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I don't understand this line of reasoning. P&G, Unilever, Cocacola, etc have never, not once in history, had a gung-ho C level exec who said "Screw it, I'm goin
by soared 6y ago
I don't understand this line of reasoning. P&G, Unilever, Cocacola, etc have never, not once in history, had a gung-ho C level exec who said "Screw it, I'm going to find out if our advertising works". And then either found it works and kept spending, or found out it doesn't work and saved literally billions of dollars.
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.
- morelisp 6y agoFor brands that large the majority of their spend isn't campaigns specific to new products, but overall brand management. The experiments would need to run for years or decades and if the prevailing belief that these are Red Queen's Races is correct, the cost if they're wrong could be the whole company.
- Ericson2314 6y agoFortune 500 is a cesspool of insane inefficiency balanced by equally ~~insane rent seeking~~ insanely secure revenue. The sooner everyone understands this, the better.
- xpe 6y agoFirst, care to define your terms? 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.
- Ericson2314 6y ago> Second, inefficient relative to what? 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 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.
- xpe 6y agoThanks for elaborating. I don't think I disagree with many or most of the points you've made. 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.
- 6y ago
- kortilla 6y agoHow is Coca Cola rent seeking? How about Apple? I suspect you aren’t using that term correctly but maybe I’m missing something.
- treis 6y agoEffectively every restaurant in the US has to pay either PepsiCo or Coca Cola. Similarly, if you want to buy a non-alcoholic beverage at the grocery store it's mostly down to those two (with Dr. Pepper having a much smaller but still significant stake). Any competitor that emerges just gets bought up by one of the three. 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.
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- Ericson2314 6y agoYes. But in fairness I retracted rent sneaking as a combination of monopolization, bonafied rents, addiction, and just shear damn inertia contributes to the malaise. Calling it all "rent seeking" is not a hill I want to die one.
- throwaway201103 6y ago"Rent sneaking" is an interesting typo. Going to have to give some thought to how to use that term in appropriate context.
- ABeeSea 6y agoRestaurants only pay because consumers demand it and would not visit the restaurant otherwise. That’s not rent seeking. That’s market forces. And what they pay correlates with how much their customers demand coke/Pepsi.
- jariel 6y agoThe answer is not complicated, and the logic on this board is strained by people I think that don't work in marketing. 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%.
- ksec 6y agoAgree with most, >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 )
- jariel 6y agoYour personal situation doesn't represent the market, moreover, you spent 20 years watching coke ads growing up and having coke, it's impossible to tell how that affected you. You saw 1000 'product placements' for coke without being aware of it in films other things. Taste is associated with familiarity and comfort.
- mumblemumble 6y agoThe trick isn't figuring out whether advertising in general influences people's behavior. The trick is in figuring out if any particular advertising campaign generated more profit than it cost to run. 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.
- doopy1 6y agoDistilling it down into "any particular advertising campaign" is pretty myopic in this world. It's about strategy as a whole over decades. Not every ad campaign is to drive immediate sales or signups (direct response). Branding and awareness campaigns can take years to run, and these are ALL diligently measured at every stage. Losses do occur do to negligence, malice, and poor execution all the time, but the brands should take some blame as well as they often feel compelled to spend. They have huge budgets that they NEED to spend regardless of they perform - sometimes due to accounting shenanigans, sometimes because they don't know any better, etc.
- Dylan16807 6y agoNo matter what time scale you pick, there's still a point where ad spending costs more than you benefit. As time passes, the boost from any campaign decays. For any particular person you only need to show them so many ads to maintain awareness. > 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.
- missedthecue 6y ago
- likpok 6y agoPart of the claim is that the people who are checking are ad execs who, if PepsiCo stopped buying ads, would shortly be out of a job (or have their budget and influence slashed). A counter to this might be that different advertising channels are likely not identically effective, and a TV ad exec has a big incentive to poke holes in non-TV ads.
- otabdeveloper4 6y agoPepsiCo has third-party auditors that they employ to check the checkers.
- soared 6y agoYeah that is what is usually given as the reason so I was getting at a gung-ho CEO, CFO, CRO, Consultant, etc.
- toast0 6y agoSee the Pepsi Refresh Project of 2010. Where Pepsi redirected a sizable amount of ad budget (including super bowl ads) to community projects. They abandonded this strategy after a while because they lost market share. This is the biggest large scale test of advertising I'm aware of. But it probably doesn't apply to all products.
- amelius 6y agoThey only lost market share because everybody else was still using advertising. Therefore, this is not a test in favor of advertising (only in the prisoner's dilemma sense).
- pkalinowski 6y agoSo advertising works? If it didn't, those buying ads would not take the pepsi market share
- rocqua 6y agoIf advertising is an arms race with more total cost than total benefit, that would be an argument that advertising works. Because anyone, at any given time, will benefit from running advertising. It also means advertising is a net loss to society, but that is separate from the question 'does advertising work'
- adkadskhj 6y agoHow do you look into it though? I don't know, so i'm asking - but my immediate thought is that you treat it like science. You isolate an environment, advertise, and see if it has an affect. But the implication there is that if it doesn't have an affect, money is on the table. 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.
- SheinhardtWigCo 6y ago> Google had a clean-room data center specifically for pepsi/frito. Why?
- soared 6y agoMy company provided sales data from stores to a specific team on google that compares it to users who’d been advertised to. This team didn’t want my company to influence results, and didn’t want YouTube to influence results. 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.
- fomine3 6y agoBut does it need dedicated datacenter? I wonder they just run different service instance rather than datacenter.
- deleted 6y ago[deleted]
- TLightful 6y ago>> The idea that no one actually checked if this system works is simply not possible. Have definitely heard that one before. No disrespect.