An eight year old’s guide to advertising and money

So what's the point of money?

While driving my eight-year-old son to football practice, he asked me if we were rich.

Like most parents, I believe my son is fairly intelligent for his age, so I did my best to explain. 

I told him that being rich was a matter of perspective. He said he didn’t know what perspective was, so in my most humble voice I said, “Well, we’re richer than some guy living under Grafton Bridge but way poorer than John Key, who in turn is way poorer than Bill Gates.” We drove a bit further in silence until he asked, “So what’s the point of money?” Now that’s an amazingly difficult question to answer correctly, even when trying to explain it to an adult, never mind an eight-year-old. I honestly did my best. I explained to him that money allowed you to do stuff and enjoy yourself, and sometimes having more is great and sometimes having less is great too. Thankfully we got to his football practice and I was done with trying to weasel my way out of the moral web he’d spun for me.

What I should have said to him was that money isn't real. It's a method of exchange, a unit we exchange for something we want or value. It has worth because we agree it has worth, because we agree what it can be exchanged for. But there's something far more powerful going on here. We don't actually agree, because each person's valuation of money is based on the stories we tell ourselves about it.

Our bank balance is merely a number, bits represented on a screen, but it's also a signal and a symptom. We tell ourselves a story about how we got that money, what it says about us, what we're going to do with it and how other people judge us because of it. We tell ourselves a story about how our money might grow, and more vividly, how that money might disappear or shrink or be taken away.

And those stories, those very powerful unstated stories, impact the narrative of just about everything else we do. So yes, there's money. But before there's money, there's the story we tell ourselves about money. It turns out that once you change the story, the money changes too.

If one of your colleagues told you they donated $100 to charity, how would you respond? Most likely with a pat on the shoulder or something equally blasé. The reason isn’t that you’re a heartless soul but rather it’s because of the story behind the $100. You know that just about anyone can (if they want) give away $100 today and (if they’re able) maybe $200 tomorrow, so what’s all the fuss?

What would happen if that same colleague had instead said they’d donated 100 hours to charity work? That’s completely different. Why? Because the story we tell ourselves about time is different to the story we tell ourselves about money. Once you give away your time it’s gone forever. Time isn’t money and anyone who still cries that tired old cliché needs to leave the building.

Look familiar?

In our mad rush to close deals and sell products to customers, time has become an extremely valuable treasure, more so than ever before. Consider that on YouTube you have the option to “Skip Ad” after just five seconds. That’s all it takes for marketing efforts to be consigned to the dustbin of “I don’t give a damn”. Five seconds! It takes me longer to put toothpaste on my toothbrush.

It’s strange that half a century ago this was quite the opposite. Clever marketers were actually getting people to give up their time in exchange for products. The perfect example can be found in the cigarette industry. Cigarettes are the ultimate, deadly parity product. All of them look the same, they basically smell the same and they all do the same thing. No one buys cigarettes because the box is red or white or green, or because one brand tastes like peaches and cream and another brand tastes like vanilla honey. People give away their time to smoke cigarettes because of the story behind them, the stories that advertisers and marketers created for them.

The thing is there is a multitude of stories out there, and it’s becoming harder and harder for marketers to break through and create resonance with consumers. If you want your story to make an impact you have to forget what your own personal story is and create a story for your customers. A story compelling and interesting enough that they’ll actually be prepared to give up some of their time to listen to it, and if you’re very lucky or very good, to even engage with it. But run-of-the-mill, outdated thinking just can’t do that in this day and age. 

The skewed logic of advertising

I love movies, but going to the movies drives me crazy.

The reason is simple: there’s no logic to the way movies are marketed. The entire experience of going to the movies lies in the movie itself, not the $10 popcorn or the $12 soft drinks. Our enjoyment starts when the movie starts, and most of us are prepared to sit through a movie regardless of the distractions that come with it; like mobile phones that go off, rude movie talkers, stinky seats, sticky floors and so forth. So why do cinemas discount the actual movie (half-price Tuesdays, half-price every day before Noon) and overcharge for everything else?

It boils down to profit and margins. Popcorn and Coke cost next to nothing to make and sell, whilst the movie itself has royalties and fees. However if you’re discounting the primary purpose of your industry (in this case it’s to entertain and not to feed), then why would people value what you sell? Why shouldn’t we download movies from the Internet when we’re being told that popcorn is more important and more valuable than the movie itself? I guess that’s the status quo, so why change it? Why indeed.

