by Paul A. Holmes
Advertising expenditures used to account for 70% of a company’s marketing budget; today it accounts for about a third. Client loyalty is at an all-time low. Two-thirds of the consuming public believe there’s little or no difference between most products in most categories. Only six per cent of people find advertising credible. And new media are demanding that ad people learn new ways of presenting information. Is this a great time to be in the ad business, or what?
Jim Mullen’s advertising agency has produced award-winning creative work for a blue chip client list that includes BMW, Colgate, Hewlett-Packard, Rolls-Royce, Ryka and Timberland. But Jim Mullen’s favorite brand is considerably less glamorous than any of these. It’s Morton’s Salt.
“Morton’s Salt has a huge share of the American market, as much as 50% of all salt sold,” says Mullen. “Moreover, Morton’s salt costs about a nickel more per box than other salt.
“In order to understand the dynamics of its brand, Morton has conducted a fair amount of research. In focus groups, chemists have explained to consumers that salt is the lowest technology product in the world. Salt is salt: one molecule of sodium combined with another of chlorine to make sodium chloride. There is no such thing as premium salt, no designer salt, no salt seconds, just salt.
“When this was explained to consumers and then they were asked how many would still buy Morton’s, half remained loyal to the brand.
“The focus groups were pushed further. Not only is salt salt, the moderator told them, but Morton actually co-packs about a third of the salt sold under other brand names. When the consumers were queried again about their future purchase intentions, the same 50% indicated a preference for Morton’s.
“Why? Because these people aren’t buying salt, they’re buying trust. Trust that the salt is clean, uncontaminated, a fair measure, and the same product used successfully by their mothers, their aunts and their grandmothers for the past 50 years. Most important of all, millions of people are willing to pay a premium for that trust, month after month, year after year, decade after decade.”
One suspects that if Morton International was to erect a statue, perhaps in the shape of the little girl with the umbrella who has appeared on its packing for those 50 years, advertising and marketing executives would be happy to make the pilgrimage to the company’s Chicago headquarters on foot, and turn it into a shrine, a symbol of the power of the brand, a reaffirmation of their faith in the craft they have spent their lives practicing.
For that power has been waning of late, with private label products sold at discounted prices eating away at the market share of some of America’s proudest companies,; and that faith has been shaken by a torrent of bad news: that advertising is no longer the dominant force in many marketing campaigns; that ad agencies have become vendors rather than partners; that traditional channels of communication no longer work; that new media will demand new skills; that consumers don’t like advertising, don’t believe advertising, would like to see advertising more tightly regulated.
“The whole agency business has been going through a soul searching,” says Lee Clow, president and creative director at Chiat/Day in Los Angeles. “Everyone has been trying to figure out what their role is, what it is going to be in the future. The recession left everyone a little unnerved, and feeling they had to reinvent themselves.”
Randall Rothenberg, former advertising columnist for The New York Times, paints a vivid picture of this miserable industry in Where the Suckers Moon, portraying a half dozen advertising agencies, replete with insecurities and fraught with anxiety, as they pursue the Subaru of America advertising account, unsure whether their job is to please the customer, the client or themselves, recycling old ideas (though the winning agency, Wieden & Kennedy, apparently preferred to think of its campaign as an homage to Doyle Dane Bernbach’s Volkswagen ads of the ’70s, rather than a rip-off) and still wedded to the idea that the only medium powerful enough to convey their message is network television.
There is little in Rothenberg’s book that reveals any awareness on the part of the agency business that the ad industry needs to reinvent itself, but that awareness is there.
Executives at most of the largest agencies in the country are considering ways in which they can reestablish the sense of partnership they once had with clients, and most of them recognize that to do so they need to provide something more than the traditional creative product: the flashy images, the catchy jingle, the memorable tagline.
The ’60s marked the beginning of a Golden Age for advertising, what former Adweek associate editor Ron Gales has called the Creative Revolution. “The cocktail party buzz found television commercials, for the first time, more compelling than the programs,” says Gales, who went on to become director of marketing at AAR, an advertising consulting firm in New York. Creative directors, he recalls, “were favored guests of talk-show hosts like Tom Snyder and David Susskind.... their entrances at the rococo photographers’ parties of the ’60s set off a stir the way hot young fashion designers do in the nightclubs today.”
