on its head. Distance between buyer and seller no longer constrains sales — a consumer in Japan could just as easily obtain a watch manufactured in Detroit as could a consumer in Ann Arbor. The internet has given buyers and sellers unprecedented access to one another; it has never been easier for a buyer to find a seller who has what they need, just as it has never been easier for a seller to find a user who needs what they have.
In this new world, CPG companies and advertising agencies are experiencing utter paralysis. Advertising is not “dying,” per se, but what is dying are the brands that succeeded in a world without the unparalleled access that Facebook and Google afford consumers and producers to each other — brands that succeeded precisely because Facebook and Google did not yet exist.
As Stratechery’s Ben Thompson puts it:
“The biggest advertisers on television are cars; retailers; CPG companies, all of which have business models that are fundamentally threatened by the internet. These are all companies that are mass market, but the offline mass market relative to the internet is a middle market, and the internet destroys mid-size businesses. It rewards niche businesses that have high differentiation and can charge a premium, and it rewards massive scale businesses that can operate internationally, at a scale unimaginable by even these giant companies. And one wonders, when and if this advertising shifts away from television, how much of it is going to be left?” — Ben Thompson, Exponent Episode #104: Snap’s Gingerbread Strategy
Google and Facebook ads are a microcosm of this shift from mass market to niche. No longer is the cost of individual consumer acquisition so high that reaching a million consumers at once is the only effective way to advertise. Now, through Google and Facebook, niche businesses can target specific individuals whose data determines that they are prime candidates for said niche product or service.
Bevel, a company that produces a suite of shaving products specifically for black men, would have been hung out to dry in the old world of advertising, because its ads would’ve been irrelevant to the majority of people they would’ve reached. Now, however, Bevel can target potential customers with Google ads under certain keywords; when I type in “razors for black men” on Google, Bevel is the first promoted result. Facebook, too, allows Bevel to target users by age, race, and whatever other factors Bevel determines as indicative of interest in spending money on a shaving kit specifically for black men. If I were a black man in my mid-twenties, had a Facebook account, and had searched for razors somewhere online before, Facebook’s algorithm would likely begin serving me ads for Bevel products. Once I realized that those ads were for something that could improve my life, I would click one, which would cost Bevel a few cents on the dollar, make a purchase, and most importantly, do so immediately and regardless of my geographic location.
In the end, what Bevel would pay to acquire my hypothetical business would be a fraction of a what a company like McDonald’s did pay to acquire my actual business, 20 years ago, as it peppered me with constant television and radio ads that allowed me to catch my first glimpse of the golden arches, or hear the words “I’m lovin’ it!” echo through my living room. McDonald’s was smart enough to realize that given existing advertising avenues, and the homogeneity of its product, the only way to succeed was to invest deeply in mass-market targeting and pursue long-term and large-scale consumer retention, albeit with a low per-customer profit. Today, however, Bevel can target anyone with an internet connection based on user data, obtain a new customer immediately, regardless of proximity, and extract more money per transaction than a corporation like McDonald’s ever could — and the company can do it at a fraction of the cost big brands once paid. This is the beauty of the internet.
This doesn’t mean there was never value in the shotgun approach, defined by blasting ads to huge audiences and seeing what sticks. Coca-Cola and McDonald’s used it to ensure that today, there are few soda machines in the world devoid of Coke, and likely even fewer adults in the United States who do not recognize the golden arches as a symbol of consistency. Similarly, every time I’m hungry in an airport, I end up at McDonald’s, not because it’s the best, but because it’s what I know — and I know it for no other reason than that its brand has been subliminally imprinted in my brain so often that it has become the default option for food when I don’t know where to go, or simply don’t want to waste time thinking about it. This is the power of branding.