On marketing, endogeneity, and Wanamaker’s Dilemma
|Nov 13|| 4|
Rick Webb (RLW) used to be my boss (and Colin’s too) during our time at The Barbarian Group, which he co-founded. He is a prolific writer, thinker, podcaster, and consumer of media. He’s also the only person I’ve ever met who thinks and speaks in bullet points. We’ve been bothering him for months to write something for us and we finally broke through. Thanks Rick! - Noah (NRB)
Rick here. For nine years or so, I have been reading virtually every advertising economics paper written in an endeavor to write the authoritative book on the economics of advertising (while I haven’t managed to sell this book to a publisher, I did manage to get several pieces out a few years back for NewCo).
From a research perspective, all of these studies fall into two camps: The “old school” and the “now”. Old school economics papers are hugely useful for learning some basic truths about advertising economics—many of them forgotten or ignored in today’s industry. The “now” is, clearly, more relevant to our jobs today as digital marketers. Unfortunately, since the 1980’s, with the symbiotic merging of corporate marketing departments and marketers (our marketing bible How Brands Grow comes out of a corporate-funded research institute at the University of South Australia Business School, for example), getting the “now” research became more difficult. And with the rise of the tech giants, and their formidable in-house research departments, it has gotten harder still.
So it was with some excitement I read a new piece in The Correspondent by Jesse Frederik and Maurits Martijn that spoke to many of the behind-the-curtain ad researchers at some of the most sophisticated tech companies in america. Their conclusion? “Is online advertising working? We simply don’t know.” And, as they point out, few involved have much incentive to figure out the answer.
Why is this interesting?
Though they don’t say it quite this way, the authors explain the problem in terms of endogeneity. Put simply, most digital advertisers don’t know if it’s their advertising or something else that is doing the trick. The article uses the parable of the pizza flyering kids. A pizza parlor has three kids flyering for them. One of them performs way better than the other two: Customers keep showing up at the pizzeria with his fliers. His secret? He distributed fliers inside the restaurant’s waiting area. Noah, in suggesting I write about this piece, told me the story of remembering “being in a presentation from Tim Armstrong in 2008 where he convinced the room they had to bid on their own brand keywords based on very shaky data. In the moment I remember thinking what a masterful sales job it was.” Frederik and Martijn tell a similar story happening at eBay, only for them to discover that if they stopped paying for the keyword “eBay,” their users would—wait for it—click on the next link down, the free organic search link back to the site.
In the older, peer-reviewed ad economics studies, endogeneity was a huge concern, and conclusions were scrupulously not drawn, or at the very least caveated, if they could not control for it. I have often wondered how this is playing out in the breathless case studies I read from digital marketers. Frederik and Martijn do little to assuage those concerns.
The piece is remarkable, and calls into question many of the assumptions of digital marketing that have long irked me and my peeps who have ingrained suspicion of big data’s usefulness in marketing. They also point out that many marketers simply don’t care:
When these experiments showed that ads were utterly pointless, advertisers were not bothered in the slightest. They charged gaily ahead, buying ad after ad. Even when they knew, or could have known, that their ad campaigns were not very profitable, it had no impact on how they behaved.
This is perhaps not surprising given that the largest drivers of ad spend have nothing to do with effectiveness, but rather the industry in which you’re operating, and GDP—something referred to as the Relative Constancy Hypothesis.
The piece provides a much-needed reality check for the digital ad industry—and one that, paradoxically, may prove reassuring on the eve of the California Consumer Privacy Act (CCPA), the latest salvo in an ever-more-restrictive data marketing environment. If big data doesn’t help much in your marketing, maybe things will be okay when it goes away.
However, as is often the case with these pieces, I find myself nitpicking. Much like marketers treat Byron Sharp’s maxims as law for all businesses when he is specifically referring to large consumer brands, Frederik and Martijn are equally sloppy. They conflate data and digital—ignoring data-free “brand” digital. And their anecdotes tend to stick to large tech platforms and big brands, ignoring B2B, where targeting matters much more, and small and challenger brands.
There exists no shortage of small and nicheconsumerbrands who are making good money on the internet, advertising exclusively online. It beggars belief to claim that all of thesebrands would be doing just as well without the digital advertising to get them off the ground far more cheaply than television. Frederik and Martjin concede as much, concluding that “we simply don’t know,” which is a far cry from the title “the new dot com bubble.”
It seems to me what’s going on here is a new iteration of our ever-present ad friend, Wanamaker’s Dilemma. Evidence that digital advertising works is all around us if we use common sense. But measuring that, and being confident enough in the measurements to improve our advertising, remains ever-challenging. Indeed, the growth curve of these niche consumer brands, launched on the back of savvy digital marketing, provides all the evidence we need: When Casper, Airbnb, Wayfair, and so many others got big enough, they moved on to Television ads. (RLW)
Shipping Box of the Day:
Bike company VanMoof kept finding the bikes they shipped to the US damaged. So they made the box look like a flatscreen TV instead of a bike. “That small tweak had an outsized impact. Overnight our shipping damages dropped by 70-80%. We sell 80% of our bicycles online, which means we still print TVs on our boxes. More than 60,000 of them have now been shipped directly to our riders worldwide.” (NRB)
Rwanda’s approach to low-footprint tourism (CJN)
The immigrants who took on Amazon (CJN)
Thanks for reading,
Noah (NRB) & Colin (CJN) & Rick (RLW)
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