Wednesday, September 25, 2019

Cheap. The most expensive way of doing business.

We’re about 20 years into the ‘Digital Revolution,’ and so far all of the things that have been revolutionized have gotten worse, not better.

In advertising, to be stupidly and exaggeratedly reductive, digital has since it’s very outset, given clients and agencies an excuse to be cheap. The “digital” story has been that since we can target people effectively, speak to them directly (with no waste) and incite conversations about brands as easy as falling off a Cheeto (“Honey, I had the most-amazing plastic wrap experience today as I was putting away a leftover slice of avocado) we could do the whole marketing communications thing on the cheap.

Let’s take a pause now.

Let’s think about brands we like that we think about that we feel good about that actually seem to be doing well where it matters to do well, not at Cannes, but in the market.

1.    KFC. To my mind, KFC was all but dead a few years ago. Today, at least from the outside looking in (and a superficial Alta Vista search) sales seem to have rebounded from a many-years’ slump.
2.    Apple. Ostensibly Apple could be the most hated company in the world. But we like them—and permit them to charge us $39 for a $2 cord that grows obsolete every two years or so.
3.    Nike. $200 sneakers made by Asian children-neo-slaves in autocratic and stifling sweatshops with bad lighting. Yet we like them.

My guess is, there wouldn’t be that much disagreement regarding this list. And all three of these success stories—success in both reputation and sales—are contingent on two things.

First, outstanding creative that differentiates and breaks through the clutter. Creative that gets noticed, talked about and into the “culture.” Second, all three example above run work that's big and important. Their advertising is expensively produced and they run in on premium channels.

In short: they do good work. And put money behind it.

Or in the words of Carl Ally they “Impart useful consumer information in an executionally brilliant way.”

Now, shifting my well-oiled gears again. Let’s think about two brands (or three depending on your math) that have decided you can do things on the cheap.

First, has to be Pepsi.

Pepsi used to make great commercials. Great commercials that ran on big events like the Super Bowl.

According to  Money magazine, in the last decade (when Pepsi dramatically shifted away from advertising to social media) Coke's market share has risen from 17.3% to 17.8%, while Pepsi's has dropped from 10.3% to 8.4%, according to Beverage Digest. In 2016, soda was a $81 billion market in the US. So losing two points as Pepsi did, if my math is right, adds up to losing about $1.6 billion in sales.

Avi Dan in Forbes, and a big story in the Times yesterday talked about the woes of the recently merged Kraft Heinz crap-fest. Thousands of employees have been fired—or “efficiency-ized.” And worse, to my mind, marketing spend has been eviscerated. Consequently sales (which are meant to respond to marketing spend) have plummeted. As has the combined company’s share price.

Dan puts it this way:

For much of the first decade of the 21st century American companies amassed significant debt and used it to support innovation and invest in their brands. That changed on September 15, 2008 with the collapse of Lehman Brothers and the ensuing Great Recession. Companies became risk averse, and growth agenda was replaced by cost cutting.

Nowhere was this changed frame of mind more noticeable than marketing. Advertising was quickly deteriorated from being regarded an “investment” to “expense.” Innovation vanished. Companies, and consumer packaged-goods in particular, reduced investment in brands…

A mania for austerity is now in full swing. Many companies, especially consumer goods companies cut back on advertising in the last decade. Procter & Gamble eliminated $2 billion in marketing costs…General Mills scaled back ad and media expenses to $575 million in fiscal 2018 from $869 million in 2014.
Kraft Heinz shares have been in free fall, over 30% in one day last week…Kraft Heinz spent 2.4% of sales on worldwide advertising in 2017, a lower percentage than either H.J. Heinz or Kraft spent when they were stand-alone companies. That 2017 ad budget of $629 million was 39% below the combined spending of Kraft and Heinz in 2014, the year before they merged.

As an industry, once again, we are acting on what we want to believe, not on what is reality in the market.

If you’re a plastic wrap or a pickle or a snack cracker, you fall out of peoples’ consciousness if you aren’t in front of them in a big way. Why? Because people don’t really care. You have to make them care about you.

You have to be creative. You have to spend money. You have to keep at it.

There are no short-cuts.

You can't cheap out.

You can't afford not to spend the money.

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