Throughout the ’70s and early-’80s, the biggest and best agencies continued to grow at 20% per year, and many of them used their profits to finance expansion, buying up other agencies, opening overseas offices, adding public relations, sales promotion, direct marketing, corporate identity and other communications disciplines to their portfolio, although all of these services remained subservient to the core discipline of advertising.
The industry was hurtling along at 90 miles per hour when the brakes were put on at the end of the decade, and the big agencies were brought up with a jolt. Suddenly, firms that had been growing at 20% per annum were barely growing at all, and in some cases revenues were declining as once-loyal clients began to demonstrate an unfamiliar fickleness. Burger King stunned J. Walter Thompson by pulling its $200 million account from the agency in 1987; Ogilvy & Mather lost the $80 million Maxwell House account to D’Arcy Masius Benton & Bowles in 1989, but DMB&B could hold on to it for only a year.
“The level of account switching over the last five years or so has been absolutely unprecedented,” says G. Kelly O’Dea, president of client services at O&M.
And then, of course, Coca-Cola confounded not only McCann Erickson but the whole advertising business when it announced in 1993 that its agency of close to 40 years was being replaced not by another ad agency but by Creative Artists Agency, a Hollywood talent agency run by Michael Ovitz, which had never produced an ad in its life, but which had access to top flight talent and, theoretically at least, a fresh perspective.
Now Coca-Cola employs a whole host of agencies to produce its various TV spots, many of which target specific audience segments. The agencies working with CAA include Fallon McElligot in Minneapolis, Wieden & Kennedy in Portland, The Ad Store in New York and Chiat/Day, whose Lee Clow says: “Coke came to realize that ideas can come from a variety of sources, that they no longer had to be tied to one giant agency.”
“There was a shift,” says Joe de Deo, group vice-chairman at Young & Rubicam, “away from being partners with our clients to being vendors.”
Suddenly, when advertising people made the covers of magazines it was not because of their creative genius. Fortune asked: “Do you need your ad agency.” Forbes suggested that turning ad agencies around was like “Teaching elephants to dance.” Across the Board wanted to know: “Where have the ad giants gone?”
Next came the layoffs, mass firings at big name agencies such as Young & Rubicam, N.W. Ayer, Ogilvy & Mather, DDB Needham. Morale sagged. Many people, inside the industry and out, began to question whether the problems they were experiencing were cyclical, the result of the recession, or part of a more permanent trend, one that would see traditional advertising’s position as the lead marketing discipline usurped by the despised short-term, price-fixated techniques of sales promotion.
Two years ago, on what has come to be known as Marlboro Friday, Philip Morris lowered the price on one of the best known brand names in American history by 40 cents a pack. The company’s stock dropped almost 15 points, wiping out $13 billion in market value. In the next few months, 25 of the top brand marketers in the country - companies such as Sara Lee, Procter & Gamble, Heinz and Gillette - saw their market value plunge by a combined $45 billion.
A combination of factors was at work. First, these companies had continued raising brand prices for years without adding value or improving quality, making it all too easy for retailers to produce generic or store brands that could undercut brand name prices and deliver the same quality. Second, retailers were demanding ever-greater discounts from manufacturers just to keep their products on the shelf. And third, brand marketers, looking for a quick fix and quite aware that career advancement was dependant upon short-term results, switched the focus of their activities from long-term brand building (read advertsing) to short-term promotions, couponing and discounts.
One study, conducted by Myers Marketing & Research, found that mainstream advertising, which in 1976 accounted for more than 60% of corporate marketing expenditure, comprised only 31% by 1991. The bulk of the budget was now devoted to the publicizing of discounts, to direct mail, to trade and consumer promotions.
In 1992, the 4As, along with the Association of National Advertisers and six media trade associations, formed the Coalition for Brand Equity, an organization dedicated to emphasizing the enduring value of strong brands. Its chairman, Larry Light, president of a Stamford-based marketing consultancy, has been candid in his criticism of the ways in which many brand managers chose to respond to low-price competition.
“Market leadership can be bought through bribes,” Light told a 4As meeting. “But enduring, profitable market leadership must be earned through building both value and volume. You do not build brand value by saying how cheap you are. You do build brand value by reinforcing how special you are.”
The problem is, however, that most brands are not special, at least not intrinsically. Says Ogilvy’s Kelly O’Dea: “In major product categories, ten years ago there were far fewer acceptable products. Today there are several. And the differences in product function and performance have narrowed over the years. Clients have to find new ways to differentiate themselves.”
