Advertising is in crisis, but it's not because it doesn't work

Going to advertising conferences nowadays, I feel a bit like a man who has signed up to attend a poetry festival, only to find that most of the talks are about bookbinding.

The discussion is scarcely about advertising at all – or not as David Ogilvy would have recognised it. It has abandoned any discussion of persuasion, psychology and human insight to focus exclusively on delivery – treating advertising as though it were a branch of logistics. Like the beaches at Cannes, what was once creative territory has been invaded by the Martech Industrial Complex.

Bartle Bogle Hegarty's Will Lion recently gave a name to this phenomenon that I urge you all to adopt. He calls it "the efficiency bubble".

These words convey a very important thought. In many parts of business, efficiency and effectiveness are fairly closely related; in manufacturing, logistics or in the more mechanistic business disciplines, the pursuit of efficiency is valuable. In marketing, however, not so much. Marketing is one of those complex fields of human activity, like military strategy or sex, where efficiency and effectiveness are poorly correlated.

Had we put procurement people in charge of the D-Day landings, they would have insisted that the landings took place at Calais to minimise fuel costs; this would undoubtedly have proved efficient, although I might now be writing this article in German.

Economic irrationality

In many settings, economically illogical behaviour is advantageous because it is unexpected. Likewise in relationships, humans instinctively shy away from people who are "economically efficient". A few years ago, the uncle of a friend of mine gave his (now former) wife a huge bunch of roses on 13 February. "But Valentine’s Day is tomorrow," she remarked. "I know," he explained. "That’s why I got them today – they’re much cheaper." She threw them in the bin. Economic rationality simply isn’t very attractive in evolutionary terms; this is why male strippers are more likely to dress up as firemen than accountants. 

Interestingly, when humans market themselves, they understand this efficiency/effectiveness distinction instinctively; give them a spreadsheet and a desk, however, and they become completely blind to it.  

The absurdity of the efficiency bubble was brought home to me in a recent meeting with an online travel company. The conversation repeatedly included the mantra "the need to maximise online conversion". Everyone nodded along. Clearly, it is much more efficient for people to book travel through the website rather than over the telephone since it reduces transaction costs. But then someone – not me, I’m ashamed to say – said something revelatory: "Ah, but here’s the thing. Online visitors to the site convert at about 0.3%. People who telephone convert at 33%. Maybe the website should have a phone number on every page."

Now obviously I am not claiming that the telephone is 100 times more effective than the web; prospects who call are warmer than those who browse. But it does raise a serious question – perhaps the most efficient way to sell travel is not the most effective way to sell travel? What, in short, is the opportunity cost of being efficient?

Nobody ever asks this question. Opportunity costs are invisible; short-term savings earn you a bonus. That’s the efficiency bubble at work again.

And what, I wonder, is the creative opportunity cost of spending all this time obsessing over efficiency? After all, for 10% of the money that many companies are now paying charlatan consultants to install a doomed-to-fail tech stack, they could have hired David Abbott for his entire working life. 

If I am relatively unaffected by the efficiency bubble, it is only because I acquired immunity to the virus early. Remember, I was – still am – a direct marketer. For the first half of my working life (until around 2003), I would have welcomed this new focus on targeting and efficiency.

Back in the day, we direct marketers thought above-the-line advertising people were weird for paying so little attention to defining audiences. But we always saw "who to talk to" and "what to say" as interdependent. To suggest that you should decide one in isolation from the other was like suggesting that when you complete a crossword, you should always solve all the "across" clues first. We never thought it was all about the creative. But we never thought it was all about data analytics either.

In any case, the best targeting is often psychological, not technological. "I never read The Economist. Management Trainee. Aged 42" is a magnificent example of microtargeting, even though it appeared on a poster. Why try to identify your target audience in advance when the right creative gets them to identify themselves? In mass media, the targeting takes place in the mind. And to suggest that the ad is wasteful because lots of people see it is dumb. Efficient advertising identifies potential customers; effective advertising can create them.

What about creativity?

But here’s the really strange thing. Being a bit of a geek, I spend a lot of time hanging out with people from the Martech Industrial Complex, and none of them is in any doubt about the power of creativity. In fact, whether you talk to Google or Optimizely or Facebook or some mysterious former Mossad agents who have set up a data analytics company, their findings generally support those of Les Binet and Peter Field. Good creative work, like good user experience, can make communications 10 to 11 times more effective. Google cites creativity as the most important variable. I have seen many more extreme cases too; in one case, a few extra words added to a sponsored search ad brought in millions of dollars in extra sales.

