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Advertising is the Tax YOU Pay for Having a Bad Product or Service. Is CX or Innovation the Answer?

By on Jan 5, 2014 Editor's Pick 5 Comments

I recently had the chance to catch Mike Maddock while speaking at the 2013 Compete Through Service Symposium in Phoenix [see takeaways recap]. Mike presented a fantastic keynote about his most recent book, FREE the Idea Monkey. One of the points Mike made at the conference was that marketing and advertising are a tax. He asserted that media dollars are the price and the financial penalty you pay for having a bad idea or a subpar product or service. He reiterated this in an article on Forbes.com called the “True Cost of a Bad Idea“:

“More accurately, marketing and advertising costs have become the tax you pay for not being able to create a better idea than your competitors.”

Maddock asserts that the ability to consistently launch meaningful new products and services eliminates this and allow companies to boost their margins significantly.

Today, Seth Godin made a similar point about eliminating the blah and moving towards innovation. Check out his post entitled, Delight the Weird. Seth challenges us as always to stand out in a sea of sameness.

Moving Toward Innovation Requires Investment

Maddock suggests to brands, “Start by looking at your marketing and advertising budgets. Take some (and probably a lot) from those columns and move it over to the column labeled innovation. Refining your ability to create noteworthy new products and services will increase sales even while your costs of marketing plummet.”

High Five Conference

What’s a brand to do? Joseph Jaffe @jaffejuice posits that the answer lies at the intersection of Madison Ave and Moutainview. Jaffe is one of the keynotes at the upcoming High Five Conference in Raleigh on February 26-27, 2014. Here’s a similar talk Jaffe did at Hubspot Bold Talks this past fall:

Z.E.R.O book on amazonJaffe feels that innovation can be leveraged by building a bridge between big brands and start-ups (Madison Ave & Mountainview). Entrepreneurship is the “E” in his latest book with co-author Maarten Albarda, z.e.r.o – zero paid media as the new marketing model. Joe cites P&G’s purchase of the start-up “Sit & Squat” by Charmin as a model example and asks the question, “What would have happened if Kodak had bought Instagram in its infancy?”

In case you are an acronym junkie like me, here are the other letters in z.e.r.o:

Z – Zealots

E – Entrepreneurship

R – Retention

O – Owned Assets

Jaffe and Albarda contend that in a perfect utopian world, brands wouldn’t need a budget for advertising. I couldn’t agree more. I echoed similar thoughts last May in a slideshare entitled, Traditional Marketing is Dead… Long Live the Customer:

retention versus acquisitionMy take is more closely attuned to the R of retention in z.e.r.o. Jaffe’s last book, Flip the Funnel similarly makes the case that Retention is the New Acquisition. It’s about recognizing and rewarding the influence, contribution and participation of existing customers as they help evangelize and refer new business.

Peter Shankman of Shankman | Honig perhaps puts it best,

“Take care of the customers you have and they’ll bring you the customers you want.”

Customer Experience vs. Advertising

My friend and fellow Global CX Panel member Eli Goldstein pointed me towards an interesting infographic the other day. He shared a post from Flavio Martins of Digicert entitled, “Customer Experience is More Important Than Advertising

Flavio points out, “Recently businesses surpassed $200 Billion dollars a year in advertising spending. Yet fewer and fewer customers are trusting advertising as the source of information for products and services. Only 4% of customers trust advertising the most for service information, so can your good customer experience to help seal the deal with customers?”

He also shared an infographic from Zendesk that makes the case for a focus on CX:

Infog.Invest-In-CustServ-2

Do you agree?

Should brands look to fund CX and innovation by redistributing a percentage of funds from the advertising budget? Can creativity win the day?

High Five ConferenceToday’s Lagniappe (a little something extra thrown in for good measure) – I mentioned that Jaffe is one of the speakers next month at the ^5 Conference in Raleigh. He’s kicking off the conference, yet he’s just one of five keynotes on the schedule. Joe will be joined by Jeni Herberger, Rohit Bhargava, Lane Becker and Spike Jones. The High Five Conference (the first of its kind) will explore the intersection between marketing and creative. The conference feature three 1/2 day workshops by Alan Hoffler of MillsWyck Communications, Jeni Herberger and ASPE ROI. I’ll be one of the 12 breakouts with the likes of Adele Sweetwater and Dennis Massengill of SAS, Jim Tobin of Ignite Social Media, John Lane of Centerline Digital, Chris Moody of Compendium, Chris Grams of New Kind, Sheridan Orr of Channel Advisor, Chris Butler of Newfangled, Matt Woolman of VCU, Heather Heskett of Heskett.com and Dan Carlton of the PARAGRAPH PROJECT. Here’s the detailed schedule with descriptions of each session:

Republished with author's permission from original post.