Another amazing example of skewed marketing logic can be found in the real estate industry. In real estate, the marketing is built around commissions, and the lower the better. This is illogical because the incentives for each party involved in the sale are not aligned using this approach. Sure you’ll save money paying a lower commission but you’d actually make more paying a higher commission. Confused? Then consider this scenario:

You’ve decided to sell your home and you’ve hired an agent to sell it because everyone knows you can’t sell your own home. The agent takes some pics, writes a seductive ad and hosts the show days. Most importantly, he negotiates aggressively on your behalf for a “killer deal”. Let’s assume your estate agent presents you with an offer of $500,000. A standard agency commission is 5%, of which your agent normally splits half with his agency, so he only gets 2.5%. This means on your sale he gets $12,500. Not bad for a day‘s work. But what if your home was worth more than $500,000?

What if, with a little more effort and patience, the agent could get you $525,000? After you pay commission on this bigger sale, you would find an extra $23,500 in your pocket. But the agent’s additional share – his extra 2.5% - is a puny $625. So if you earn $23,500 and the agent only earns $625, the incentives aren’t aligned at all. Is the agent willing to put in all the required time and work to secure a higher price of $625? Not likely.

So why do estate agents market their business this way? Based on this logic, every estate agent should charge a higher commission but they don’t and they won’t. The reason? It’s always easier to sell something for less than for more. Again, that’s the status quo.

Still not convinced? What would you think of a gym that charged you incrementally for every day you don’t go to the gym instead of debiting a monthly fee? They’d start with a dollar and double it every day you don’t go. So $1 for the first missed day, then $2, then $4, then $8, then $16 and so on. You’d be at that gym every day without fail. But this will never happen because the incentives between gym owners (needs to make money) and gym-goers (needs to get in shape) are not the same and the status quo of how gyms market themselves will most likely never change in such a fundamental level. Even if they did, would consumers accept the change? I wouldn’t.

And what about an advertising agency that charged clients based on the success of the advertising they created? The current status quo in advertising is that clients pay regardless of success. With this approach, if an advertising agency launched a new product and the launch bombed, they would get no payment at all. Obviously, if it was a big success you’d pay them heaps more. So why doesn’t anyone do it? I do.

There are more examples out there but the point is obvious. Finding ways to align your incentives with those of your customers will give you a way to break the status quo and effectively crush the competition. 

Three steps to increasing your sales.

As an advertising agency, our job is to help our clients get better results from their advertising spend.

Here are three simple steps to increasing your sales that are a lot easier than they appear:

1. Change the packaging

2. Sell more

3. Build better relationships

1. Change the packaging.

Sometimes the simplest of changes make the biggest impact. In 2002, American paint company, Dutch Boy introduced a revolutionary, all-plastic, twist-and-pour paint container that featured a twist-off lid, side handle and pouring spout.

By changing their packaging from the traditional paint can they were able to change consumers’ perceptions about paint. Dutch Boy eliminated the need for screwdrivers or other tools used to open traditional paint cans, reduced drips and spills typically associated with traditional paint cans and gave consumers a more remarkable painting experience.

It was perfect for the vast majority of DIY users and aspiring interior designers. And what tradesman would say no to less mess at the end of a job? More importantly, consumers noticed the product on the shelves. Everywhere that consumers saw Dutch Boy, they saw it surrounded by outdated and boring competitors who didn’t understand what they wanted.

Did this change work? Definitely – the design allowed an eight percent increase in shelf space by accommodating more products in the same area and it tripled Dutch Boy’s sales in just six months.  

2. Sell more.

If only it was that easy. Well, sometimes it is. One of my clients operates in the animal health care industry, and recently changed the formula to one of their products. Unfortunately, the new formula didn’t quite have the effect on sales that they’d hoped for and no one seemed to know why.

The new formula was far more effective than anything else on the market; the product was competitively priced and came in a smaller 750ml bottle. The product in question is a production stimulant that is given to dairy calves that are afflicted with scours (diarrhoea in livestock).

Dairy farming is the biggest industry in New Zealand and the average dairy farm has 376 head of cattle on it. So the likelihood of a farmer only needing one bottle of drench seems unlikely.

Yet many manufacturers of oral drenches, including my client, have always sold their smaller oral drenches through vet clinics in inconvenient single units and this is a huge problem because farmers never buy just one.

The reason for this is that they often have a few calves afflicted by scours and this means they have to buy quite a few bottles at the same time. Now imagine you had to carry two dozen 750ml bottles from a vet clinic to your ute and then from your ute into your home, and after all of that you’d have to pack them away in the fridge. I’m certain that this is the purest definition of inconvenient. So why not make it more convenient to buy the product?

In fact, why not make buying a scours treatment as easy as buying beer? Not many people buy beers in singles from their supermarket or bottle store.

They usually buy a six-pack or a bigger box of 15, and the concept of convenience doesn’t factor into the decision on which brand to buy because convenience has always been there when it comes to buying beers. But in the animal health care industry, particularly with scours treatments, convenience is never high on the agenda.

