Big ad budgets are for big losers

03 December, 2014

A little less than two years ago, Felix Baumgartner jumped from a hot air balloon 39 kilometres above the earth.

He didn’t just change sky diving records – he also changed marketing directors’ notions on how to build brands.

Baumgartner’s jump was conceptualized, paid for and managed by energy-drink company Red Bull.

Organizing it is reported to have cost less than $15m – but it was aired for free on 40 TV networks in 50 countries, it set YouTube viewership records globally and generated at least $150m worth of ad-equivalent publicity for Red Bull.

But it wasn’t just visibility. This was the year sales went up past the $5b mark and profits went higher too – remember you fork out US$1.50 for a 200ml can of Red Bull, while you just pay around 30 cents for 330ml of Coke.

All this while Red Bull spent next to nothing on ads or media, and is the dominant leader in energy drinks with 4 times Coke’s market share.

Spain-based retailer Zara does even better. It’s grown to $20b in sales and the largest apparel brand in the world – but you’ll never see its ads in the glossies or on TV. Because it has never needed to advertise.

The story is even more common online. Dominant brands like Google, Facebook, YouTube, Twitter and WhatsApp have never needed to advertise to get dominance. Quick, when did you ever see an ad for them? In fact, WhatsApp, at the time of its sale for $20b, said that it didn’t even have a marketing person on the rolls.

What’s happening here?

This is the new age of brand building. Where smart marketers have figured out they can grow top line and profits without having to spend much on ads and media – if they have the insight and intuition on how to be remark-worthy. And in being remark-worthy, the public gets to talk about them, and does the job that otherwise expensive 20-second commercials do.

And in every case – contrary to Kotler and now-meaningless norms of “share-of-voice” and “share-of-spend”, dominant brands have spent much less than no.2’s and stragglers on an advertising-to-sales basis.

Ralph Lauren and Calvin Klein, a fraction of Zara’s size, outspend it to no avail. Bing spent a huge amount on ads, but couldn’t budge Google a bit. In India, WeChat enlisted Bollywood stars and big budgets, but didn’t deter WhatsApp’s victory march even the slightest.

Some Indian brands have learnt the art: RedBus – caveat, I was an investor here – grew to 8 times’ MakeMyTrip’s size in bus ticketing without spending a dime on TV or print. CarWale – again an investee – grew past better funded competition by choosing not to burn their funding on expensive ads.

Increasingly, a big ad spend is not a sign of brand health – but of brand illness. If your brand needs to pay to be on media, and can’t earn its way there by its own remark-worthiness, then you’re simply not being smart enough.

As I’m fond of saying, your advertising budget is inversely proportional to your marketing IQ.

What can you do to change this? Start by recognizing the enemy.

Consider this example: Say I was a doctor and I didn’t really charge much of a fee for my prescriptions – but instead took a kickback on the drugs I asked you buy. Of course, I’d prescribe as much as I could get away with – but very soon you wouldn’t trust me one bit.

So why would you trust the advertising agency system that works exactly the same way? India spends about US$6b on media every year – that’s about $600m in undeclared kickbacks to media agencies above and beyond the fees that you give them. This is stuff they don’t tell you about.

Remember it’s called an agency because they’re commission agents. And if you follow the money you’ll see that they are agents for media, and not quite for you.

Creative agencies are the other half of the problem. When they know they can charge $500,000 for a TV commercial and $10,000 for one on YouTube, you can imagine which one they recommend. Even though the viewership of YouTube or mobile video far eclipses that of every other TV channel in India – and having run a TV channel and directed commercials at various points in my life, I can’t for the life of me imagine why one would cost 50 times what the other does.

The answer to everything is not to go digital – thought that’s certainly a step.

It’s pointless to buy likes on Facebook, and even more pointless to pay for visibility there. Smart brands will work to get it for free.

What does it come down to is this: can you find a way of being talked about by people?

Start with the offering itself – how different or delight-inspiring can your product or service be? Decathlon has grown to lead sports goods retail in India without hiring a celeb athlete or paying ESPN. Because the stores are remark-worthy. Starbucks is winning against rivals everywhere – because its cafes and experiences inside are more memorable than what others offer.

If the product isn’t that talk-worthy, can you create buzz around it that is? Certainly. ALS, a disease which has been around for decades suddenly caught public attention because of the headlines the Ice Bucket Challenge created, going from mouth to mouth and quite literally, head to head. In India, Cadbury Dairy Milk won over the cricketing extravaganza, the Indian Premier League a couple of years ago without being a sponsor – by out-smarting and not outspending Pepsi, who paid several tens of millions of dollars for the title sponsorship.

There’s a free media network that covers seven billion people, called word of mouth. One part of it, the internet, extends across all 221 countries and over 4 billion people.

Your first task should be to try design an experience – your product offering – that is so compelling that it news of it is likely to spread virally through these enormous networks. Not just once, but sustainably, over a period of time.

If your product or offering isn’t cool enough, then your first choice should be to go back and re-design it. And if you absolutely can’t, then you must try to find a way to talk about it that is so remark-worthy that it can propel itself through the talklines around us.

And when you don’t have a product that’s interesting enough, or a story or movement around it that’s interesting enough – well then, the world of advertising is waiting for your money.

Not that it’ll get you anywhere, anyway, but you can have the pleasure of personally sending a lot of money going down the tube.

The choice is clear. Outsmart, don’t outspend.

(Mahesh Murthy is a founding partner at Seedfund.)


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Big ad budgets are for big losers

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