Moment 125: The Marketing Professor: The Biggest Business Mistake You’re Probably Making Without Realising It

In this moment, the advertising and marketing expert Rory Sutherland, discusses the number one curse of modern businesses. Rory believes that too many companies are following the false goal of finding the perfect measurement of spending to outcome. This can led to companies obsessing over what can be measured and underinvesting on the things that really matter but are hard to quantify, this can include fundamental targets such as customer loyalty and repeat purchasing. A further flaw in this way of thinking is that all data that leads these decisions comes from the past, which means there is a limit on what big data can tell you about future spending. Listen to the full episode here - https://g2ul0.app.link/DRKcci1xICb Watch the Episodes On YouTube - https://www.youtube.com/c/%20TheDiaryOfACEO/videos Rory: https://twitter.com/rorysutherland?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:03Speaker 00

  This is actually the great curse of a lot of modern business, given the title of your podcast, which is that people generally over-obsess about things which are immediately quantifiable and under-invest in things which are valuable but hard to actually put a figure on.

• 0:21Steven Bartlett?

  Yeah.

• 0:22Speaker 00

  And so, things like engagement or loyalty, of course, I mean, it's worth noting that customer loyalty is much, much slower to measure than, for example, conversion.

• 0:31Steven Bartlett?

  Yeah.

• 0:32Speaker 00

  And so, the extent that money is invested in performance marketing or the bottom of the funnel, relative to, let's say, wider brand fame.

• 0:39Steven Bartlett?

  Yeah.

• 0:40Speaker 00

  It's a widespread problem in the whole business world, which is that the money isn't necessarily being spent in the channels it is, because it's more effective there, but simply because it's easier to prove that it has an effect. The truth of the matter is, the world will always be too uncertain for us to know who our customers are in advance.

• 1:02Steven Bartlett?

  Hmm.

• 1:03Speaker 00

  And therefore, since, you know, 97% of the potential customer base aren't in market at any given time, and therefore won't be uncovered by search or, you know, remarketing or whatever, spending money on the 97% of people in advance, ahead of times, is still a very effective thing to do. The reason people do too little of it is that it's hard to quantify.

• 1:26Steven Bartlett?

  On that particular point then, having worked in the advertising industry, this is a conversation we have all the time with clients, which is, you'll meet a certain type of client who is very, who's, they're religious about the bottom of the funnel. They're really, if I can't track it and I don't know exactly, the exact term.

• 1:39Speaker 00

  I won't do it.

• 1:40Steven Bartlett?

  I won't do it. And you'll sometimes meet the opposite, which is someone who just loves to spend on brand.

• 1:46Speaker 00

  They're both wrong.

• 1:48Steven Bartlett?

  Yeah, I don't think they do just want.

• 1:49Speaker 00

  Yeah, I mean, Mark Ritson, very good marketing professor, always talks about the importance of both-ism. And he says, it's vitally important that when I actually speak about the importance of brand marketing, that you do not interpret this as denigrating digital marketing. In fact, I go a bit further and say, the bottom of the funnel in many respects is the thing you have to optimise first. Because there's no point in actually, if there's a bottleneck at the bottom of the funnel, if there's some constraint or a problem or a failing, you know, if you have very poor conversion, okay, there's no point in spending money on advertising because you'll just introduce more people to a disappointing experience.

• 2:25Steven Bartlett?

  You're wasting money.

• 2:26Speaker 00

  So you've got to get the back end, and I would argue the first thing in theory you should optimize if you're being an absolute purist is repeat purchase.

• 2:34Speaker 00

  Because having gone through the expense to acquire these customers, and actually, that's the, that's the metric that always fascinates me because we were talking earlier about electric cars, and I said the question about electric cars isn't how many people are buying them, okay, it's not what percentage of the new car market in the UK in July were plug-in vehicles. Now, only question worth asking really in the long term is, does anybody who buys an electric car go back to buying a gasoline car?

• 3:03Speaker 00

  Because if the answer to that is hardly anybody, then, okay, you don't know the exact shape of the S curve, but you know the growth is going to be pretty spectacular. And so the thing to understand, I think, in a market is to what extent does your product actually convert someone to something?

• 3:18Steven Bartlett?

  And in the lifetime value.

