Managing Marketing is a podcast hosted by TrinityP3 Founder and Global CEO, Darren Woolley. Each podcast is a conversation with a thought-leader, professional or practitioner of marketing and communications on the issues, insights and opportunities in the marketing management category. Ideal for marketers, advertisers, media and commercial communications professionals.
Jon Holloway is the founder of Zuper Superannuation and here he discusses with Darren the challenges and failures of financial services companies in leveraging the full potential of marketing and advertising to innovate and build their banking and insurance brands and businesses in Australia.
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Transcription:
Darren:
Welcome to Managing Marketing and today I’m joined by Jon Holloway who is the founder of Zuper Superannuation, but this is his latest adventure because Jon’s actually got quite a significant history in FinTech, advertising and marketing and so I thought he would be the ideal person to have a chat with about what’s wrong with advertising and how can we fix it? Welcome, Jon.
Jon:
Thank you very much, glad to be here.
Darren:
Well, what is wrong with advertising?
Jon:
That’s a massive question. Where do you even start with something that big? Talking about my history for a little bit –I started running my own businesses, creating products and services, then kind of fell into marketing and advertising and advertising agencies and am now back building products and services again.
And so, coming full circle again with advertising in my soul.
Darren:
It’s been ingrained into you.
Jon:
Having worked, putting my own money on the line to create businesses using other people’s money and then being an agency and kind of doing all of those things has been an interesting journey.
I think the major problem with advertising right now is we seem to have lost our marketing nous. Marketing is a thing. Advertising is part of that.
Darren:
That’s right.
Jon:
My general view and it comes from a lot of the stuff I write is that advertising people have not been particularly good marketers and marketers aren’t particularly good marketers. So, when you get these two kind of forces together what you create is this symbiotic lack of reality which is advertising.
Darren:
I just want to challenge you there because I think a lot of marketers are not good business people as well.
Jon:
I’ve not started on business. My view of where we’ve come from is years ago marketing and product used to sit next to each other, almost connected to each other. Pulling those two pieces apart, pulling advertising and media apart has taken the marketing person and the agency another step further away from the product, so that what we see right now is we’re not getting great products, we’re not getting great marketing and we’re not getting great advertising.
That whole construct of marketing people understanding business and then what the industry is asking advertising people to do, which is to solve business problems, is something which has been fundamentally outside of the category for thirty years. You don’t find many marketers or advertising people who have a product understanding or have an understanding of how to build a business and how to take that to market.
They’re stuck in this realm or this sphere of advertising, which is ‘we will create something which sits somewhere and someone will see–it’s communication—not necessarily taking a great product and taking it to market in the best way possible.
When marketing is reduced to being just promotions
Darren:
I think one of the great smoke and mirrors or shell games that the industry has played on itself is when we separated, as you say, product from marketing to then say, ‘well this is still marketing’ when in actual fact what it became was the promotions department.
You go to the four Ps—what was left was the promotions and then the only obsession was with media and advertising as the tools of promotion but it still called itself marketing.
Within organisations, like banks for instance, (because you have a history and experience with the finance sector) pricing is done over here, product development is basically what are our competitors doing and how can we mimic that and make it maybe slightly better in one way to give us distinction or differentiation? And all that’s happening in a separate part of the business from the marketing, which is actually the promotions department.
Jon:
Well I thinking banking is an interesting (especially in Australia) industry because the only differentiation between the big four banks other than who else they own is the brand. It’s the bit that goes out to market. The underlying products are generally the same.
Darren:
The colour of their logos—they all manage to get blue, red, and black, yellow and black.
Jon:
They’ve done a great job of differentiating the colour spectrum. Australia is a very forward thinking financial industry in itself but the differentiation between themselves is not particularly big. Actually, the banking industry is not a bad marketing organisation; they’re not poorly put together and they have a lot of money to spend, which helps. If I have to see another NAB more than money kind of ad again.
It’s intriguing, especially in FinTech, the idea is to create a product that is fundamentally different, that will garner an audience and then you take it to market in whichever way is the most cost effective. That’s what marketing is. It’s product to most effective way to market. There aren’t many start-ups that are thinking ‘how do we spend money on media and advertising from day one?’
