So, the 21st century’s Golden Circle spins faster and harder for the 21st century entrepreneur. Hope flourishes. But what of the demand side of the equation – what about the consumer? How is the circle working for him or her? How does it give them (more) confidence?
In 1961, George Stigler, Noble Laureate in Economics, argued that advertising is:
“an immensely powerful instrument for the elimination of ignorance – comparable in force to the use of the book, instead of oral discourse, to communicate knowledge”.
I love this idea – that advertising creates consumer literacy in what is, like it or not, a consumer society. And it is this direct benefit of advertising to people versus companies that I would personally stress. For, if the stimulation of markets offers innovators hope for a return on investment, it can also give consumers knowledge with which they can make their equally important decisions on how to invest their equally scarce resources of time and money.
Thinking of advertising in this way, we can see that the rise of media choice in the 21st century has helped the consumer make smarter investment decisions. For, if one thing is clear, it is that the rise of new media offers us all smarter ways of securing knowledge and of being consumer literate. As consumers, more than ever before, we can research before we buy. There is more transparency and company accountability than ever before: more reviews, more peer-to-peer advice and more knowledge sharing. Consumers and investors’ decisions are now better informed.
The 21st century’s Golden Circle of Innovation
In his less heroically broad, but nonetheless impressive, contribution to the advertising and price canon, Charles Young of Ameritest starts from a similar premise: ‘The ability to charge premium prices is the reason why businesses that own brands are generally more profitable than businesses that do not.’ Their higher returns on investment (ROIs) in turn then become the future source of advertising funding.
Young then goes on to tease out the different price expectations created by 11 different Tylenol commercials pretested by his company in the US, demonstrating a variation of 18% across them (from $4.05 to $4.81). Noting as an aside that rational information was less strongly correlated to price expectation than any emotional component (in line with Binet and Field’s own findings), he concludes: ‘By overlooking advertising’s role in supporting premium pricing, and the corresponding contribution it can make in support of higher profit margins, advertisers run the risk of underestimating the return they can make on their advertising investment.’
So, although it is rarely deliberately deployed to do so, we must conclude that advertising can support pricing at an individual brand level.
The downside of choice.
The proliferation of choice is good news (in principle at least) for both sides of the circle. But, lest we get too complacent, let us remember one last thing: as I mentioned previously, barriers to entry are falling in nearly every area except one – the consumer’s mind and heart.
Arguably, in a world of over-choice, consumer inertia – the final but critical barrier to entry – gets stronger, not weaker. There is growing evidence that the over-choice that we now enjoy can, in fact, create paralysis; too much knowledge becomes a dangerous thing. In this context, therefore, how we offer knowledge – in a way that creates confidence, not confusion – becomes key.Boyfield nods in the direction of advertising’s deeper and more critical role in inspiring confidence beyond knowledge in three case studies that look at advertising’s role in fuelling demand. Each of these case studies explains how to build that crucial sense of consumer confidence.
From working with start-ups, I have seen that communicating knowledge is too easily confused with this deeper concept of ‘inspiring confidence’. Overlooked perhaps in the excitement of building shiny new tech, there is an almost hidden assumption that a great product will sell itself – a return to the old mantra, ‘Build a better mousetrap and the people will come’. And this sense of self-confidence in the power of the product alone is compounded by the rise of modern media. The mantra can almost be rewritten: ‘Place the information about that mousetrap in better mousetrap media, and surely people will flock!’.
Advertising is seen as an unnecessary cost by some. Indeed, I have talked to venture capitalists who would go as far as banning marketing investments from the balance sheet.
Chief among all is confidence
I fear that these voices have no real-world idea of the challenge of consumer inertia and of what it really takes to create demand. They grab hold of the ‘smart’ part of what is offered by the new media world and forget the clever but hard bit of inspiring ‘confidence’. Of course, it is true that the need to build a product or service that delights has never been more critical. After all, as I say, we have a lot to choose from.