• 3:20Speaker 00

  And so you start with repeat purchase, then you go to conversion, and then you'd work your way up. But what tends to happen is that when people are obsessed with quantification of everything, okay, it's worth noting, by the way, that all big data comes from the same place, the past, all right? So there's a limit to how much big data, particularly if you've had some major event like a pandemic in between, how much big data can actually tell you about the future in any case. As David Ogilvie famously said, you're not advertising to a standing army, you're advertising to a moving parade. People are coming in and out of market all the time. And so you're absolutely right, you get some people who are just fame junkies, and by

• 4:02Speaker 00

  the way, I suppose there are brand categories where that's appropriate, if it's sold through retailers, you know, in other words, if it's mostly sold in the physical space, you might, you know, you might argue to an extent, you know, for, let's say, a Burger King or a McDonald's, that's not a totally crazy position, although it is now because suddenly they've got to think about delivery and, and whether people order through the app or order through an intermediary, because it has a major bearing on their business. But but at the same time, yeah, I mean, the tragedy is this idea, this false dichotomy between brand advertising and what you might call performance or digital marketing, as if you have to be in one camp or the other.

• 4:41Steven Bartlett?

  Where is the balance, though, and how does one go about? Is it just intuitive? Is it just the?

• 4:45Speaker 00

  There are figures on this. So if you look at the work of Les Burnett, for example, and Peter Field, the ratio shifts a little bit, but generally they'll stipulate a figure around about the sixty forty mark in favor of what you might call brand mass media expenditure.

• 5:06Steven Bartlett?

  Because they have a mutually beneficial relationship, obviously.

• 5:08Speaker 00

  The first twenty years of my life were spent in direct marketing. And actually, you know, because direct marketing was unfashionable, we spent a lot of time denigrating advertising spend because they got much bigger budgets than us, not necessarily rightly, but they were also, you know, much more indulged than we were because they didn't have to prove effectiveness down to the same sort of level of statistical significance. But we came to realize pretty quickly that actually, first of all, there's nothing harder than direct marketing a product that nobody's ever heard of.

• 5:40Steven Bartlett?

  Yeah.

• 5:40Speaker 00

  And that every time, just to give an example, every time American Express went on television or advertised big in mass media, the response rates to direct mail would not quite double maybe, but they'd increase pretty significantly.

• 5:54Steven Bartlett?

  You had to work less hard.

• 5:56Speaker 00

  And you had to work. It's that wonderful phrase which comes from a book by, let me get his job right, his name right. I think it's Matt Johnson, who's just written a book called Brands That Mean Business. And his wonderful line is, having a great brand means you get to play the game of capitalism in easy mode.

• 6:15Steven Bartlett?

  Yeah, so true.

• 6:16Speaker 00

  And that's, and what is true is, is fame to some extent. Brings a load of benefits which aren't necessarily sales related. So for example, you can cock up and your customers will be more forgiving.

• 6:29Steven Bartlett?

  Yeah.

• 6:30Speaker 00

  Okay, uh, take the example of Apple. I mean, on a couple of occasions, Apple has produced products which had fairly major flaws, which might have proved pretty fatal to lesser brands, you know, the famous phone where if you held it in the wrong way, it didn't make phone calls, for example. And given the reality distortion field around the Apple brand, people have passed over those incredibly rapidly. And so there are, you know, people are less price sensitive. That's not easy to measure, by the way, as well. It's very easy to measure the extent to which something has an effect on sales, but the effect to which something has an effect on price elasticity and the extent to which you can command a premium.

• 7:11Steven Bartlett?

  Because it's a great brand.

• 7:12Speaker 00

  Because it's a great brand. It's harder to measure because you don't have the counterfactual. You know, when you sell something, the counterfactual is that you assume that you wouldn't have sold it otherwise. But if you sell something for a high price, you can't in fact determine that without your advertising, you wouldn't have sold it for, you know, for that, for that premium price. So it's, to some extent, this quest for perfect measurement, to, to reduce marketing to a kind of Newtonian physics, is a bit of a false god.

• 7:43Steven Bartlett?

  Ladies and gentlemen, The Diary of a CEO book is finally out. It's been published today. The Thirty Three Laws of Business and Life. I've spent many years writing this book, but I've spent even longer, about a decade and a half, compiling the information that exists in this book. If you are somebody that has any intent at some point in your life of building something, whether it's building a great team at work, whether it's a football team, a netball team, a business, an organisation, a charity, anything at all that you want to build, that's going to require you to understand people, understand how to tell great stories, and maybe most importantly of all, understand yourself, then I believe this book is a must read. And you know what? I've written a book before.

• 8:25Steven Bartlett?

  This is my second book, but this is the one. This is the book that will give you the most value. There's a link right now in the description below. And for 30 people that order the book and post it on their social media and tag me, you'll be getting a very special gold version of the book. Please read it. And please message me on every social media platform and let me know what you think. Thank you. You.