It’s how do I get from me, Jon, to you, Darren, in the most cost-effective way and get you to do what I want you to do? That’s what marketing is and I think what we’ve done is just confuse that by starting (and you can see it with most of the big clients especially in Australia) at the other end, which is how do we talk to as many people as possible? How many eyeballs can you get through what we’re trying to do?
And I’ve seen briefs across four different agencies in this country from multiple industries and they’re all the same.
Darren:
But isn’t that because the only levers they’ve got left to pull are the ones that are based around promotion? Which is either media: how many people, because they’re not differentiating or making themselves distinctive in the product development in the first place.
I mean, if I get one more email or letter trying to sell me another credit card… How many credit cards does a person need? Let’s focus on financial services. With consumer goods marketing, especially in this country, becoming less and less, financial services have become such a dominant presence in the marketplace and the thing that gets me is they all use the same techniques.
To get me to take a credit card with them—‘oohh I can bundle my existing credit card, take the balance across to them and get it interest-free’. What do they think that says to all of the customers that have got that credit card already? Beause I’m not getting my balance interest-free.
Jon:
Who does it bring into the credit card is kind of interesting? What it brings in are people who are looking for a deal. You give 18 months as ANZ, and then the next time Westpac give an 18 month what do they do? They switch almost immediately. What we’re not doing is thinking about the behavioural economics of what we’re doing from a marketing point of view.
Credit cards is a fascinating industry, one that I’m playing with right now on another product that I’m creating.
Darren:
Any of them—sorry, Jon, but home loans—it’s all the same thing. It’s interest rate and can I draw down on my home loan? I mean it’s all very basic product development—there’s nothing new. There’s nothing innovative. There’s nothing that’s really consumer focused or customer focused. It’s all just the same things over and over again, which is where you would want marketing to work really hard to give you some sort of distinction in the market place.
Failure to understand or align to the customer
Jon:
They’d have to change and start by understanding the customer and fundamentally marketers and advertising agencies are not built to understand the customer. They’re quite good at doing surveys. They’re quite good at doing focus groups all of which tell you nothing other than what you want it to tell you (sorry to all market research companies out there).
But actually, truly understanding human nature and understanding the behaviour of people and what they want, is something that brands aren’t particularly good at because you don’t want to know the answers.
Financial services is a dichotomy of humans who don’t want to pay for this because they think it should be free and huge banks making huge amounts of money for their shareholders and for hiding fees or charging for things they shouldn’t charge for.
For historically forty years of poorly put together businesses and any of the big banks you walk into they are so siloed. You think of credit cards and home loans and all these kinds of things that should inherently work together and they don’t.
Darren:
They are absolutely siloed. Every major financial institution that you could name does not have a customer-centric approach to market. They have a product-centric approach to market and yet you say about knowing the customer. If you want to know a customer they say look at their behaviour. Well who is holding all of my transactional information for as long as I’ve been a customer with that particular brand?
Jon:
Holding it for ransom as well. But that idea of building a financial organisation is such a hard thing. If you think about how big someone like Comm Bank or Westpac truly is they would have customer data bases across multiple platforms that have been built over thirty years from IBM to Oracle to all the big players in the market with all of these huge data streams that just don’t talk to each other …and legacy systems.
If you started a bank today, we’ve seen quite a lot in the U.K – neobanks – and a few in America (not quite as many) but they build them on lightweight platforms that all stick together in one place that have a complete customer-centric view so the customer sits in the middle with all of the products and services and interactions working from them.
To take someone like a Comm Bank and turn it into that, which they are essentially trying to do, is a huge, huge undertaking and customers pay for it. They pay for it all the way through.
But you look at it from an outsider’s point of view and you go, ‘banking?’ You look at the profits being made by these banks and the shareholder returns—it’s a fascinating market, which is why FinTech has been such a big boom and why FinTech in Australia has been such a big boom because everybody believes they can solve the problem.
They don’t understand the regulatory issues, the competitive nature, the ability for any of the big banks, any of the big six if you include AMP, to outspend you and outdo you in whatever way you want to do it—not clever marketing, not clever product just power.
And the Four Pillars agreement that protects financial services in Australia just needs to be unwound. There are a lot of people on the edge of the industry who are just waiting for the Royal Commission to pull this whole thing together, pull it apart, because if you take the main route to market for things like home loan is brokers.
Financial advisers don’t have the best reputation in the world and not servicing a whole generation of people who just don’t want to go and speak to some old guy who sits in a room and gives them advice based on whatever that guy thinks is right for them.
