The FCB Grid and its flipside

A while ago I talked about different views on how advertising works. Personally, I've never believed in a single theory, people evaluate different products differently. They also evaluate products differently depending on where in their product evaluation cycle they are. So, for instance, household cleaners are advertised informatively, while facial soap is sold with brand ads. Car dealers prefer informative advertising while car manufacturers prefer brand advertising.

One of these so-called 'integrative models' is the FCB grid, developed at Foote, Cone & Belding (now Draftfcb) and written about by Richard Vaughn*. This model divides goods and services into four categories, along two axes: the Think/Feel axis, and the High Involvement/Low Involvement axis.


Vaughn makes interesting generalizations about how marketers should address the consumer decision process in each of these four quadrants**. But those are sort of boring, so I overlaid my vague and general idea as to what marketing approaches work, instead.
On the internet, WOM is social media marketing. Direct Marketing is lead-gen and email. And sales promotion is couponing (among other strategies.)

I think this framework is also somewhat helpful in thinking about the various ways to help consumers find the right product (as opposed to selling it to them.)
Personally, I'd like to see a lot more articulation on this last. Helping consumers find the right product will turn out to be a lot more fruitful over the next ten years than figuring out better ways to sell them one.

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* Vaugh, Richard (1980), "How Advertising Works: A Planning Model," Journal of Advertising Research, 20 (September/October), 27-30; and (1986), "How Advertising Works: A Planning Model Revisited," Journal of Advertising Research, 26 (January/February), 27-30. Sorry, no link.

** Later refined by Rossiter and Percy: Rossiter, John R., Larry Percy, and Robert J. Donovan (1991), "A Better Advertising Planning Grid," Journal of Advertising Research, 31 (October/November), 11-21. Again, no link. Academic journals suck.

Being allowed to make your own decisions, right or wrong

There was a fairly banal column over at the New York Times last Friday, complaining about being condescended to by a bank "customer service" rep.
“Did you want to add him to the account, or open a separate joint account?” she asked.

“We’ve talked about the options,” I said, giving my husband, James, my secret “not again” look, “but we’d just like to add him to this account.” I smiled pleasantly... “Are you sure?” she pressed on... I assured her that we had considered it and decided to stick to the original plan... She sat back a little in her chair and gave me a half-nurturing, half-scolding tilt of the head. “What would your mother say?”

I went on to read the comments, thinking there would be unanimous annoyance at the bank. Instead, there were an awful lot of people saying that the bank service rep was probably "right" and implying that being right was more important than respecting the customer.

I find this directly comparable to the claims by various boosters that they are doing consumers a service by placing relevant ads in front of them. The idea that someone else is determining what is right for you, based on incomplete knowledge about your situation and your decision process does not seem like an advantage for the consumer. It may sometimes result in a better match between consumers and products, true. But it will always impinge on the consumer's autonomy. I think there needs to be some greater good than slightly better product matching to justify this as a net increase in welfare.

Clearly, if the people advocating the benefits to the consumer of ad targeting believed it, they would instead be advocating better tools to help the consumer choose, not a process that is best adapted to targeting the most persuadable, rather than the best fit.

There are advantages to ad targeting, for the advertiser certainly, and for certain media outlets, but not for the consumer.

Pennywise

I was with my friend Josh today as he pitched a really smart investor on his new company. The investor, as per the script, started picking holes in this and that. Mostly silent to that point, I interjected something to the effect: "this is a pretty cheap option on changing the world."

What is it with VCs?

Eliminate Advertising

I was rereading one of my favorite books last weekend, Reinventing the Bazaar: A Natural History of Markets, and came upon this:

Entire sectors of a modern economy are devoted to organizing transactions. The retail and wholesale trades and the advertising, insurance and finance industries exist not to manufacture things but to facilitate transacting... Innovating in any of these sectors means discovering a way to reduce the costs of transacting.

The point of marketing is to to spread information about products and services so that buyers can find sellers in a way that maximizes their welfare. Marketing has two goals: (1) match buyers and sellers as well as possible, and (2) do that as cheaply as possible.

A lot of the entrepreneurs I talk to are building things to help marketers find more customers, goal 1 above. It's interesting, although I'd love to see more of an emphasis on matching buyers and sellers more efficiently, rather than just trying to get peoples' attention.

But the blockbuster companies are the ones that make progress on goal 2. Innovating means discovering a way to reduce the costs of transacting. Someday, somebody will discover a way to do away with advertising altogether, reducing that particular cost of transacting to zero. That company will be bigger than Google.

[Addendum: More here.]

Away from witnesses

My favorite thing about this blog is that many of the readers are practitioners. People actually out making money by using marketing to sell products or generate leads.

I spend a lot of time daydreaming about the future, and one of my primary heuristics is a belief in progress, that things will become better, faster, more efficient. Others call it wishful thinking. But when I get out on a limb, the practitioners pull me back in (or, oftentimes, push me off.)

I spend a lot of time talking to very early stage companies, and they have world-changing ideas, but often don't really know what the world looks like in detail right now. And how could they? They aren't in business yet. So without feedback from the people who are actively engaged in actually doing the work, I would lose touch with what is feasible, practical, economical and as-yet-undone; things the "official" numbers and mainstream blogs obfuscate or simply don't understand. This is a trap I think a lot of investors--professional VCs more than angels--fall into.

