Also, there's one alternative that's often forgotten in these discussions: Perhaps game theory is at play. It may be, for example, that, across entire industries, advertising costs more money than it's worth. But that everyone has to do it anyway, because anyone who chooses not to will start losing ground to everyone else. IOW, just like in the standard prisoner's dilemma, choosing to act is less about increasing your potential gains than it is about limiting your potential losses.
There is an interesting long-running natural experiment in the pharmaceutical industry that suggests, albeit inconclusively, that this is the case.
> these are ALL diligently measured at every stage
Mmm. Sometimes. Sure, you can obsessively measure audience and sales numbers, but if you don't have any controls then it becomes nearly impossible to figure out how much of that came from ads and how much came from everything else in the entire world.
If Coca Cola cut advertising 90% this afternoon, they likely wouldn't see the consequences until a new generation or two grew up.
There's also a huge mutual back-scatching thing going on. I remember in a former life we wanted to pass on a big software vendor's user group show because, while we sort of needed their software for some important customers, we got very little traffic at this expensive event. Their CEO called our CEO and basically said to him "Be a pity if something happened to our partnership."
You seem to be assuming that the potential gains are limited to current players of the game in this comparison.
It's possible that Coke, Pepsi etc. are all losing more money on ads than they're gaining in market share against their current competitors and in increased sales. But that doesn't begin to address the question of whether advertising is a net loss.
For one, the advertising also serves as a collective moat against new competitors, which could enter the market and eat up both Coke and Pepsi's market share. Maybe their biggest gain from it is that a bankrupt soda company from the 80s didn't replace them, and that a similar company today wouldn't have room to enter the market.
It also doesn't account for more complex effects like a net increase in sales for all companies in that market. E.g. maybe Rolex, TAG Heuer etc. all benefit in the long term from expensive watches being seen as fashion accessories.
If Rolex stopped their advertising spend one month and saw little immediate change, then TAG Heuer etc. might follow suit. But both might only experience the real loss years later as "luxury watches = must buy" faded from the psyche of their current and potential customers.
1) Advertising works.
2) Coke, a sugary drink, is largely kept alive by smart marketing, that involves mostly advertising in the end.
3) Much of advertising is quite wasteful, because it is a fuzzy instrument - but on the whole, good marketing works.
4) There is a lot of self-awareness in the industry on this, and no doubt, a lot of borderline fraudulent actions by participants willingly spending money they know doesn't work.
5) Ad networks will happily sell you ads that don't work, and look the other way when there are shenanigans.
The problem here in the thread, is that people are having a hard time grasping how all of these things can be true at the same time, but it's not that hard really.
That some ad spending turned out to be 'not useful' is 'not news' when everyone knows that easily 50% of ad spending is probably wasted, we usually just don't know which 50%.
>2) Coke, a sugary drink, is largely kept alive by smart marketing, that involves mostly advertising in the end.
Not sure I agree. I haven't seen any Coke Cola Ads for years, not online digital Ads and I rarely consume any traditional media. But I will still buy Coke Cola every once in a while.
They are also on all of the convenience store with decent positional shelf space or visual merchandising. Something I learned that no one on HN actually knows anything about during the discussions of App Store.
Edit: All of my friends can taste the difference between Coke and Pepsi. It is just different. So I was surprised to read comments and youtube video about "blind tasting" on the two. No, I didn't drink Coke because of Ads, I drink it because it taste better. (And some people prefer Pepsi )
You saw 1000 'product placements' for coke without being aware of it in films other things. Taste is associated with familiarity and comfort.
I respectfully disagree, I used to work in F&B industry. And product marketing and placement has absolutely no affect on how one think something taste is good or bad. It does however remind anyone next time the walk into store they should buy coke, which does affect sales number. But not taste difference.
My 7 years old nephew hasn't watched a single Coca Cola coke in his life time, but he prefer coke over Pepsi. While my friends daughter ( and her mum ) prefer Pepsi.
Yes it odes.
"My 7 years old nephew hasn't watched a single Coca Cola coke in his life time"
1) It's ridiculous to say a 7 year old 'has never seen an add for coke'.
How would you possibly know that? Unless they are living as the Amish, that kid as seen ads.
2) That someone will prefer one drink over another is not relevant to the argument.
Nobody is making the claim that 'ads make you do stuff'. No Coke ad is going to 'force Pepsi drinkers to like Coke'.