So, there’s a ripeness happening and the FinTech thing hasn’t really kicked off. There’s a lot of money going into it. There’s a lot of people playing in it.
Darren:
Well especially, globally isn’t there? FinTech in the U.S for instance, is a huge category and a high level of investment because they have a highly competitive market there. I mean it’s interesting the Australian market because it was actually Paul Keating that deregulated the banking sector back in the 80’s and then it was Kevin Rudd in 2008 that in many ways brought back protection after the Global Financial Crisis (global recession) that really protected the big four again and went back to giving them the mainstay of protecting the economy.
The focus on retail offers and not superior customer experience
Jon:
Absolutely. I’ve been in Australia now for five years. The first thing I noticed within the first couple of months is how retail driven Australia is. Every single category is retail and when I say retail it doesn’t matter if you’re FMCG or not you’re trying to sell things. And every single thing you do, your communications is sale, sale, sale. And there’s only one route for that and that’s a route to the bottom.
Everyone goes for the lowest common denominator and you get, ‘we are 4.89, we are 4.79 and we are giving you 20% of your insurance, we’re giving you 22% of your insurance and all of that just becomes white noise to people, consumers (horrible word) to normal humans who have access to all of the information they need to make the decisions they need to make. They are time-poor; but they’re not stupid.
Darren:
Which is why we have seen the rise of the iSelects and the Choosi’s to come in and demystify, supposedly, but all they’re really doing is working on behalf of the banks and insurance companies to just collate the offers and re-present them in a way that is maybe a bit more consumer or customer friendly.
Jon:
But having to create a platform to make your products more consumer friendly is pretty funny in itself. They do create competition but all of those platforms are based on a commission business. They sell you a policy they get paid by the insurer to be able to sell that policy on. Why can’t the consumer have that as a discount rather than paying it to those guys if the insurer has got their act together to sell the product right in the first place?
Insurance is fascinating. I started life in insurance back in the mid-90’s. It hasn’t changed in 20 or 30 years (that’s how old I am). And that’s the next market that is going to get torn to pieces. But it’s really interesting now being back in that FinTech world because when I first started FinTech wasn’t a word it was just a business that you created with no money and tried to bring it to market. Now it’s a thing.
What I’ve found is all of those FinTechs, especially when you go around Sydney and you go to the FinTech accelerators they’re really bad marketers, really bad marketers—great financial people, great product people, great start-up people but lack the marketing knowledge to get product to market.
So, it’s kind of interesting when I’ve got a lot of VC friends and people now I’m connected with who are looking for start-up businesses that have marketing at the heart of what they do.
Darren:
Because if you have marketing at the heart you have your customer base at the heart of your business idea. Isn’t that where marketing is meant to operate?
Jon:
It’s fundamentally what the definition of marketing is.
Darren:
Technology allows me to build anything I like but shouldn’t I be building something that the customer is going to find useful, interesting, attractive, whatever it is that is going to make them use it?
Brand campaigns become words and not actions
Jon:
In financial services it’s so fascinating because you see all the big brand campaigns and there’s a couple of big bank brand campaigns at market and you see them on Facebook, they take their TV ad and they put it on Facebook, they take a minutes and turn it down for 30 seconds (that’s doing social for banks).
Then you read the comments underneath of the customers and the haters and all of the crazy people that come out of the woodwork on social media and you realise that there is a massive disconnect between the brand and the positioning and what they think they are, which is where the marketing and the advertising agency are sitting—‘we can’ and, ‘we’re more than money’ and all of these kinds of things and you take a look all the way back through to the actual products and it’s like, ‘no, this doesn’t work’.
It’s the same with the Telco’s. It’s the same with all of the big businesses. The difference between customer understanding and customer interaction and what the brand thinks it is, is so disconnected.
Darren:
There’s two brands aren’t there? There’s the brand that’s the retail customer facing one and then there’s the brand that is the investor/shareholder facing one because the thing that amazes me is the quarterly reporting (especially for banks) where it’s splashed all over the media, television, online, traditional press.
Such and such announces record profits (clearly for the investors) and yet the retail customer is sitting there going, ‘and that’s why I have to pay so much for every transaction’ or ‘why it costs me this much to do whatever I want to do with my money’.
