One of the best business articles I’ve recently come across argues that our common model of how ads work is wrong. Most of us have internalised the view that ads
work by creating positive associations between the advertised product and feelings like love, happiness, safety, and sexual confidence. These associations grow and deepen over time, making us feel favorably disposed toward the product and, ultimately, more likely to buy it.
But, the blog argues, ads in fact rely on a far more rational audience. The main ways through which ads convince customers to buy products are:
Raising awareness: you may not be aware that there is a product to solve a need you have - the example given in the blog is drain declogger. Ads perform a service in reminding you of products you might find genuinely useful.
A subset of this approach is functional advertising - trying to convince customers to buy your product by raising awareness of its unique/superior functionality.
Signalling: advertisers use ads to send explicit and implicit signals to customers. Explicit: ‘Nintendo games are wholesome’; implicit: ‘we’ve spent so much money to market our product - we’re not a scam’.
Cultural imprinting: this is where the blog breaks rank with the traditional view of advertising. The idea here is that yes, brands do try to create an image for themselves. But the objective is not to create mostly subconscious associations between that image and the brand in your mind; it’s to enable you to use the brand to send signals to other people. If you know that everyone perceives a brand a certain way, and you want to appear that same way, you can consume products from that brand to achieve your objective. Of course, this only works if everyone knows that everyone else perceives the brand the same way.
Unlike the traditional view of advertising, which posits that ads are effective by appealing to our irrational impulses and to our subconscious, this view of advertising considers consumers to be much more rational: deciding to go for a specific brand makes rational sense, if you want to convey information about yourself.
One of the examples the blog gives is Nike: Nike’s brand messaging is all about athletic excellence. In the traditional view of advertising, this creates a subconscious link between Nike and excellence in consumers’ minds, which sways them to purchase Nike products. In the blog’s worldview, the first step is the same: Nike does create a link between its brand and excellence. But consumers do not buy Nike shoes because of Pavlovian conditioning - they buy them because they know everyone else equates Nike with excellence. And so, by wearing Nike shoes, they’re (rationally and purposefully) signalling they value excellence themselves.
I think this is broadly right, and the article deserves to be read. But I don’t think it’s 100% correct. The article considers a number of observations on how ads work in real life, and purports to show that its theory explains them; let’s review them…
Product types
if branding works by cultural imprinting, we should expect brands to advertise themselves in proportion both to the market size and to the conspicuousness of product usage.
In other words, if the cultural imprinting theory is correct, inconspicuous-consumption brands wouldn’t have big budgets. The article gives bed sheets as an example - everyone uses bedsheets, so why don’t we see many brand ads for them? Answer: because few people see your bedsheets, so you can’t send signals with them.
What about fragrance ads though? Fragrance is conspicuous in a way - especially when people pour too much - but I don’t think I know of anyone with an encyclopaedic knowledge of fragrances who can detect the maker by smell alone. Yet fragrance makers spend billions on advertising them.
Or what about fashion more generally? Some brands are increasingly conspicuous:
But many brands that spend a great deal on advertising (Zara, Chanel, Tom Ford, Celine…) have extremely discreet branding.
Or, think of Coca-Cola. What kind of signalling is Coca-Cola trying to enable in its customers with its summer or its Christmas truck ads?
Brands aren’t too faced
The inception model predicts that brands would benefit from being "two-faced" or "many-faced" — i.e., that brands ought to advertise to each audience separately, using whatever message is most likely to resonate with each particular audience, in order to provide maximum emotional impact.
So, why don’t we see more of that - brands that send completely different messages to different audiences? My view is that it’s because it’s too hard to do this consistently. Targeting is nowhere near effective enough to pull this off - plus, doing this would force companies to abandon mass-media ads, which are still effective - not because they create a shared consciousness for a brand, but because, well, it’s a cheap way to reach a lot of people.
Also, this kind of advertising can only be done on digital media; but there, brand advertisers are being crowded out by performance ones. Performance advertisers’ ads lead to direct sales, and so they will almost always have higher (measured, at least) ROI; and hence, brand advertisers will find it hard to compete.
There’s not a lot of personal advertising
If ads work by inception, then we should be able to advertise to ourselves just as effectively as companies advertise to us, and we could use this to fix all those defects in our characters that we find so frustrating. If I decide I want to be more outgoing, I could just print a personalized ad for myself with the slogan "Be more social" imposed next to a supermodel or private jet, or whatever image of success or happiness I think would motivate me the most.