Ads are influential. They root the product in feelings, emotions, those have impact, which is why advertising is there.
3) Your nephew was probably drinking code from some age, maybe as a treat. It was Coke and not some Italian cola, because Coke has such a powerful market position.
In Italy, they drink Brio and it's quite good, you can't even get it here, if you could, people would drink it.
Coke spends billions on ads because they work not because they don't.
Second, inefficient relative to what?
Third, so far, what you've written here looks like a rant, not a predictive theory nor a powerful explanatory theory.
Would you like to quantify your claim? Or at least make it more precise? As it is, I don't think it advances your argument.
I'm interested in strong logic, data, explanations, and persuasion. I see none yet.
The sad thing is it's not inefficiency relative comparable things. But anyone that has worked at these places or sold B2B to them just knows it on intuitive level that they are garbage, and need a heavy sedative to think there are no alternative.
> not a predictive theory nor a powerful explanatory theory
It's not. It's about letting go of some efficient market ideal and then finding new ideas.
We can look at Fortune 500 case-by-case to learn new things
> Cola cola
Sugar drug cartel. Despicable business with very stable revenue despite being a net drag on society. (At least "regular" drugs have a lot more upside!)
> Proctor and Gamble
Just as restaurants are reaching down market, and the inefficiency of everyone cooking and cleaning is starting to have market implications, we should see their reign finally dwindle. Wash-and-Fold should follow laundromats. The specialization means that stupid differentiation between products for uninformative consumers (c.f. https://en.wikipedia.org/wiki/Monopolistic_competition) should go away and restaurants and laundromats optimize.
Personal soaps and cosmetics (of course many soaps are cosmetics) however will stay as cultural reasons ensure people will continue to clean themselves and not contract that out for the foreseeable future.
It might be interesting to define a systematic and testable definition of organizational efficiency relative to an ideal market. Just like combustion engines can be compared to their theoretical maximum efficiency, it would be interesting to compare a particular organization against its maximum potential.
Here is another angle on the topic of relative efficiency. Consider a particular organization. Coca Cola will do as an example. Given its environment (financial incentives, regulations, cultural norms, etc), are we surprised by its behavior? This raises the question of how much an organization's particulars (e.g. leadership, history) affect its efficiency.
I suppose I take a systems view of it. Many deplorable businesses survive in niches. But can you "blame" them? It is a matter of perspective: organizations, like life, adapt to their environment and modify it to their liking. Such organizations can stretch the environment to or past its breaking point for a relative long period of time before having to deal with the downstream consequences.
Elaborate on your reasoning here? While I can maybe imagine a more centralized food preparation system being more efficient, the currently growing market solutions (DoorDash, etc.) are certainly not, and I can't think of a system in which transporting clothing somewhere for someone else to clean would be more efficient than an in-home washing machine. The wasted energy alone would be colossal.
Both are propped up - actually maintained - by huge and vastly expensive brand management strategies.
The criticisms of individual campaigns here are missing the point. It's not about micro ad spend, but the perception of value and manipulation of behaviour created by the combined effect of multiple PR and advertising efforts - which include traditional print and TV/radio ad campaigns, guided advertorials disguised as news in the MSM, interviews with prominent figures, political campaigns of more or less obvious relevance to the core business activity, state, national, and international political lobbying, direct political campaign donations, advertorials masquerading as "freelance" journalism and blogging, managed astroturfing on social media, shareholder relationship management, product placements in movies and music promo videos, articles about commercial visual design elements in trade journals. And on and on.
That perception of value is - unsurprisingly - extremely valuable. And it's very much a US way of doing business. Instead of producing products that are inherently superior, produce something that is functional but glossily packaged, brand it as a premium lifestyle commodity, and charge exorbitant prices for it.,
The prices are traditionally far out of proportion to its actual utility. In fact real utility may well be negative - see also diabetes and any number of other health issues, depression associated with social media use, debt-driven spending on lifestyle products. Etc.
So the rent seeking comes from a kind of cultural squatting. There is value in dominating discourse in all of these different ways, because discourse and narrative define markets and ultimately control behaviour. And while this is happening other kinds of discourse - which may well have more real utility - are diminished at best and crowded out at worst.
So in this case it doesn't matter if Uber "wasted" their money. Uber have their own branding thing going, and explicit ad spend is a tiny part of that.