So, they haven’t even got it together that the two impact on each other. They have two very different messages going out and they think that the average person doesn’t see them?
Jon:
Especially in Australia where people understand advertising. They understand Gruen and the like, they understand the psychology of advertising. They understand that marketing costs money. They understand that everything they’re seeing is costing them money especially for banking—it shouldn’t be a product-based thing it should be a service-based thing.
It should be something that allows you to be able to utilise your money in the best way possible, but they’re not built that way. They’re built in their silos and I think the only person you can blame for this is the CEOs of those financial organisations.
Can you blame the marketing people? Yes, you can. Can you blame the agencies? Of course, you can. But who’s allowing it to happen? Who’s allowing the company and it’s not just banking it’s all of the big industries who continue to do the same thing over and over again until it no longer works. So much so that people are getting fired.
Because if that doesn’t happen now—if you look at a big organisation—they have their marketing budgets. They create a campaign and it goes to market. They make up their own KPIs. They hit those KPIs. They stay there for 18 months to two years and move onto the next job. And that’s the same for advertising and marketing side. But there’s nobody holding those people accountable.
Darren:
As you said earlier the marketers and the agencies are actually so far away from the decision making of what this is. I remember back in 2006 every CEO of the big four banks had made a statement that year about how the bank was on a journey to become customer-centric. All of them had said the same thing.
Now we’re ten, eleven years later—they’re all still saying the same thing but nothing fundamentally has changed.
Jon:
They don’t understand what that means. Their customer, as you’ve quite rightly said a few times, is not the person who is using their everyday saving account. It’s the shareholder who is holding them by the balls most of the time so who are they focusing their business on?
And truly I see it all the time. We’ve seen digital agencies become customer experience agencies. We’ve seen all this kind of change towards adding the word ‘customer’ and no real change in the way we actually do anything.
Even back to the simplistic things of being able to take feedback from social media from a campaign and being able to action that in some way. Social media is not new. It’s been around for ten years. There are many great people out there who understand this stuff. And they’re not even doing the basics right of listening to the customer.
The role of social media in superior customer experience
Darren:
Customer satisfaction, customer service is beautifully delivered through social media if you do it well.
Jon:
It is. We’re not angry people. As normal humans, we don’t want to shout at our bank. I don’t want to shout at anybody.
Darren:
Jon, I’ve got a great example. I went to the Australia Post at Surry Hills at lunchtime. There were over 40 people waiting and there was one person serving. I just got onto Twitter and I said, at Australia Post, ‘why is there only one person serving during lunchtime?’
I got a tweet back almost instantaneously from Australia Post saying, ‘we’re onto it’ and within three or four minutes the staff – who were having lunch out the back, during peak time they all went off on rostered lunchtime – came and started serving people.
Now, I immediately retweeted ‘thanks very much’ and that was amazing. But you’d have to say if Australia Post, which has not been known for huge amounts of innovation or customer focus, if they can deliver it why do some of our biggest financial services companies struggle with this?
Jon:
It’s really interesting now building a financial services company, thinking about service because service is one of those things that is key to marketing. The real key, the thought to marketing and looking at chat and AI and machine learning and trying to take humans out of the mix but also keeping that human element and looking at ways we can hand over the knowledge to the consumer to be able to do what they need to do but have someone who can step in if needed.
We think we can get to a point where 80 – 85% of all those interactions can be handled by the person themselves because nothing is really that complicated unless something goes really badly wrong with what you’re doing then you always have to have a person who can help with that.
With thinking machines or pattern matching machines as they are right now we can actually get to the point of 5 or 10 people having the same problem we can fix that both from a service point of view (either a customer problem or an interface problem) or it’s a backend or system problem we can make sure that gets fixed.
Darren:
This is all marketing, isn’t it?
Jon:
It is.
Companies actively diminishing the role of marketing
Darren:
Yet marketing is often seen as this service provider hanging off the end of the business rather than being integrated into this whole transition from brand, the idea of brand, to actually building brand through the customer experience, through actually designing and managing an experience that is specific to a brand.
Jon:
RGA where I spent the last two years—one of the key things they talk about with brand, is interfacing, the fact that in the modern world every single interface with somebody whether they’re digital or not is your brand. But going further beyond that every single touch point with the customer is the marketing plan you put in place.
