THE MAD MEN SERIES - part 01

Which advertising companies do have it?

Mr Mimetic

Apr 16, 2024

Let’s talk about advertising.

When was the last time you bought something because of an ad you saw?

It almost never happens, right?

Maybe once, mostly twice a year?

Think about how you are exposed to a myriad of ads during that year, and how ineffective they are to persuade you to buy something.

Indeed, the first lesson Mr Mimetic teaches his students is:

“Advertising doesn’t work.”

IT’S A MAD AD MYTHICAL WORLD OUT THERE

That surely can’t be true?

Advertising spending is like a TRILLION US$ a year worldwide - nobody would spend so much money without it being effective?

Hmmm.

Maybe.

Let’s consider a few proof points out in the wild.

Tobacco companies suffered an advertising ban. The EU implemented a ban in 2005. In the States there was a TV and Radio ban in 1978, but a wider ban in 1998.

Most of the rest of the world followed suit.

But what was the effect of this ban? One thing is for sure: there are fewer smokers today than there were in the Sixties when the median American smoked half a pack a day.

Isn’t that proof that advertising works? The end of advertising led to a decline in smokers?

Well, not quite. This study from 2008 looked at Smoking Bans worldwide:

…and concluded:

“Cigarette Advertising Bans do not have a significant effect on cigarette consumption”

Doctors and overall media started to teach the public how bad smoking was for you. That is what worked.

In the EU the decline in smokers set in since the 80s, long before the widespread advertising ban on tobacco.

This study checked how many people started smoking at what age in Europe.

Word-of-mouth is what worked.

All right, so maybe “traditional” advertising doesn’t work quite as well as previously thought, but why would companies spend so much money on it?

They probably shifted from traditional to digital advertising? Digital advertising is what works, doesn’t it?

Why else would Google and Meta be so hugely successful?

Indeed Digital Ad spending is ever-increasing and is now about HALF of the global advertising budget.

But does Digital Advertising work?

Back in 2012 EBAY did a controlled experiment. They stopped wiring money to Google for their Paid Search Ads. And what happened?

Nothing.

No loss in sales or traffic whatsoever. People knew Ebay. Or when they didn’t, they Googled it and stumbled on the landing page anyway. Without pay.

In 2012!

Google and other Marketing People explained it away as if Ebay was at fault, basically saying their ads sucked.

But when other big brands did the same experiment, look what happened:

And then, during the COVID pandemic, Coca-Cola slashed its advertising budget by 35%.

What happened? Sales went down 11%.

But that loss in sales could be attributed due to closed physical venues like bars, café’s, concert halls, amusement parks, etc.

However, KO’s Operating Margin went up. So, the Return-On-Investment for their ad spend proved to be negative.

Confronted with the number, did Coke stop advertising altogether? Of course, not.

Marketing guys gonna go out marketing, no matter what.

One year later they restored their market budget, with the Olympics in Tokyo and all that.

Operating Margin dropped again.

The rationale behind that was that they did lose some market share. (Well, those physical venues would account for that, no?)

Now, it might seem that Mr Mimetic is cherry-picking, but truly that is not the case.

Advertising simply doesn’t work. The Return-On-Investment is usually negative. The Cash-On-Ad-Spend? Idem.

The boost to sales? Minimal. Discuteable.

The effect of advertising is not to make us ”run out and buy.”

- In: Advertising and the mind of the consumer; what works, what doesn’t, and why.

A TRILLION DOLLARS CAN’T BE WRONG

So, why do companies spend so much money on something that doesn’t seem to work?

First of all, because the big thing advertising agencies CAN do, is sell their clients on the idea of advertising.

They do it in all kinds of different ways, with all kinds of different data points.

And even pull numbers and studies out of thin air, to prove their effectiveness or necessity.

But why do you want to know the cash-return-on-add-spend? We gave you brand perception growth…

But this cannot truly be the case?

1.000.000.000.000 US$ every year cannot be wrong!

That is simply impossible!

The Dancing Babies were a successful, viral campaign. Everybody saw it. Only nobody remembered they were supposed to buy Evian - that association didn’t happen.

Second of all: a few little things do work.

You see, the second lesson Mr Mimetic teaches his students is:

Advertising doesn’t persuade, products do.

Advertisement works when people want something already.

When the thing you want is so valuable to you, you would search for it yourself. So, the irony is:

Advertising works for products and services that don’t need advertisement.

