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One of the cliches of advertising is that half of the money is wasted but no one knows which half. The line is always good for a chuckle at industry functions, but it's not funny. What kind of industry is built on inefficiency that extreme?
I expect the 50 percent number is low. For all but consumer packaged goods, I bet it's more like 90 percent (even that's probably low). So how did this happen?
I'm going to try to answer that question with a story. The other day I was at OMMA listening to Chuck Porter speak. Of course, he talked about all the great work Crispin Porter + Bogusky had done for the likes of Volkswagen, Coca Cola and, of course, Burger King. For those that aren't in the marketing industry, Crispin Porter is behind the famous Subservient Chicken. He talked about the tens of millions who came to the site and how long they stuck around, but the most telling detail was what he didn't say. Porter never talked about the effect the campaign had on sales of chicken sandwiches at Burger King.
It's possible that Subservient Chicken did effect sales and there seems to be some anecdotal evidence that it did. Clearly, however, the campaign didn't move the needle enough to blow anyone away. Sure the site didn't cost that much, but the bigger issue is that advertising is given a free pass on this kind of stuff. Rather than worrying about sales or customer satisfaction, agencies worry about things like awareness.
Clearly there are a lot of factors that lead to this, but I think the biggest is the misconception that more leads are better. It's in an advertising agencies best interest to speak to as wide an audience as possible for two reasons: One, a lot of agencies are doing the media buying as well and the bigger the audience, the bigger the buy. The second reason is about results, it's much easier to claim success when you've got 'big' numbers to back it up. We work in an industry where 10 million visitors sounds a lot better than 10,000, even if the latter happens to be extremely targeted.
An even bigger issue, though, is that marketing is focused on customer acquisition, not customer service. I know the reason for this, but it's still a problem. The thing is, the best kind of 'advertising' is word of mouth. Why do you think advertising agencies don't advertise?
Companies should be spending money on creating great experiences for their current customers. Take that $150,000 for a (cheap) commercial and buy yourself three more call center managers. Get marketing to write the manuals. Go above and beyond what people expect and they'll do all the marketing you need.
Before I finish, let me leave you with a story I read over at Web Strategy by Jeremiah about a company called Steel Pixel. After writing on his blog about a friend's bad experiences at Dreamhost, the Steel Pixel guys left this comment:
Jeremiah,
I am sorry to hear that your friend is having such a tough time with hosting. We (The Web 2.0 Show podcast guys) run a hosting business and we would like to invite both you an'd Andy to give it a try (two months free). We would like to also offer a 10% discount to all your blog readers, they can just use the discount code "switch" when they sign up.
We try to keep a very human feel to our hosting, we use IM and campfire to allow real time chat with customers. We don''t really spend money on advertising because we feel the dollars a customer spends with us should improve the services we provide them. We are very much a fan of "Creating passionate users" :) . You can read more on our ideas at our blog.
They can afford to that because they don't need a huge audience to be successful, they run a fairly low-margin business and understand their target audience well enough to know that if they provide a great experience they'll have their name passed around. Sure, every business can't pull this off, but I think many could.
Just remember: It's better to be efficient than extensive.
[Editor's Note: If the Steel Pixel guys read this, I'd love to hear about how your approach has worked thus far. I'd love to interview you if you wouldn't mind.]
Update (10/3/06): I'm not completely sure I agree with this whole piece anymore. I don't think I presented advertising in a completely fair light. There is a whole other side that should be addressed about brand recognition, employee morale and investor relations that more traditional advertising can help with. After saying that, though, I still believe that it's possible to build a profitible business by means other than advertising. It may not be a billion dollar business, but it could be a million dollar one.