Everything you do from the signup process to the interface you create to the customer service to the loyalty and rewards to the communications and then out to the advertising world is kind of it’s over there.
But most of the good work you can do right now is within the realms of what you do as a business and how you serve its customers; how you on-board them and how you service them.
Advertising is quite good in some cases to get people in to be able to on-board them. It’s quite good for reminding them you still exist. It’s quite good for building brand awareness and credibility and all those kinds of things.
But it doesn’t solve business problems and I think a lot of people have confused this especially with this consultancy versus creative agency war that’s going on right now. It’s not a war…
Darren:
If you believe the trade media it is a war.
Jon:
It’s a power struggle and the power struggle is going to get won by the consultancies and if it is a war then the agencies are done but it’s not a war because agencies are now transitioning. It’s kind of funny watching it from an external point of view.
Even when I was in the industry itself I was still a bit of an outsider because I never really drank the advertising Kool-Aid. Everything I write about is poking the bear, is trying to find the holes and poke the bear and some of that’s obviously for my own gratification but some of it I do actually fully believe the change needs to happen.
And seeing this play out in creative agencies saying, ‘we’re going to become a consultancy’ and consultancies buying agencies—we’re still not solving the problem which is if I am a business I need a service that’s going to help me to exist in a world that I just don’t understand.
Darren:
Except that I see that they’re solving their problem and their problem is that they are getting less and less share of the marketing budget or the company’s budget. Marketing’s getting less share of the budget.
We’ve had over a decade of downward pressure on marketing costs because the CEO and the CFO want to spend less on marketing because they don’t see any return on that investment and so marketers have got less.
They’re under pressure to do more with less and then all these specialist agencies — you mentioned RGA — categorised as the digital specialist — where did that leave their traditional creative agency and their media agency and every other agency.
So, they’re all competing with each other and their solution with the problem of getting less and less and being less relevant is to expand their offering—‘we do consultancy—we’re not just creative, we do technology and digital as well — we can solve everything’ and in the end the marketer’s sitting there completely confused because no one’s actually talking to the real problem, which is how do you make marketing more relevant to the business?
Jon:
How do you make it more relevant and how do you actually do more with less or how do you change what you think your outcome is going to be? Leaving FMCG markets to the side because I think they have, and advertising aside, which I think they just have a problem, which is unsolvable, which is complete me-too products and all those kinds of things that have just overtaken the supermarkets.
Darren:
Also, they’re limited in their ability to respond to the marketplace because of manufacturing anything, but that’s why I love the services industries and especially financial services because they can respond very quickly to the needs of the marketplace.
In fact, you can innovate the marketplace with technology, as Steve Jobs said, ‘don’t give people what they ask for; give them what they really want before they even know they want it’. That is the great opportunity that great marketing allows you to do when you control product and pricing and design.
Jon:
Isn’t that the point of the marketers though? Not to be Steve Jobs because no one can be, but the idea that most marketing budgets are set year before. Most people are repeating what they did before. ‘We did a home loans thing this time last year. Let’s do another home loans thing this time next year.
Darren:
Every spring time.
Do we need to rethink marketing or business?
Jon:
It’s fascinating to see that, but is it actually unsolvable? The question you asked me when I came in is ‘what’s wrong with advertising and how do we fix it?’ Do you actually have to fix it? Because if we keep putting Band-Aids over all this sort of stuff and we have mouldy agencies and we have media agencies that are now creative agencies and consultants who are going to come in and solve all the problems of the world but what it’s not doing is making marketers think.
It’s not making companies think and it’s not allowing CEOs and the leaders to restructure their businesses because that’s the actual thing for big corporations and medium-sized corporations is to restructure themselves. Not having marketing teams and not having product teams and not having these kinds of siloed approaches to things that create more silos underneath but to rethink how you are as a business in today’s world.
It’s been really interesting seeing some of the really successful start-ups, both here in the U.S and the U.K and how they’re structuring themselves. They’re structuring themselves around the customer. What are the needs of the customer and how do we create a business that’s going to service that? What technology can we put in place to allow them to have an easier life and how do we take the friction out of their lives?
Airbnb and things like that are taking friction out of people’s lives. Some of the biggest brands in the world—Taxi—biggest brand in the world is now obsolete. Hotel—another huge brand—obsolete. These things are being taken apart by different organisations with different needs. So, it’s quite interesting now watching Uber become a big corporation with all the issues they have, which are kind of self-induced to be honest but that allows someone else to now come in and see if they can take on Uber and all those kinds of things.