So based on this insight we went ahead and designed a container that could hold four 750mL bottles of scours treatment.

With a well-crafted design that re-established familiar and relevant touchpoints similar to a six-pack of beer, such as an ergonomic carry handle and a strong focus on New Zealand patriotism, we created a cost-effective and convenient package that positioned our client’s starter drench at the top of every farmer’s list.

The truth was that no matter how ingenious the formula was in the product, it was the added convenience of being able to effectively carry the bottles that made this product fly off the shelves. The results? A 200% sales increase in two months.

3. Build better relationships.

The definition that marketing is about promoting and selling products and services applies to a very antiquated business model. Marketing is now all about building and maintaining relationships. And who is best suited to build relationships? People are.

People are your most powerful marketing tool. People decide the fate of every marketing message and, most importantly, people don’t do business with businesses, we do business with people. Relationships are simple - just look after the customer and really (no really!) try to give them what they want. The companies that understand this will reap the rewards.

Superbowl Musings

The Superbowl is big news in the good old US of A.

So big that it’s often the most-watched television event in America in the course of a given year. In fact, the 2011 Superbowl was the most-watched piece of TV in American history. It’s also very heavily watched globally, which is lovely for the players and the NFL but is likely of less relevance to the American advertisers who see the bowl as the annual holy grail of advertising. 

Once a year, the big brands know that they’ve got a massive captive audience covering a wide variety of demographics, so they throw the whole nine yards at making as much of an impact as possible. Of course, the networks exploit this phenomenon as hard as they can because they effectively hold all the cards. If advertisers want to reach that captive audience, well then they’re going to have to open their wallets big time because Superbowl ads do not come cheap. Recent Superbowls have some freaky average costs per ad – try US$4 million for size. This obviously means that only the biggest brands can get in on the action, and once you commit to that kind of spend, you really need to do it right.

This brings us to the second complication of advertising during the Superbowl besides the cost – audience expectation. Some would say that the ads are as important to much of the audience as the game is. This is true to a degree – as big as the game is, only two teams are playing, which means that only a small portion of the viewers (the supporters) will have a deep-seated loyalty and the associated passion behind them. Many of the rest are watching simply because it’s the Superbowl in the same way that Kiwis would still watch a Rugby World Cup final between South Africa and Australia even if the All Blacks had been knocked out in the quarter-finals. But there’s also a large segment of the audience who are just watching the ads, so much so that there’s a USA Today live poll that tracks the response to the ads in real-time.

The problem with all this excitement and all the hype around the advertising is that a run-of-the-mill ad is going to be somewhat disregarded, falling far behind the really eye-catching ads in the minds of the viewers, soon to be forgotten.

So there’s an element of needing to absolutely pull out all the stops, which again pushes up the cost. These ads are also in ‘jump the shark’ territory – once you’ve created that amazing, big-budget ad that wows the viewers, what do you do next year? Anything less impressive will lead to disappointment and mutterings of “That GM ad was rubbish compared to the one from last year, but wow, did you see the Nissan ad?”

If your mega-ad does get totally trumped by the opposition, or even by an incredibly entertaining ad from a brand in a totally different industry segment, then was there any point in spending that money? Agency executives will argue that of course the ad had merit and reached people, even if it wasn’t particularly popular, and to an extent, they’re obviously right but both the agency folk and the clients would be cringing if their ad wasn’t well received. This is the gladiatorial arena of interruption marketing and there’ll be scant mercy for the losers when the numbers are tallied.

Does the question then have to be whether it’s worth jumping through these hoops once a year? Well regardless of what you do, it’s going to be something of a gamble but if you’ve got the money, the right product and the creative geniuses on hand to really give it your best shot, then it’s worth taking a punt because how often do you have the chance to blow away that many people across so many age ranges and demographics. Winners win big, losers get a caning but that’s the way of the business world.

On the other hand, what if you’re not one of the big gorillas with bottomless wallets? How on earth do you reach your key audience (and all the hangers-on and influencers too) without spending the earth? It’s a valid question especially for us in little old New Zealand, where the closest parallel would be the aforementioned Rugby World Cup final. Only a few brands get to be involved with that, so what about the rest?

Well, the answer is pretty simple, as it’s always been. To get results that are better than they were last year and the year before, you need to do something different than you did in the past. While the competition is treading the same turf, you should be exploring different ways to engage your customers instead of just yelling at them. Everyone will tell you they’re already doing something vastly different but they’re actually all doing the same damn thing, social, experiential, outdoor, and they’re still much of a muchness. Being innovative doesn’t need to cost a load of money but it can make your company a whole heap of cash if it’s done right. What choice do you have if you don’t have millions in the marketing budget?