Indeed, a 1988 survey by BBDO showed that 66% of Americans believed that most brands in most categories were exactly alike.
Meanwhile, as products were becoming more and more alike, the audience to which they were being marketed was becoming more and more fragmented. It was no longer possible to erect a ‘roadblock’ each night at eight o’clock by paying for ad space on all three networks at the same time. A third of the population was no longer watching the networks: the kids were hooked MTV, twentysomethings were catching a movie on HBO, businessmen were tuned into CNBC, and affluent consumers were enjoying a Miles Davis special on the Arts & Entertainment Network.
Says Rothenberg: “Agencies had organized their businesses so tightly around revenues from network television advertising that they had nowhere to go when the networks’ share of the viewing audience shrank from more than 90% in 1979 to barely more than 60% as the 1990s bloomed.”
Ad agencies found it difficult to wean themselves from the networks for a couple of reasons: first, the outdated and increasingly impossible to sustain commission system, under which agencies were rewarded based on a percentage (usually 15%, though now more likely to be ten) of the cost of purchasing air time, encouraged them to seek out the most expensive venues for ads; second, national television advertising was what won awards and the admiration of one’s peers.
At the same time, the environment into which product messages were thrust was becoming increasingly cluttered and increasingly complex. Consumers - perhaps not all of them, or even a majority, but a sizeable minority which tended to be the minority that marketers were most interested in - were taking advantage of the commoditization of products to consider issues beyond product quality and price in their purchasing decisions. Environmental issues could impact sales, as could the fact that the company did business in South Africa, or China, or Nicaragua. Other companies found they could generate sales through pursuing an active agenda of social responsibility and community involvement. These were issues a company could not possibly address coherently in a traditional commercial format.
“Consumers of the ‘60s and ‘70s largely accepted what they were told in 30-second television commercials: the product either tasted good, looked better or made you look younger,” says David Drobis, chairman of Ketchum Public Relations. “Today, each product sale can be influenced by such issues as the environment, nutrition, social consciousness, politics, government involvement and local regulations. It takes more than 30 seconds to address all of these issues.”
It became apparent to most marketers that this new environment required a wider array of communications techniques than traditional advertising agencies had at their disposal. An industry geared to mass communication was being told by clients that they wanted not only segmentation, but to reach consumers in “segments of one,” as individuals. An industry used to one-way communication was being told that clients needed to establish dialogue. An industry that dealt in imagery was being told that the buying public wanted to know a company’s environment policies, or how a food product would fit into a healthy diet. An industry that was moving to ever-shorter forms, as 60-second ads gave way to 15-second spots, was being told that consumers simply couldn’t cope with the information overload they were being subjected to.
U.S. consumers are bombarded with 3,000 marketing messages a day. The resulting confusion is obvious. Consumers recall fewer ads, and those they do recall they recall imperfectly. In a survey by Video Storyboard Tests, for example, 40% of those who selected the Energizer bunny series as one of the outstanding campaigns of the year believed that the ads were for Duracell batteries.
“As advertising has proliferated and become more obnoxiously insistent, consumers have gotten fed up,” says Regis McKenna, a marketing consultant best known for his work with Apple Computer. “The more advertising seeks to intrude, the more people try to shut it out. The underlying reason is that advertising serves no useful purpose. The new marketing requires a feedback loop. It is this element that is missing from advertising but is built into the dialogue of marketing.”
Perhaps for this reason, the public’s confidence in advertising messages was declining. While public trust in all institutions is lower than it was a decade ago, advertising remains among the least trustworthy, with only six per cent of the public claiming to have “great confidence” in ads (see table). It seems that the point of view once expressed by Franklin P. Jones - “Nothing’s so apt to undermine your confidence in a product as knowing that the commercial selling it has been approved by the company that makes it.” - is more widely held today than ever.
In a report to the Advertising Federation’s annual meeting in 1990, Young & Rubicam chairman and ceo Alex Kroll had more bad news: Only 16% of consumers believe that television and magazine advertising is useful, and just 27% found ads in newspapers useful. A Roper report, meanwhile, reveals that 74% of consumers feel advertising encourages unnecessary purchases, 69% say it raises prices, and 69% say it leads people to use products that are bad for them.
