You Should Always Never Advertise
There are many proponents of advertising.
“The most dependable and consistent way to generate wealth is to turn advertising into profit.”
For some companies, it seems to work well. You throw a dollar in, you get two dollars out.
But what about Yahoo? Spending tons of money on advertising vs. Google spending nothing. *1
We know how that turned out.
Today I’m gonna share my framework to help you make those decisions.
It boils down to making something people love and spending your resources there.
If people truly love something they’ll tell their friends and you grow. If they merely like it, they just won’t bring it up.
(A keen observer will aptly point out that I left ‘something’ undefined. That’s because it need not be restricted to product. Arguably, Apple doesn’t make the best phones on paper, but the combination of other factors creates a product certain people love more than other products.)
So if you’d run Tesla, should you advertise?
Well because it’s such a technical product, that money spend on advertising is money that now cannot be spent on making the product even better.
It’s easy to be seduced by good numbers in a business model (which ad spend will most likely give you in the short term), but a business model can lie.
It can lie because it won’t show you the long term impact of the decisions you’ll make today.
Not just because the longer the interval is between cause and effect, the harder it is to see the interconnection between the two (especially with so many confounding variables in business) but also because it’s very hard to measure opportunity cost.
How do you calculate the cost of that money having gone into ads that didn’t go into making the product better and the ripple effects that would have had on the business, its culture and its consumers?
My favorite example is this clip of Steve Balmer( CEO Microsoft, 2000–2014) reacting to the iPhone:
So I think their resources are probably better spent on improving the product.
But what if your Coca-Cola?
There’s nothing Coca-Cola can do after 100+ years of running the company that can improve the product.
They have small bottles, big bottles, big cans, small cans, glass bottles, plastic bottles, low sugar, zero sugar, lots of sugar, caffeine and no caffeine and so on.
What could you possibly do to improve the product?
Spending money there would be a waste of resources since that’s not how you get people to love it more.
(Any time you try to improve your product beyond the perception of humans, you’re wasting your time with the exception of doing it deliberately for marketing purposes. But even then it’s probably a bad idea, see the gazillion megapixel camera race on phones way back when.)
So what should Coca-Cola do? Improve the taste? Create even better bottles?
Or use that money to create experiences people love so they mentally tie that to their product.
In this piece for the Harvard Business Review, Joe Tripodi (Chief Marketing Officer and Commercial Officer of Coca-Cola and CMO of Subway) said:
‘‘A lot of us remember when the role of the CMO was much simpler. Information flowed in one direction: from companies to consumers. When we drew up our plans and budgets, the key metric was consumer impressions: how many people would see, hear or read our ad? Today the only place that approach still works is on Mad Men.’’ *2
And trying to create great experiences is exactly what they’ve been doing:
Share a Coke can:
Coke with your name:
So ask yourself: ‘’What’s the best way to make people love us so much they’ll tell their friends?’’