This is a very weak argument - there are a lot of things we know work, yet we don’t do them - we know exercise makes us healthier, or that smoking kills us, yet many of us do not exercise and carry on smoking.
Final thoughts
All this said, the theory appeals to me, because it gels with my view that people are far more rational than it is in vogue to assume these days. For the past two decades or so, behavioural economics and the popularity of books such as Thinking, Fast and Slow and Nudge have led us to think that classical economics that assume a rational Homo Economicus are wrong. But the replication crisis (which has claimed as victims many of the studies that Thinking, Fast and Slow is based upon) has shaken this mini-revolution.
(Personally, though I find behavioural econ fascinating, I’ve always viewed it with suspicion; and my faith in classical economics was solidified when I saw just how powerful prices are. I used to work at Procter & Gamble, which owns some of the world’s strongest brands; not only that, but P&G plays in many sensitive categories where you’d think people would be reluctant to try new products (feminine care, baby care…). Yet even in those categories, the effect price promotions had was incredibly strong - even if we grant the kind of effects predicted by behavioural economics, their size would be dwarfed by the effects predicted by classical econ.
(Fun fact: part of my job was to evaluate and optimise prices and promotions. I came across many promotions that could be tweaked to increase ROI, and even a few promotions that were net loss-making. But I only ever came across one category where promotions would consistently lead to lower sales as opposed to lower profit - that category was adult incontinence (a new category for P&G at the time). I am not 100% sure why this was; my hypothesis at the time was that P&G succeeded in gaining meaningful share relatively quickly, but then stalled: long-time users of P&G’s competitors were reluctant to try a new brand in such a sensitive category - and price cuts couldn’t induce them to do so.
There was one more category where promotions almost didn’t make sense: pregnancy tests. If ever there there were a consumer goods category where you’d expect low price elasticity of demand, that’d be pregnancy tests, right? After all, if you need a test, you need a test. Yet even there, price promotions led to high enough volume increase to offset the price decrease. The caveat though is that this was mainly because of more prominent shelf display. In the UK, there were some restricted shelves that retailers would only give to brands that were on promotion. So offering a price cut was often a way of securing that premium shelf space. In the case of pregnancy care, it was this premium display rather than the price cut itself that led to higher sales.
Btw, if you enjoyed this parenthesis, you might find my post on pricing interesting!
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My view on ads is somewhat in-between the traditional view and the cultural imprinting one. There are three possible explanations for how Nike’s image of excellence works:
Traditional view: there’s a subconscious link between Nike and excellence in our minds, and this causes us to reach for the Nike sneakers at the store isle.
Cultural imprinting: there’s a conscious, shared link between Nike and excellence; what’s more, everyone’s aware of that link. So we buy Nike because we want other people to know we believe in excellence.
My view: there’s a conscious link between Nike and excellence; we buy Nike, not to tell other people we believe in excellence, but to tell it to ourselves.
This last mechanism can be affirming (‘I believe in excellence!’) or inspirational (‘I want to believe in excellence! Buying Nike will help me do that’). Both of these are purposeful - especially the latter. We’ve all come across people who buy products to inspire them to do things - Nike clothes to start running, climbing gear before getting into bouldering, etc etc. We like telling stories to ourselves, not just to our friends - and ads help us do that.
(Incidentally: one thing that bothers me is that many people claim ads are dishonest because they sell a lifestyle, not a product; and that it’s impossible to buy that lifestyle. But this annoys me because people buy products that sell a lifestyle without then making any effort to pursue that lifestyle. For example: my cousin and I were once watching Cafe Society, and she commented what a pity it is people don’t dress like that anymore (in black tie to go to a jazz club). She might be the person who’d be swayed by, say, a jeweller’s ad showing dressed-up people in a speakeasy - because, per my model of advertising, buying that jewel would help her tell herself the story that she’s the kind of person who goes to speakeasies. Then she’d be disappointed because she’d find that in fact she doesn’t go to speakeasies, and the ad was therefore misleading. But going to speakeasies is entirely within her control! There are speakeasies around! And, if you like people dressing up, then when you have a dinner party at your place, ask that people dress up - it’s not that hard!)