“Beyond the possibility that consumers will simply not believe advertising is the not-so-veiled threat of retaliation,” says a researcher with Los Angeles-based advertising agency Chiat/Day. “Although consumers have shown considerable coolness towards regulation as a solution for marketplace problems, when the issue of truth in advertising is raised they seem to see it as a court of last resort.”
The percentage of people who believe regulation is needed, according to the agency’s research, has risen from 52% in 1992 to 61% last year.
“The degree of concern can be gauged by the fact that only four items [water pollution, air pollution, management of toxic substances and nuclear safety] are seen as more needful of new regulation than advertising, and all four are life threatening,” says the agency. Truth in advertising generates more concern than privacy protection, worker safety and sexual harassment.
If all of this paints a gloomy picture of the past few years in the ad business, it does not necessarily imply an equally gloomy future. Indeed, those agencies that learn from the excesses of the past and the comeuppance of the past few years have an opportunity to emerge stronger than ever, build partnerships with their clients that are deeper and broader than those of a decade ago, becoming managers of the brand reputation as well as producers of commercial messaging.
“I think the change is going to be so dramatic that in the future there won’t be any such thing as an advertising agency,” says Thomas Eppes, president of Price/McNabb, a North Carolina advertising agency that has already reinvented itself around the ideas promulgated by a school of marketing academics from Northwestern University, and who uses a variety of terms to describe the process he believes the industry must embrace: relationship marketing, reputation management and, most commonly, integrated marketing communications. “We have begun to refer to ourselves as a communications company, and that might change because we are getting involved with our clients’ business in ways that go beyond communications.”
The starting point for the revitalization of the business, clearly, is a reassertion of the power of brands.
“Of all the things that your company owns, brands are far and away the most important and the toughest,” says Jim Mullen. “Founders die. Factories burn down. Machinery wears out. Inventories get depleted. technology becomes obsolete. Of your three forms of intellectual property protections - brands, patents and copyrights - only one can never expire. Brand loyalty is the only sound foundation on which business leaders can build enduring, profitable growth.”
Branding, Mullen points out, dates back to medieval times, when a craftsman would place his unique stamp, or trademark, on products. Tradesmen who produced beers and whiskies would place their marks on the barrels and the bottles, but the message was the same, that a responsible craftsman or group of craftsmen guaranteed that the goods inside were authentic. Over time, the guarantee of authenticity became something more, a guarantee of quality, in both products and services. And over time, other things became associated with a trademarked product: a combination of letters and numbers like Z28 came to stand for a performance car; a pair of yellow arches grew to symbolize a place for good, inexpensive food; three little chimes reminded people that they were watching a specific television network.
“None of these are trademarks, or labels, or products,” Mullen points out. “But each is used by consumers every day as they are making specific choices about how to spend real hard-earned cash. This phenomenon has nothing to do with graphics or sound or design and everything to do with emotions. Those numbers, arches, sounds and symbols aren’t just cosmetic embellishments, they’re actually promises, unwritten contracts between manufacturers and the consumers they serve.”
Mullen defines the brand as “all of the thoughts, feelings, associations or expectations a customer experiences when he or she is exposed to a company’s name, trademarks, labels, products or the designs and symbols representing with them.”
Definitions vary, but it is clear that a brand at its best is more than its physical manifestation, the product.
“A brand is both a physical and perceptual entity,” says Sal Randazzo, vp and director of strategic planning at D’Arcy Masius Benton & Bowles, in his recent book Mythmaking on Madison Avenue. “The physical aspect of a brand (its product and packaging) can be found sitting on the supermarket shelf. It is mostly static and finite. However, the perceptual aspect of a brand exists in psychological space, in the consumer’s mind. It is dynamic and malleable.”
Randazzo argues that the perceptual aspect of the brand consists of the images associated with it, so that the Marlboro man, for example, creates an association between the cigarettes he is advertising and the great outdoors, the American frontier, rugged individualism and a spirit of freedom. These associations, more than any of the products actual attributes, are essential in leading consumers to choose Marlboro over a competitive brand.
“In forging this association,” Randazzo adds, “advertising practitioners must choose emotional benefits that are both appropriate and credible.” Mullen makes the same point. It is not enough for brands to make promises, he says, they must also keep those promises. The failure to keep many of the promises made by brand advertising in the past has had a devastating impact on the credibility of the ad business, and contributed to a widespread consumer skepticism.