If Ya’ Can’t Beat ‘em, You Can Advertise
Advertising is a strange beast. It seems odd to think that thirty second blips of entertainment would ever actually persuade us to buy products. Surely we’re not that gullible. Regardless, most advertising isn’t an attempt to persuade, but rather an attempt to get the consumer to associate a product with a feeling like being cool or happy (see Madmen). Surely we’re not that manipulatable! So it would seem that simply broadcasting even a well-crafted message should never really be capable of compelling behavior in people. Even the urban myths about subliminal advertising have been greatly exaggerated. Wouldn’t a business be better off focusing on its product design and customer service than spending millions on funny but ultimately goofy cartoons? Or hyperbolic schlock? Do advertisers really think they’re fooling consumers or is something else at work? The answer those questions comes in two parts. First, corporations can afford advertising as a trade-off against the quality of their products. Two, the existence of a recognition heuristic in cognitive science argues that we are subtly susceptible to advertising, albeit not in a way that you might initially suspect.
To the first question, it is useful to know that there are two competing theories about what a corporations’ leaders motivations should be. On the one hand, a school of management established by Peter Drucker argues that (in his words) “There is only one valid definition of a business purpose: to create a customer.” Under this managerial view, making a better product, creating a better experience should be the top priority. On the other hand, many corporate executives have come to believe in the arguments laid out by finance professor Michael Jensen and Dean William Meckling of the Simon School of Business at the University of Rochester. Their theory argues that a corporate CEO’s number one goal should be to maximize shareholder value. (You can read much more about this clash of ideas in “The Dumbest Idea In The World: Maximizing Shareholder Value” by Steve Denning over at Forbes. Definitely worth the read.) The problem that arises from this point-of-view is that there are ways that a CEO can increase shareholder value without concerning him/herself with bettering a product. Most of these involve managing information in some way. The first method is that CEOs can manage the expectations of analysts who make investment advice. Exuberance has been shown to be able to increase stock value. This, to paraphrase Roger Martin in Fixing the Game, is like the coach of a football team managing the spread for the bookies instead of trying to win the game. A second method is to use advertising and product placement in media to manage brand recognition, and that part is important because of what psychologists call the recognition heuristic.
In Psychological Review (Vol. 1, No. 9) Daniel Goldstein and Gerd Gigerenzer put forward a simple mathematical function that fairly accurately predicts subjects’ decision-making (in cases with two options). The predictions indicated that, in very general terms, individuals will choose something they know over something that they are unfamiliar with. They call this decision process the recognition heuristic and speak directly to the fact that information transmitted via media has the advantage of appearing before an individual multiple times. What this accomplishes is to make an individual estimate that they have interacted with a brand more often than they actually have, increasing its recognition, and the likelihood that the advertised product will be chosen over the lesser or un-advertised.
Where corporations often run into trouble (Hi, RIM!) is that they come to rely on these informational crutches. Playing the spread becomes more important than winning the game. Talking up unproven projects in development becomes more important than actually shipping. Any advantages that a collection of skilled people brings begins to deteriorate as money is funneled away from design and development and into other channels better used for support, and talented people leave. If there’s one thing that annoys talented engineers and designers, it is seeing that the focus of a company is on something other than what is being produced. After a while, a firms lose the ability to innovate even when executives decide to change focus, because the talent needed to steer the ship has jumped ship. As the vaunted Steve Jobs might say, “Real artists ship”1. In fact, Apple makes an exceptional example in this respect, reducing their advertising budget when compared to their revenue growth, and spending a fraction of what other technology companies spend while dominating multiple markets because of the effectiveness of their design and engineering. Managing shareholder expectations and engaging advertising are important aspects of corporate management, but they are no substitute for creating a product or service that compels consumers to want to engage with it. You can and probably should advertise, but don’t be surprised when consumers get wise to the fact that all you do is advertise.