At about the same time I posted on AdMob/GOOG, so did my friend Niki Scevak. Niki's POV is different than mine about the deal.

I think that for the smartphone ecosystem to succeed, there needs to be advertising to support mobile media. Since there needs to be advertising, somebody will find a way to make it work. But I don't know how--if I knew that, I'd be starting a company right now, not investing in other peoples' companies.

Niki looks at mobile advertising and says it's not going to work. There's no point, he says, because advertising supports commerce. Online advertising supports online commerce; mobile advertising will support mobile commerce. In supporting mobile advertising rather than commerce, GOOG has put the cart before the horse.

The interesting thing to me, in talking to people like Niki, is the tension between what is possible today and what I think the world will look like in three years. Getting from here to there is what makes this business exciting.

The fight is won or lost far away from witnesses--behind the lines, in the gym, and out there on the road, long before I dance under those lights. -- Muhammad Ali

AdMob, Google, Apple

Along with everyone else, I've been pondering the Google acquisition of AdMob. Some thoughts:

• Google needs to be in mobile hosted media; Apple's early move towards owning that space had the potential to sideline Google. Apple owned the customer. Thus Android and now AdMob.
  
• The mobile platform that is successful long-term will depend on the media available on it.
• The success of mobile based media relies to a large extent on the economics of advertising both on the devices and by tying the user of the device to their web presence*.
• The companies best positioned to improve these economics are Google and Apple. Among other reasons, because only they can tie online and mobile behavior of a large portion of mobile users through their control of the iPhone and Android app stores.

I think the upshot is that Apple needs to do something soon. As someone smarter than me said today, Apple has no advertising DNA. They either need to start hiring ad people**, and I hear nothing to that effect, or they need to buy something. Not necessarily an ad network, but something that gives them a means to extend the advertising ecosystem on the iPhone***.

But, PLEASE, don't take this news to mean that you should run out and start a mobile ad network. After the huge valuations put on web ad networks in 2007 (Doubleclick+Google, aQuantive+Microsoft, 24/7+WPP) there was a rush of company-starting and venture-funding that has, by and large, come to naught. By the time Google buys something, it is already too late to start a me-too competitor. Waaay too late. Build for three years from now, not for yesterday.

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* Both web retargeting based on mobile media usage and mobile targeting based on web usage will be extremely effective once they are available. The privacy implications of this are... interesting. But I'm not going to open myself to entirely valid accusations of hypocrisy by passing judgement. Others can do that more effectively.

** Meaning people who understand the new math and operations behind advertising. Not creative folk.

*** 16 C.F.R. 255: I have an investment in one, natch.

VC Investment Amounts

When I can't sleep, I play with data. It's like meditating.

The National Venture Capital Association recently released their latest venture investment numbers for the US. On their web site, they use the annoying iChart gadget. Annoying because as you scroll backwards and forwards in time, it adjusts the x axis, so I can't really compare amounts across time. Why would they do that? Are they mad? I'm going to send Edward Tufte to beat them over the head with Javanese railroad timetables.

Anyhoo, so I took their US regional data and charted it more congenially (click on the charts for larger versions. I graphed the three largest regions, Silicon Valley, New England and NY Metro. Here is total investment: I've heard a lot of talk recently about New York having a startup renaissance. My Boston VC friends have meanwhile been bemoaning how quiet Boston is, and living on the Acela to NYC. The data does not support this. New England may be a bit ghost-towny, but NY isn't taking off.

Let's look at number of deals:

Same. I mean, I don't have access to the NVCA database, just their publicly released data. If I did have access, I would do this analysis with early-stage internet companies; that may show a different story.

Average deal size:

This is interesting mainly because it shows average investment size to be about the same from region to region (although NY is noticeably more volatile, while Silicon Valley less so--probably because there are more deals.) I find this surprising, given the different character of industry in the three areas. I wonder if this is a product of the VC model, as opposed to actual business capital needs: the tail wagging the dog. This is anecdotally so, and certainly not a good or efficient thing if true.

The other interesting thought that came up was the big drop in investment Q1 and Q2 of this year and the slight pick-up in Q3. I thought this was happening, as I noted in Is the Time for Angels Passed? Here's the proof. There are many potential reasons for this, but the most obvious is that VCs invest when they see the economy getting better. Here's a graph of Total US VC Investment (left scale) and the S&P 500 (right scale):
Well, now. Aside from a bit of the euphoria in 2000, VC investment tracks pretty well. In fact, it looks like it may lag a quarter or two. Why is this? Leaving aside the canard that venture is uncorrelated, venture investment lifecycles are not the same as public company lifecycles. You might invest in IBM this year, expecting them to raise their dividend next year because of the improved economy. But you shouldn't invest in non-public companies that way. You should expect your venture investments to mature in three to five years (depending on the stage at which you invest.) Unless you really don't believe in the business cycle, the best time to invest is when the stock market is low. Venture investment should be counter-cyclical. Is this a case of a buy high, sell low mentality, or another structural failing of the VC model?

I can see the Empire State Building out my window. When they turn the lights out at 2am I know I'm going to be tired tomorrow.