This effectively confirms everything we knew (ie what Drayton Bird taught us) in direct marketing 30 years back. So if there is still no evidence that more efficient message delivery makes creativity any less important (quite the reverse), why is all the attention and money focused on the first but not the second?

I can only come to one conclusion. It is not that businesses do not know that advertising creativity works. No, deep down in their hearts, people in business know perfectly well that advertising creativity works. It’s simply that they do not feel comfortable with the fact that it does. It messes with the map of the world they hold in their heads. They would rather pretend that their success is attributable to efficiencies, economies of scale, cost-cutting or any MBA guff than to think that it might be due to psychological factors.

Economist Tim Harford is baffled by this: "You would think that, with Apple worth $1trn, the case for marketing creativity would be done and dusted. Yet you folk seem to have to argue your case every time." Tech guru Peter Thiel has noticed something similar. "Nerds are skeptical of advertising, marketing and sales because they seem superficial and irrational," he remarks (in his book Zero to One: Notes on Startups, or How to Build the Future in 2014). Nerds, it seems, would almost rather fail without marketing than succeed because of it. "But the reason you need to pay attention to marketing is that it works: it works on nerds and it works on you."

Thiel is a fascinating thinker here. Elsewhere, he says: "More than anything else, competition is an ideology – the ideology – that pervades our society and distorts our thinking." This, I think, explains a great deal. The urge to compete, and the neo-liberal fetishisation of competition, causes companies to increasingly resemble each other by chasing the same efficiency metrics. Marketing, by creating an anti-competitive mental monopoly, is a way of escaping this trap but is seen as not playing by the rules.

Going against economic theory

Eight years ago, I met the chief executive of a utility for breakfast (well, breakfast for me; I think it was brunch for him). He had come from an earlier meeting with City analysts, who had pointed out that one of his products had a higher market share than any of its competitors and also was sold at a significant price premium. "Wow, that’s brilliant," I said, naively assuming that the analysts had clapped him on the back and promised to take him out for a slap-up Nando’s as a reward – after all, that’s exactly what a brand is supposed to do, isn’t it? This was not the case. Instead, they had berated him for the fact that this state of affairs was inconsistent with standard economic theory. In time, they said, he would either have to drop the price of the product or else lose market share. Today, many years later, this product still carries a premium price and has an even higher market share than it did then. But the ideology of efficient competition mattered more to the analysts than observed reality.

Am I really serious in suggesting that marketing and advertising are in crisis not because they don’t work, but because they are ideologically disliked in the higher echelons of business? Yup. Like Thiel’s nerds, the economic-engineering mentality that pervades business (and consultancy even more) sees marketing not as a source of value creation but as a cost to be minimised. To win by better marketing is seen as anti-competitive. (Remember all economic models, by assuming perfect information and perfect trust, are efficiency-optimising models set in an imaginary world where marketing is entirely unnecessary.)

And even people in marketing see marketing as cheating. I placed bets on a Trump win and on a Brexit win, because it seemed obvious to me that these two campaigns, in creative terms, were winning hands down. I was harangued by colleagues for even suggesting that they might win, never mind that they should. Surely it can’t work like that, they said? Oh, but it does.

Now you can’t really be surprised that 95% of agency chief executives are Remain voters. After all, the typical Brexit supporter is likely to be independent-minded, with a visceral dislike of bureaucracy, a strong sense of personal autonomy and a stubborn reluctance to defer to arbitrary authority – none are qualities likely to mark you out for a successful career in advertising account management. But what was surprising was their scandalised reaction to the result: "But the voters made the decision emotionally, disregarding the fact that there might be a 1.7% fall in annualised GDP growth." "No shit, Sherlock," I said, as I collected my winnings.

In the past 20 years, the advertising industry has amassed a wealth of data to prove the effectiveness of what it does. If my theory is right, this will not be enough on its own. (To be honest, in all the years I worked in direct marketing, I never saw much correlation between proof of effectiveness and a willingness to repeat the activity). What we have provided so far is a rational answer to an emotional problem. Ultimately, the crisis of faith in advertising needs to be solved via its beginnings: in the strangely emotional culture of business where people somehow prefer to be unambiguously and efficiently wrong than messily right. We shall not puncture the efficiency bubble with facts and logic alone.

Make advertising great again.

Rory Sutherland is vice-chairman of Ogilvy UK