Darren:
It’s interesting because the examples; hotel, taxi, retail with Ali Baba or Amazon all of those examples every consultant from IBM to Accenture put up all the categories that have been disrupted and of course everyone jumped on the bandwagon saying, ‘oh we can either help protect you from disruption or we’ll help you disrupt your category’.
Jon:
And neither of those two things are true.
Darren:
That’s right.
Jon:
From my knowledge I cannot see any incumbent who has disrupted the industry themselves and I haven’t seen any consultancy or agency be able to help anyone disrupt their industry.
Darren:
A CEO explained to me, ‘I can’t disrupt at the expense of all of the infrastructure and all of the investment that I have here’.
Jon:
Protectionism.
Darren:
Yeah, because disruption — the fear is you’ve got to kill the cow to start again. And they don’t want to kill the cow because it’s better for me to hold onto and manage a shrinking share of the market than it is to give it all away and start again.
Jon:
Do I take 1% decline for ten years or do I take 50% tomorrow?
Darren:
There are so many brands that are very successful just managing the decline and they get to the point where they don’t even bother with any sort of advertising to support the brand anymore because it’s irrelevant.
Advertising is great at actually building awareness and maybe building demand but to actually minimise loss it becomes self-defeating.
Transforming the role of creativity in business and marketing
Jon:
It’s fascinating seeing consultancies businesses, agencies, and start-up accelerators, and all of these businesses that have become those things that are going to bolt onto your current business and transform you into something new.
Every single one of them fails miserably around the world because you’re Bank X and you have Accelerator Y they create great products and you try and instil that back into the host organisation and it either rejects it or destroys it.
You see that with a lot of the consultancies who’ve bought creative agencies things. They’ve actually brought them in and almost destroyed what they were in the first place because they had to fit in with this much more rigorous scheme of doing things.
Darren:
If there’s one area that would be interesting it would be how do you bring creative thinking beyond just creative thinking to write a nice TV ad or to do an award-winning communications campaign?
But there are some great creative thinkers in the industry: people hiding out in agencies and parading around Cannes on the Cote d’Azur drinking their rosé and the like but there are some great disruptive thinkers among them who are using their talents to write ads.
How do you bring that thinking into organisations?
Because it seems to me that’s the type of thinking that could be useful in either a start-up or a company that does want to transform.
Jon:
Look at where everybody is leaving advertising right now. It’s either because they’re sick of what they’re doing, they don’t want to be surrounded by a lot of people creating ads and they are either going to start-ups or they’re trying to get a job at Facebook or Google—they’re doing something else. The industry is haemorrhaging talent, the talent that could change it, on a daily basis.
Now what you’re talking about there is either trying to instil that into big organisations, which is really hard.
Darren:
Well the culture will kill it.
Jon:
Comm Bank is probably one of the most innovative companies we have in Australia and even they’re struggling to really and truly innovate and really and truly disrupt themselves. They’ve got some great products but when it comes to advertising…
If you could find a way of putting together the craziness of those people because somewhere between consultancy strategic thinking and chaotic creativity of creative agencies is something that could solve some really dominant problems.
We have to redefine what creative means because in advertising creative means someone who makes an ad and a lot of people will disagree with that but it is actually — 90% of creative agencies output is an ad of some description.
Darren:
And still what takes the focus of award shows — it’s about the ads, the communications campaigns that get awarded.
Jon:
The really truly innovative stuff that comes out is normally made for campaigns as well and is not truly going to be useful for anybody. But what we’re talking about there is dismantling an historical view of what advertising agencies are.
We’re starting to see it happening now with a couple of things like Wolfgang where people are leaving agencies and setting up new agencies but you’ve got two creative directors and a strategic guy from a creative agency, they aren’t suddenly becoming the future of consultancy and business changing problems.
Awesome that they’re going to try and do it but perspective is what makes these things happen. The ability to bring in new and different thinking and to bring in people who’ve never worked in advertising, who’ve put their own money on the line, who’ve run their own business, who’ve had to solve a customer service problem—all of those sorts of things are what help businesses.
