Moment 125: The Marketing Professor: The Biggest Business Mistake You’re Probably Making Without Realising It

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0:32This is actually the great curse of a lot of modern business, given the title of your podcast, which is that people generally over obsess about things which are immediately quantifiable and underinvest in things which are valuable but hard to actually put a figure on. And so things like engagement or loyalty, of course. I mean, it's worth noting that customer loyalty is much, much slower to measure than, for example, conversion. And so the extent that money is invested in performance marketing or the bottom of the funnel, relative to, let's say, wider brand fame, it's a widespread problem in the whole business world, which is that the money is necessarily being spent in the channels it is because it's more effective there, but simply because it's more of, it's easier to prove that it has an effect.

1:26The truth of the matter is, the world will always be too uncertain for us to know who our customers are in advance. And therefore, since, you know, 97 % of the potential customer base aren't in market at any given time and therefore won't be uncovered by search or, you know, remarketing or whatever. Spending money on the 97 % of people in advance ahead of times is still a very effective thing to do. The reason people do too little of it is that it's hard to quantify. On that particular point, then, having worked in the advertising industry, this is a conversation we have all the time with clients, which is, you'll meet a certain type of client who's very, who's, they're religious about the bottom of the funnel.

2:07They're really, if it cut, if I can't track it, I don't know exactly what exactly I won't do it. I won't do it. Then you'll sometimes meet the opposite, which is someone who just loves to spend on brand. And I don't necessarily think that. They're both wrong. I don't think they should be. I mean, Mark Ritz, very good marketing professor, always talks about the importance of both ism. And he says, it's vitally important that when I actually speak about the importance of brand marketing, that you do not interpret this as denigrating digital marketing. In fact, I go a bit further and say, the bottom of the funnel in many respects is the thing you have to optimize first.

2:40Because there's no pointing actually, if there's a bottleneck at the bottom of the funnel, if there's some constraint or a problem or a failing, you know, if you have very poor conversion, okay, there's no point in spending money on advertising because you'll just introduce more people to a disappointing experience. So you've got to get the back end. And I would argue the first thing, in theory, you should optimize if you're being an absolute pureist is repeat purchase. Because having gone through the expense to acquire these customers, and actually that's the metric that always fascinates me because we're talking about electric cars.

3:13And I said, the question about electric cars isn't how many people are buying them, okay? It's not what percentage of the new car market in the UK in July were plug -in vehicles. Now, only question worth asking really in the long term is, does anybody who buys an electric car go back to buying a gasoline car? Because if the answer that is hardly anybody, then, okay, you don't know the exact shape of the S curve, but you know the growth is going to be pretty spectacular. And so the thing to understand, I think, in a market is to what extent it's as your product actually converts someone to something.

3:49And then the lifetime time now you're... And so you start with repeat purchase, then you go to conversion, and then you'd work your way up. But what tends to happen is that when people are obsessed with quantification of everything, okay? It's worth noting, by the way, that all big data comes from the same place, the past, all right? So there's a limit to how much big data, particularly if you've had some major event like a pandemic in between, how much big data can actually tell you about the future in any case. As David Ogleby famously said, you're not advertising to a standing army, you're not advertising to a moving parade.

4:24People are coming in and out of market all the time. And so you're absolutely right. You get some people who are just famed junkies. And by the way, I suppose there are brand categories where that's appropriate. If it's sold through retailers, in other words, if it's mostly sold in the physical space, you might argue to an extent, for, let's say, a burger king or a McDonald's, that's not a totally crazy position. Although it is now because suddenly they've got to think about delivery and whether people order through the Apple order, throw an intermediary because it has a major bearing on their business.

4:57But at the same time, yeah, I mean, the tragedy is this idea, this false dichotomy between brand advertising and what you might call performance or digital marketing as if you have to be in one camp or the other. Where is the balance, though, and how does one go about? Is it just intuitive? Is it just a... There are figures on this. So if you look at the work of Les Bimett, for example, in Peter Field, the ratio shifts a little bit, but generally they'll stipulate a figure around about the 60 -40 mark in favor of what you might call brand mass media expenditure. Because they have a mutually beneficial relationship on sale.

5:38I've tried to define it and make it one of the first 20 years of my life, I've spent in direct marketing. And actually, you know, because direct marketing was unfashionable, we spent a lot of time denigrating advertising spend because they got much bigger budgets and us, not necessarily rightly, but they were also much more indulge than we were because they didn't have to prove effectiveness down to the same level of statistical significance. But we came to realise pretty quickly that actually, first of all, there's nothing harder than direct marketing a product that nobody's ever heard of. And that every time, just to give an example, every time American Express went on television or advertised big in mass media, the response rates to direct mail would not quite double maybe, but they'd increase pretty significantly.

6:25You had to work less hard. And you had to work. It's that wonderful phrase which comes from a book by, let me get his job right, his name right. I think it's Matt Johnson, who's just written a book called Brands that Mean Business. And his wonderful line is, having a great brand means you get to play the game of capitalism in easy mode. Yeah, that's true. And what is true is, is fame to some extent brings a load of benefits which aren't necessarily sales related. So, for example, you can cock up and your customers will be more forgiving. Okay. Take the example of Apple. I mean, on a couple of occasions, Apple has produced products which had fairly major flaws, which might have proved pretty fatal to lesser brands.

7:13You know, the famous phone where if you held it in the wrong way, it didn't make phone calls, for example. And given the reality distortion field around the Apple brand, people have passed over those incredibly rapidly. And so, you know, people are less price sensitive. That's not easy to measure, by the way, as well. It's very easy to measure the extent to which something has an effect on sales, but the effect to which something has an effect on price elasticity and the extent to which you can command a premium. Because it's a great language. Because it's a great brand. It's harder to measure because you don't have the counterfactual.

7:47You know, when you sell something, the counterfactual is that you assume that you wouldn't have sold it otherwise. But if you sell something for a high price, you can't in fact determine that without your advertising, you wouldn't have sold it for that premium price. So, to some extent, this quest for perfect measurement to reduce marketing to a kind of attorney in physics is a bit of a fault gone. Ladies and gentlemen, the Diavocio book is finally out. It's been published today. The 33 laws of business and life. I've spent many years writing this book, but I've spent even longer about a decade and a half compiling the information that exists in this book.

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