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5 Responses to Advertising is the Tax YOU Pay for Having a Bad Product or Service. Is CX or Innovation the Answer?

  1. Graham Hill January 6, 2014 at 2:05 pm #

    Hi Stan

    I read your post twice and it made me wonder (both times). In particular, it made me wonder why everybody has seemingly got it in for marketing and why, so far, NOBODY has come up with anything that is better. Because they haven’t. Not yet.

    I have heard all the marketing nay-sayers before in my 25 year career as a consultant, interim and director. I have heard customer service people in the 90s claim that customer service is the new marketing. But they didn’t identify how they would get customers in the first place, let alone how customer service would keep all those existing customers who never called customer service informed of new stuff. I have heard innovation people claim in the 00s that you only need innovation and not marketing. They neglect to mention that 80% of new products (95% in some categories) fail in the market, the biggest single reason being that they didn’t understand customers’ real requirements. And now I hear hear service design people claim that service design or the customer experience replaces marketing. Obviously they hadn’t been paying attention to the earlier customer service people’s inability to explain how to acquire new customers to experience the new service. And they still can’t show the ROI on service design!

    If you put down the unscientific surveys from vendors with customer service (the Zendesk infographic is from 2011 and contains absolutely no explanation of where the figures in it came from), innovation or service design services to sell and actually look at the research, you will find that the vast majority of Cos still need marketing to acquire new customers. And to keep them informed of new products. What those Cos do after customers have bought their first product will determine whether they stay, repurchase and advocate, or whether they go, complain and voice. Curiously, delivering marketing’s promises is usually outside of the authority and responsibility of marketing.

    If like most Cos, your marketing promises are not delivered by the rest of the organisation, the problem lies not so much with marketing, as with the rest of the organisation. Even if the rest of the organisation does get it right, the evidence, e.g. from the latest developments in networked innovation diffusion models, shows very clearly that you need marketing to bring customers in BEFORE they can ever hope to advocate the company to others, or voice it to anyone who will listen. The standard Bass Diffusion Model shows you need to mind your Ps (the number of customers acquired, typically through marketing) as well as your Qs (the number of customers acquired through imitating other customers, typically through word of mouth). But word of mouth is rarely a replacement for good old fashioned marketing. Social network researcher Duncan Watts showed that only 1 in 1,000,000 word of mouth memes ever goes viral. The other 999,999 just fizzle out and die within one or two steps. That’s not going to net you many new customers, certainly not enough to replace the ones driven away by your poor customer experience. Just ask all those US Cos who will be spending US$400 Bn on marketing this year.

    It would take a lucky man, (or one with no money at all), to bet the growth and profitability of their Co on just word of mouth.

    So tell me Stan, do you feel lucky? Well, do you?

    Graham Hill
    @grahamhill

  2. Stan Phelps January 6, 2014 at 11:42 pm #

    Thanks for sharing your comments Graham. I appreciate your concern about “getting things right” and minding my “P’s and Q’s.”

    Where do we start?

    First, I try not to be right. Insisting on being right and not yielding to change is dangerous. It reminds me of a gravestone in New England:

    Here lies the body of William Jay.
    Who died maintaining his right of way.
    He was right, dead right as he sped along.
    And he’s just as dead as if he were wrong.

    Marketing has changed more in the last five years than it has in the last 50. To deny that would be ludicrous. Today’s consumer is empowered. The emergence of social, the impact of search, the erosion of trust and the immediacy of mobile has changed the game.

    Second, I believe the definition of marketing needs to change. Marketing doesn’t stop once someone gets into the funnel. The entire journey matters.
    [Related post with stats: http://www.customerthink.com/planning-for-2014-where-is-the-focus-of-your-marketing

    Third, are you serious that marketing can’t be blamed if the organization can’t deliver on its promises? Umm, maybe marketing should stop making those promises. Companies should be thinking about taking an Outside In approach. Your brand is no longer what you the brand says it is. In the Age of the Customer, its what “they” say it is [Related post with stats: http://www.customerthink.com/blog/outside_in_has_a_simple_message_you_need_customers_more_than_they_need_you

    Fourth, I agree with you that there is a big difference between customer service and customer experience. Once service is needed, you’ve lost. [Related post with stats: http://www.customerthink.com/is-your-brand-low-or-high-maintenance-what-s-your-ces

    Fifth, Zendesk lists their sources at the bottom of their infographic. The type is small so I’ll repeat them here: Harris Interactive, RightNow, TechCrunch, Satmetrix, SNL Kagan.