I’ve been thinking about it for a while because I think there is a hole appearing for something else to exist, which will be whatever happens after the great famine of advertising that might happen over the next two years—which it needs. It’s almost like a Noah’s ark event—we need that kind of washout of everything that is no longer viable or feasible. Something will sprout.
The need to move from cost to value in business and marketing
Darren:
Personally I think advertising still has a foreseeable future because there are still enough of those large organisations that can only operate on that basis. I think that the single biggest issue that it has from my perspective (and it’s probably because I’ve spent 17 years looking at the financial models of the agency world) is that they’ve just got it all wrong.
I mean it’s all about cost of inputs and none of it is about the value of the outputs. Everything is sold on an hourly basis and it’s just a ridiculous way for a creative industry to work. There are no other creative industries that remunerate that way. It’s about value created.
Jon:
A Picasso would be worth a total of 50 bucks not multiple millions. Your point is kind of interesting talking about the shrinking marketing budgets which are shrinking advertising budgets. We’ve got advertising people whose salaries are rising at a rate which is higher than most industries. The 18 month to two-year tenure of advertising people is actually to boost their salaries in most cases. You can get 10, 15, 20% more every two years flipping that out.
At some point, that cost basis of this is how much we’ve got to spend versus how many people it takes to run an advertising agency because you’ve got ridiculous layers of client service and production and strategy and creative and all the other stuff that is built to run head hours. So, you can have five head hours on a job rather than just an output of some sort — it’s kind of interesting.
Darren:
But I see it purely from a pragmatic financial perspective. What I see in agencies is people flip until they get to a point where the industry no longer supports them and so you go and find something else to do or you accept you’ve hit the financial glass ceiling and you sort of drift off to one side.
People say, ‘oh, it’s ageist—all the experienced people’. Yeah, the experienced people do leave agencies because the business model won’t support it anymore. And it’s interesting for me seeing agencies started by those senior people in an agency that could be earning six or seven figures and then they start up their own small agency and expect to earn that sort of money.
It could be for many of them the first time they’ve ever had to actually run a business and worry about things like the P&L and the cash flow to actually justify keeping them in the lifestyle they’ve become accustomed to in a big creative agency.
Jon:
That whole idea of executive creative directors and executive strategy directors, which is taking people who have no business acumen and really have no commercial acumen in most cases and adding them to a board who runs an agency, is fundamentally just what you’re talking about there, which is they needed another level so they created another level.
Darren:
Creative chairman.
Jon:
It’s an industry that sets itself up to be ridiculed and the biggest problem with all of that is the talent. If you are an amazing young person are you going to say I want to spend 10 years in advertising to become a creative chairman and I might earn half a million, three quarters of a million whatever it turns out to be or are you going to go and be somewhere it’s truly creative and you can actually make a change and you can actually do things rather than be art director bot three at the bottom of a rung of 100 people above you?
It needs a change but I think the change has to come from the marketer’s side because, you’re right, there is enough money and enough businesses to keep that status quo going for ever and a day because these people won’t change and the agencies won’t change because the networks will keep going and building agencies for the big clients—there’s no doubt about that.
Darren:
We’ve been talking about financial services and you’ve said some of this blame for the marketing situation resides with the CEOs. Some of it resides with marketers because they’ve allowed themselves to be drifted down into the promotions area.
It’s interesting just as an aside on that—the best marketers that I deal with are the ones that do have P&L responsibility and do have product and pricing as part of it so they actually still are what I call true marketing functions.
Jon:
They have some sort of control.
Darren:
Yeah, and then the agencies, which have for years under the commission system all they had to do was encourage their clients to spend more and more on advertising but in a model where marketers are wanting to spend less and less or do more with less the agency business model is basically self-annihilating.
Jon:
A lot of what I’ve been saying over the last three years is not because I want to poke fun at the industry. It’s kind of easy to do but I want to try and make someone think. If you can make a couple of people think and then another couple of people think then hopefully a debate can happen but that debate doesn’t happen because the control in most marketing and agencies is by the people who have too much to lose to be able to have that debate.
Darren:
You said make someone think. I was reminded of Dorothy Parker. She was asked to use the word horticulture in a sentence. She said, ‘You can lead a whore to culture but you can’t make her think’ and I think that’s probably appropriate here.
Thanks for joining me. We’ve run out of time but it’s a fascinating topic. I have got one last question: so, what’s your favourite ad that you’ve seen recently, Jon?
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