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Business - Written by on Tuesday, September 29, 2009 11:07 - 0 Comments

Denis Hancock
Social media, and a structural decline in advertising spend

Yesterday a colleague sent me a link to a funny Onion article titled Pepsi to Cease Advertising. The key satirical statement was directed at shareholders in the company – declaring that PepsiCo is now “what it should have been all along: a company that just makes soda, and doesn’t get caught up in trying to make everyone like it.” But like all great satire, there is an important grain of truth in the message of this article. I believe that advertising spending, while not going away entirely of course,  is facing a relatively large structural decline. I also believe social media is a big part of what is driving this. And for most companies, this could be an absolutely great thing, as the decline in price may not come at the cost of a decline in impact.

If you look at the last few years, one of the most important developments is that various social media tools are allowing brands to connect with customers directly, for free – and that many customers want them to do just that. Unlike traditional mediums, brands can know exactly who they are connecting with, and as pervasive personal identity continues to evolve this will only become more true. It’s ever easier to measure impact directly. Toss in the benefits of location-based information, the evolution of the intention economy (where customers directly express what they want, allowing brands – and others – to respond), pay-for-performance campaigns, the ease at which messages go viral, the proliferation of ways to make customer connections, and the benefits of having “prosumers” do everything from provide information to each other make commercials on the cheap – to me, it all looks like it’s pointing to a structural decline in ad spend.

But that doesn’t necessarily meaning that the impact of advertising will diminish anytime soon. If anything, I expect that it will probably increase - but companies, on aggregate, won’t have to pay as much for it. That’s a winning combination. But there is a counteracting trend as well – tied to the end of the Pepsi statement of “doesn’t get caught up in trying to make everyone like it.” As all these tools evolve, transparency increases – and the truth matters ever more. If a company is not good at what they do, they will likely be in more trouble than ever – but if they are good at what they do, they’ll be better off then ever before. Because in most cases, you can’t make people say they like it – they either like it or they don’t.

One particularly interesting area to watch on this will be in relation to private label goods in retail stores. As the recession took hold, there was the predictable increase in demand for cheaper, private label goods – and in fairness many of them have been rapidly increasing in quality as well. While I can’t find the link, it was this challenge that was featured in an Economist article about P&G about a month ago, as they sought to counteract the private label trend.

One part of this was revisiting selling directly over the Internet – a now “old” strategy that I also think will become “new” again for many manufacturers that have avoided it up until now. But if you look at their use of Innocentive (improved efficiency AND innovation for their R&D), and perhaps a structural decline in advertising spend, there’s a reasonable case to be made that much of the price advantage that private label goods have can be eroded. And from my experience, and I think this isn’t just an advertising-brainwashed brain speaking, most branded products remain superior to their private label counterparts. So long as that is true, social media (et all) should help that message get out – much cheaper than before. And for a company that spends over $3.5 billion a year on advertising while banking about $11 billion in profit annually, that (again) could be a great thing…

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