    Sixth, P and Q’s. Mmm, I’m not sure how ‘P’ equals customers. Typically how it works with acronyms is that they typically start with the letter… or at minimum they have the letter in the word. I’d forgive that if you at least got Q right, but there’s not a Q anywhere in your entire sentence of explanation. The phrase, “Mind Your P’s and Q’s” has many theories of origin. The first relates to manners as in Please and Thank You’s. You’s rhymes with Q’s. Clever, huh. The second relates to bar staff as in Pints and Quarts. According to Wikipedia, other origin stories could come from French instructions to mind one’s pieds (feet) and queues (wigs) while dancing or from sailors in the eighteenth century who were reminded to pay attention to their peas (pea coat) and queues (pony tail).

    Lastly, do I feel lucky? I don’t think I’d bet the entire budget on word of mouth. As I referenced in my post, that is purely a utopian view. Since you read the post twice, maybe you don’t understand what UTOPIAN means. According to Merriam-Webster its, “an imaginary and indefinitely remote place, a place of ideal perfection especially in laws, government, and social conditions.”

    Let me go back to the question I posed at the end of the post. The one you failed to answer, “Should brands look to fund CX and innovation by redistributing a percentage of funds from the advertising budget? Just so its crystal clear, a percentage means less than the whole budget.

    I’m a big fan of Harry Callahan. So let me share my second favorite quote from Dirty Harry,

  3. Stan Phelps January 7, 2014 at 10:56 am #

    Graham – here I was thinking you were the noble defender of traditional marketing. But now I just read your scathing review of the state of the profession:

    http://www.customerthink.com/blog/how_stupidity_short_termism_and_immorality_have_ruined_marketing

    We are in lock step that there is a Service Delivery Gap. [Related post: http://www.9inchmarketing.com/2013/09/28/mind-the-cx-gap/

    And we both seem to be big fans of the late Ted Levitt. I believe Levitt nails it with his view of marketing:

    “The search for meaningful distinction is central to the marketing effort. If marketing is about anything, it

  4. Bob Thompson January 7, 2014 at 6:19 pm #

    Marketing can add value, to businesses and customers.

    I was talking with a small shop owner one day recently, and I used that “marketing is a tax…” line. It’s a clever line, and there’s some truth in it, and yet, this business owner didn’t see it quite that way.

    This shop does very good business, has excellent WOM, reviews on Yelp, etc. Good product and experience.

    And yet, marketing still is needed to promote their business. They’ve used Groupon, Google Ads and other techniques to get the word out about their company and products/services. This business owner is doing all the right things, but marketing still fills an important role.

    So, I’d say you both have a point. Innovative products and experiences are important, they drive WOM and real loyalty, which means less marketing is required to fill the leaky bucket of customers seeking better options.

    But marketing can amplify that good work, educate customers and even add value by making customers feel good about the products and service they buy. Apple and Amazon have great offerings, yet you still see ads running. Hard to see this as any kind of a “tax” on bad performance.

    Like many things in business, there are no absolutes. I think over investment in marketing and sales can be an indicator that it has problems with its value proposition and has to “push” harder to get customers to sign up. The question is, how much is too much?

  5. Andrew Rudin January 21, 2014 at 9:34 am #

    Tax? No – but advertising is a Cost of Risk. As are promotions, preferred customer discounts, loyalty programs, consumer research, and public relations. The list goes on, but I’ll stop here. Mike Maddock is on the right track by recognizing that advertising costs are different from other, non risk-related expenses.

    But his assumptions are flawed. In asserting that “media dollars are the price and the financial penalty you pay for having a bad idea or a subpar product or service,” he overlooks a fundamental problem: good ideas and superior products and services are hardly guarantees for commercial success. Why is that? Risk. There are many other converging forces that determine whether someone buys. If all we needed to do was just figure out how to innovate and make something better than our competitors, and we could dump our advertising budgets – well, that would be grand! But it’s fantasy.

    Not every company spends on advertising because its products are sub-par (however that’s defined) – though I don’t question that some companies do. Companies invest in advertising and other marketing outreach because there are risks that must be managed: competitive, economic, compliance and regulatory, social, technological, etc.

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