capitalism

If the goal of marketing is to maximize opportunities, then, according to Rory Sutherland, vice chairman of Ogilvy, marketers should not chase efficiency but channel their energy into experimentation.

According to Rory Sutherland, vice chairman of UK-based Ogilvy, all marketers should be concerned that marketing is seen as an efficiency factor rather than an opportunity creator.

In fact, the whole concept of capitalism and what business means is “dangerously distorted,” he argued yesterday (June 8) at the Festival of Marketing: Fast Forward.” First and foremost, Sutherland pointed to management thinker Peter Drucker’s definition of how business creates value — namely, through marketing and innovation.

Everything else is a cost.” You’ve all heard and seen him quoted, but I don’t think anyone can say that with confidence in a board meeting,” Sutherland argues.

Given that the business culture has come to view marketing as a cost, marketers should stop looking at capitalism as “a means of exploitation and ever-increasing efficiency” and instead view it as a mechanism of discovery.

“It’s the only right way to look at what business does. It is a process of discovery, of discovering value that no one suspected existed. It’s either the discovery of an unmet need or the satisfaction of an existing need with a previously unnoticed innovation or idea,” Sutherland says.

“If you think about it, there are two ways to add value in the world. You can either figure out what people want and find a really smart way to do it, or you can figure out what you can do and find a really smart way to get people to want it. The money you make is no different regardless of the direction of travel. In reality, most things are a mixture of those two directions.”

The value of customer creation is extremely higher than the value of customer discovery, but the distinction between the two is completely lost. Rory Sutherland.

The problem now is that marketing is perceived as not being involved in the value creation process. According to Sutherland, this problem is exacerbated by the fact that FMCG brands like Unilever and P&G, which originally believed in the value of marketing, now account for less than 25% of all advertising spending, up from about 68% in the 1980s.

Today, mobile network operators, phone manufacturers, broadband providers, insurance comparison sites and cable TV providers have taken the advertising “slump.” In his view, these companies are dominated by either a financial or technology mentality.

“Both of those mindsets are reductionist, Newtonian, engineering-oriented and focused on maximizing efficiency above all else. My argument is that marketing is not inherently an efficiency maximization game and should not be allowed to become one,” Sutherland said.

“I know everyone else in the organization is pushing technology stacks on you because they think marketing should be a cost-cutting and efficiency optimization game. It’s not and never should be. It’s a game of opportunity maximization. The whole purpose of marketing is to maximize possible opportunities.”

The perception of marketing as a source of performance optimization, which the Ogilvy vice chairman believes is shaped by mainstream economics, leads marketers to be trapped in an “incremental world” of neither significant achievement nor growth.

“We also weaken ourselves because the bottom line is that great targeting identifies customers, and great creative actually creates them. The value of customer creation is extraordinarily higher than the value of customer discovery, but that distinction is completely lost in most of the metrics we use now, and that’s crazy,” he added.

Instead, Sutherland favors the “both/and” mentality, a short-term and long-term mindset shared by Marketing Week columnist Mark Ritson, who views the top and bottom of the funnel as “multiplicative.” He argues that marketers should start by optimizing the bottom of the funnel and getting conversions right, and then move up and start building customers.

The lost joy of experimentation

Looking at the tradeoffs between short-term tactics and long-term brand building, Sutherland says the danger of performance marketing is the tendency to get hung up on optimizing things that aren’t important but are easy to measure.

“The point of marketing is to get people who haven’t thought about buying your product to pay full price for it. The main role of performance marketing, to be cynical, is to get people who would have bought your product anyway to buy it a little earlier at a discount,” Sutherland said.

“There’s nothing wrong with that. Overcoming inertia is a perfectly reasonable function of advertising, and I don’t neglect it. I don’t neglect sales incentives, I don’t neglect discounts, but it’s not the whole game.”

In his view, this obsession with optimization can lead to the mass death of creativity. Sutherland recalls being a creative director in 2007 and envisioning a future focus on testing a wide range of creative approaches. In his view, however, the industry has failed to do so.

To be cynical, the main role of performance marketing is to get people who would have bought your product anyway to buy it a little earlier and at a discount.” Rory Sutherland.

In fact, the move to digital marketing, which allows brands to fail quickly and kill ideas quickly, was supposed to make marketing “wildly more experimental in a creative way,” but Sutherland thinks that promise has not materialized.

“I think there’s some weird collusion between media agencies and technology companies to turn all advertising into a game of targeting, optimization and incremental improvement. “Google, which has no incentive to talk about it, says, ‘No, the thing that makes the biggest difference is creative experimentation,’ and yet we do almost none of that,” he said.

“I truly believe that behavioral science combined with creativity has the magical power to give marketing a real process of effective discovery.”

Sutherland pointed to how Ogilvy’s behavioral science practice worked with restaurant chain Dishoom on a matériel giveaway that allows customers who roll a bronze die and get a six to get their meal for free. While it’s only a 16% discount to the economist, he argued, for the customer it’s the most exciting thing that will happen to them all month.

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The curse of “reducing uncertainty”

Sutherland also believes that brands that prefer to measure performance only by how much it achieves predetermined metrics risk undervaluing their performance.

“First of all, if there was a logical answer in advance, someone would have already solved this problem, and most good ideas are only explainable in retrospect – Red Bull, Nespresso, Dyson, Uber, Five Guys. I can take $10 billion to $15 billion companies and take us back in time to 2005 and explain why all these companies are really stupid ideas,” he added.

“If James Dyson came to me and said: “‘I think there’s a market for an $800 vacuum cleaner,’ I would say, ‘I’m not quite sure, let’s look at the market.’ And if he said: “Wait, you haven’t heard about my $400 hairdryer,” I would escort him out of the building like a dangerous lunatic.”

The beauty of experimentation is that it requires a creative leap, which, according to Sutherland, functions such as finance and purchasing are fundamentally disinclined to do. He argues that finance is focused on reducing cost and uncertainty, so the need to ask permission to experiment from “the most risk-averse people in the organization” is counterintuitive.

However, Sutherland says it is difficult to quantify the consequences of missed opportunities and reduced resilience that come with classifying marketing as a short-term game of efficiency and cost-cutting.

“What we’ve done in companies is that in functions like purchasing and finance, we’ve created a monster because we’ve created silos in the business that can take credit for cost reduction without exposing themselves to any blame or responsibility for missed opportunities and dangerous loss of sustainability,” he said.

“It’s what Nassim Taleb would say, ‘They have no skin in the game.’ They can claim credit for any cost savings, but they never have to take the blame for the consequences of those savings.”

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