And even if all online ad spending ended tomorrow, a small number of corporations would have a difficult time for a while, but the marketing industry as a whole would inevitably interpret the change as minor damage and route around it.
In the case of Coca Cola, I agree - in the case of Apple, not at all. "Keyboardgate" aside, their products are vastly superior to the competition in build quality and life time. A typical Windows laptop is unusable after two, three years (almost all are made from plastic which breaks or looks extremely ugly rather sooner than later), and has next to no resale value while in contrast even old cheesegrater Mac Pro's fetch many hundreds of dollars today. iPhones are supplied with firmware updates far longer than most Android phones outside the flagship Pixel line are. OS X is, while it has gotten locked down a fair bit over the last years, still way better than Windows as it doesn't do tracking bullshit and start menu ads and decently better than Linux because no matter which device, stuff usually Just Works (tm) without having to fiddle for hours to get something as basic as a Bluetooth headset working.
Apple built themselves a loyal following with pure quality superiority over the competition, unlike HP or Dell who are only surviving because of enterprises who follow the "no one got fired for buying IBM" line.
And that doesn't even touch that it's Apple who's at the forefront of innovation. iPods, iPhones, iPads, Apple Watch, AirPods, now the M1 CPU - these entire device classes were created by Apple. When was the last time you heard about something truly innovative from the Windows/MS/Google side of IT? Only thing I can remember is the Google Glass.
What Apple is doing is not a "brand management strategy" per se - it is delivering actual value and innovation instead of rent-seeking. And for what it's worth Tesla are doing the same thing.
This shows that you are just spreading FUD. A Windows machine is no slower after 10 years than it is the day you bought it. Sure you might have added so much software-crap that the software runs slow (which is easily fixed) but the hardware is exactly as fast after 10 years as Apple hardware is. Do you think Apple builds their hardware out of magic and unicorns?
Capacitor, DRAM, Heat Sink, etc.... There are quality difference in hardware. Although the two / three years remarks were definitely exaggerated.
By "typical windows laptop" do you mean a cheap model where the macbook equivalent is buying nothing at all? Of course it's going to be lacking in that case.
Well-made windows laptops exist, and hold plenty of value. But you have to pay for that, no matter what brand you choose.
> tracking bullshit
Like checking signing certificates by pinging servers almost every time you run a program?
Marketing the new thing is what Apple does. It is good at it. That is not the entire spectrum of customer value.
Source: forced to use one daily. If I could get a Mac laptop running Linux but with the input smarts of the Apple trackpad and keyboard, I would in a heartbeat.
The trackpad is superior to apples and it can come preloaded with linux
Source: Me.
Apple's half of the phone Duopoly. Either you pay them or pay Google if you want a phone and want to buy software for it.
This page [0], for instance, says the cost of goods sold for the soda itself is a penny an ounce for the syrup and CO2. Iced tea is apparently the margin champion, as the same page indicates it can cost as little as a penny per glass.
[0] https://www.restaurantowner.com/public/Restaurant-Rules-of-T...
Exclusive / Special agreement with serving only one kind of Soda ( or no Pepsi where there is Coke ) are Anti-Competitive arrangement. Not Rent Seeking.
Calling it all "rent seeking" is not a hill I want to die one.
This is the biggest large scale test of advertising I'm aware of. But it probably doesn't apply to all products.
It also means advertising is a net loss to society, but that is separate from the question 'does advertising work'
Not so clear, especially before internet search engines existed. As a consumer, I find it useful to know what's available for me to purchase.
If this is even remotely close to reality then it makes sense to me. Companies are more concerned with constant growth than strict efficiency, imo. They're throw as much money around as possible, and every cent lost or left on the table is panic inducing.
I also imagine different types or products and/or markets behave quite differently. Eg a new product might very well benefit from advertising - since no one can buy your product or visit your store if they don't know it exists.
Why?
More complicated since there are multiple device graphs/etc in play, but effectively tens/hundreds of millions of dollars at play and no one trusted anyone. The largest thing at risk was YouTube’s ad revenue.
There is so much money at stake that could be either saved or generated, its simply not possible that no one has looked at it. I used to help Pepsi/Fritolay set up tracking to tie advertising on youtube to in-store sales. They spent millions of dollars to measure their ads, Google had a clean-room data center specifically for pepsi/frito. The idea that no one actually checked if this system works is simply not possible.