I have yet to meet a start-up brand – and I have met over 150 in the last year – that does not have five or six competitors attacking the same space. There really is no such thing as clear blue innovation water; there is only the fight to occupy a space in that most valuable real estate of all – the consumers’ hearts and minds. And this requires us to not just overcome that last barrier to entry – consumer inertia – but to do so more attractively, more relevantly, and more engagingly than the other brands.
To achieve this advantage (as the cases used in Boyfield’s essay remind us), our consumers need to learn not just what you are, but what you might mean to them: how it fits into their lives, their sense of self, their image, as much as what it does. In my experience, this continues to be more important in an attention-deficit world. In my business, I advise startups to focus on inspiring consumer confidence, in the most cost-efficient way possible.
21st century cases in building consumer confidence
Let’s take three 21st-century brand examples using the same approach as Boyfield did for his original 20th century cases.
Made.com launched in 2010 as an innovative retailer offering designer furniture direct from the producers. Like First Direct, it discovered early on that it needed to invest in shop window advertising (‘made you look’ became one of its slogans) to compensate for its lack of high street presence and give consumers the confidence to be inspired to buy. And relating to my point earlier of all start-ups having competitors in their field, I read with interest Made.com’s announcement of its new £4 million integrated campaign, which they launched in order ‘to stand out in the sector’. An innovative business model does not distinctiveness make!
Airbnb is a great product: it is disruptive and it creates a genuine new consumer need – it is certainly a better mousetrap. But to maintain its hyper growth, it turned unhesitatingly to advertising in 2015 to give people (beyond early adopters) not only the confidence to use it but to see it as more than just a cheap alternative to hotels: to extend its relevance in people’s imaginations as the new authentic way to explore the world, in a way that allows you to belong anywhere.
I love Deliveroo and Just Eat. They serve an obvious and clear need, which means that we easily notice them; and, if we don’t notice them at first, we quickly spot their delivery drivers weaving their way through the traffic. But I wonder who will win my confidence? Which will become my friend, not just my servant? Which will actually become more meaningful in my life? With new players already crowding in, offering distinctive relevance is the key to succeeding in this new market – not simply awareness and knowledge.
All these start-ups have better products or services. All have smart social marketing and search programmes that efficiently exploit the media environment we now enjoy. However, all three are also recognising that, to aggressively grow and leap ahead of the competition – and to do so in a way that adds magic to their smart marketing – they also need to inspire confidence and create an engagement with their audience beyond the transactional.
We must remember – even in the exciting and heady midst of a Golden Circle spinning ever faster – that this true consumer confidence comes from understanding how to create a true and meaningful ‘why’ in people’s lives, as much as understanding the ‘what’. Real literacy means understanding the poetry of words and what they mean, not just their dictionary definition. Consumer literacy is no different.
In short, innovators need to make things people want and make people want things: to build a brand, not just a business. This is how to create a truly virtuous Golden Circle of Innovation in the 21st century. This was true in 1942. It was true in 1992. And it is as true today as it ever was. Long may that virtuous circle continue.
Want to know a bit more about By Nick Kendall?
Nick is an award-winning brand and advertising specialist with over 30 years’ experience. He joined Bartle Bogle Hegarty in 1986. He has worked on new product launches, such as Häagen-Dazs and Boddingtons, as well as already famous global brands such as Johnnie Walker and Unilever’s cornerstone laundry brand ‘Dirt is Good’.
Nick is now a Founding Partner of Bro-Ken and partner in Sir John Hegarty’s incubator, The Garage, which helps start-ups bake in brand ideas from the start. He is also Founding Partner of Electric Glue, an innovative media broker whose aim is to use ideas to ‘glue’ media owner and client ecosystems together. Nick has been convenor of Judges for The IPA Effectiveness awards and author of Advertising Works 10. He also designed and leads the IPA Excellence Diploma, which is described as ‘the MBA of brands’, and remains its Chief Examiner. He is author of What is a 21st Century Brand – a collection of the best essays from ten years of the Diploma. He received the IPA President’s Medal for his services to the industry