Think Instagram, Google Search, Chat-GTP, Ferrari, the Eiffel Tower…

The things that you know about, anyway.

The other thing is that advertising doesn’t persuade, but it does inform.

Advertising works best when it only has to inform

It informs you about a product, so you know it exists.

All Mr Mimetic needed to know was WHEN Dyson would come out with a robot cleaner.

Indeed, the biggest reason advertising fails is because products fail:

How come? The experience of Mr Mimetic is that there is very little real methodical, rational, scientific thinking in most organizations.

The reality of the world is that people will mostly throw things against the wall and just see what sticks.

Something Business Harvard School professor Clayton Christensen lamented against:

Besides that: advertising does have a very minimal effect.

When we are exposed to information about a product often enough, we start to rank that product internally in a list of comparable products, even when the effect of any individual ad is “below the just noticeable difference” (JND).

When you can be perceived as a little cheaper, or a little better, or a little tastier… You might get ranked internally just above your competition.

So when advertising is hardly ever cost-effective, it is still rationalized as a long-term investment in the brand.

Conclusion: only when you have a product with certain persuasive qualities, it pays to advertise to people who already have a thirst for your product, by simply letting them know you exist.

To kick-start word-of-mouth, for example.

Indeed, if you open a fresh bakery, and you are the only bakery in your village and the next 5 villages around - it would be cost-effective to let people know you opened up shop.

EVERY BROKEN CLOCK…

So, when the promise of advertising is mostly a myth, what does work?

Overall, two strategies seem to work better than others:

1. Advertising on the point of sale, at the moment of sale:

The freebies in the supermarket. Those can persuade you, to at least try a new chocolate, nut mix, or type of soda.

But even those depend on the qualities of the product itself:

However, the wonder of digital advertising is, that the point of sale is your mobile phone and the moment of sale can be anytime whenever you are on your phone.

So, there are real advantages there versus the traditional TV or Magazine ad.

Again, it’s all about advertising the right product for the mobile environment. Not everything is a fit. What would you buy on your phone?

2. Branded content, where the value is in the content other than the brand.

Scientific research suggests that “branded content” is the most effective genre when it comes to non-location-based advertising. You create original content around your product, with the product as a necessary ingredient for that content, and that’s how you create effective memories.

Think of it as creating a “blind date” Instagram show, where you would blindfold the contestants, put them in a Tesla, and let them auto-drive to a nice picnic spot, while getting to know each other. Then, after that drive-and-talk, they have to decide to take off their blindfolds.

You come for the drama, but you’ll remember the auto-drive feature.

“Wow, you can drive a Tesla blindfolded.”

Or say, you need to promote blue tooth earphones. You send Metallica into space, let them have a spacewalk with their instruments, and have them play a concert - the only way to hear each other would be with those earphones.

Those are random ideas, extreme - so you get the idea.

George Lois is the original Mad Man. Don Draper was modeled after him.

For Coke you could play into the fact that Coke has no Taste Memory and you don’t get bored drinking it. You could think of a few challenges here or there.

Or, for your new local bakery, you could have people taste different things to vote for the most liked product. And when you have a weekly bread subscription service, you could give one of those as a winning prize for those who participate in the survey.

But even then, that wouldn’t really persuade people. It would mostly inform them you exist. Your products and service would persuade.

Remember:

Advertising doesn’t persuade, products do.

THE MAD MEN SERIES

Now, how does this reality inform us when it comes to investing?

When it comes to investing, Mr Mimetic is looking for an Advertising Company that can help create cost-effective campaigns, has a persuasive service to offer, and can tap into that moment-of-sale; or is able to produce associative strong content.

As you can guess, those companies are few out and far between.

From: a System 1 report. That is 500 billion US$ wasted, every year.

There are indeed only a few advertising companies within the universe of the Mr Mimetic Fox Fund that Mr Mimetic does like.

Those will be the subject of this series. Mr Mimetic will investigate if they are potentially investable, apart from offering a great product or service in the advertising space.

Most of them are the pick-and-shovel kind: helping ad agencies or advertisers gauge the effectiveness of their ad spend.

However, some or more pure-play ad agencies, albeit with a twist.

Like this one:

Which ad company is behind this logo? Since this post has been so long already, we’ll keep you in the blue until next week for the first real write-up.

Kind regards,

Mr Mimetic.