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You don't need more advertising to get the revenue to keep rising. All you need is two things: 1) a zero-sum game where the amount spent by companies on adver
by majormajor 1y ago
You don't need more advertising to get the revenue to keep rising.
All you need is two things:
1) a zero-sum game where the amount spent by companies on advertising is less than their profit margin
2) advertising channels that perform in a way that can be correlated with short-term outcomes
"We can afford to up our ad spend by 0.5% to try to gain an edge."
You juice your market share or total sales numbers for a quarter, everyone is happy.
Then your competitor does the same.
Assuming your advertising is equally effective, you may have netted out to about where you started. But you've both ratcheted up your spend and likely won't reduce that short of a macro change or parent company health issues.
And if certain advertising performs better than others, one company can very well make long-term gains here, if they have writers and producers and talent who are making more compelling pitches.
But it still ramps up the total advertising industry spend even with a fixed supply of ad capacity, if it gets a bidding war going.
As long as you don't have 100% market share with 0 competitors, advertising will look like a very compelling short-term ROI option.
Even if time spent watching media drops it may not squeeze a lot of parts of the advertising sector so hard - it'll just push demand into smaller buckets which will increase the prices for those buckets. Look at the crazy revenue sports television broadcast advertising has been doing as other forms of TV go away with commercial skipping or lower-ad-load streaming.
Of course, at SOME point the increases can't be sustained. Even the most profitable products have a limit to how much money could be possibly directed towards advertising. But we don't appear to be particularly close to demand being satisfied.
- nitwit005 1y agoI personally suspect in many industries there is a sort of informal agreement about what is reasonable spending on sales and marketing. If any single company spends more, and succeeds in gaining advantage purely by spending more, all their competitors will generally just be forced to follow. But, no one really wants to follow that to the logical conclusion of spending all possible dollars on marketing.
- majormajor 1y ago> But, no one really wants to follow that to the logical conclusion of spending all possible dollars on marketing. Sure, just like nobody wants to spend all possible dollars on rent. But outside of "we just can't afford it anymore" external economic factors shocking the system, the natural incentives point to a slow and constant ratcheting up. IMO this would be a good reason to have further regulations on advertising - locations, frequency, accuracy - since we're gonna be saturated with it otherwise.
- nitwit005 1y agoThere are a number of studies showing competing companies in industries tend to make coordinated actions. I'm sure you've noticed everyone raising their prices together, or fast food restaurants all halting 24 hour service at around the same time. People often operate based on perceived industry norms/trends, rather than some sort of rational economic analysis.
- Marsymars 1y agoIf you’re the VP of marketing though, your incentives are to ratchet up the marketing spending as much as possible in a way that shows ROI.
- airstrike 1y agoIncreasing spending doesn't increase ROI, so a better version of that argument is that the VP is prone to "empire building" and wants to run a bigger department, with a bigger budget and headcount.
- Marsymars 1y agoYes, that’s better put. (Though I didn’t mean increased ROI - just that increased spending has a non-negative ROI.)