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Introduction: The era of major transition

Advertising is one of the pillars of modern consumerism, and has been important to economic growth for over a century in enabling producers to inform consumers of the availability and benefit of their goods.

A study by the UK Advertising Association suggests that the economic role of advertising is much broader than typically conceived. For every pound spent on advertising, six are generated for the UK economy, and its ability to stimulate demand makes advertising a cause rather than effect of economic growth (advertising creates demand that drives production, rather than merely disposing of the product that would have been created regardless of whether it would be sold).

But the culture has shifted, and brands are facing five major challenges that were largely unknown just a few decades ago:

  1. The rise of digital media
  2. The increasing disloyalty of customers
  3. Decreasing confidence in brands
  4. Increasing price-driven competition
  5. A growing irritation with advertising

As such, questions are emerging as to the sustainability of advertising: whether it is effective to a degree that justifies its cost.

The digital revolution

The digital revolution, particularly in the ability of individual consumers to communicate with one another about brands, has posed a number of challenges that were previously unknown.

Historically, technical innovations have been supportive of advertising, in their ability to broadcast information from a single source to a very large audience. In a general sense, there have been five major eras in the recent history of advertising that were driven by technology:

  1. The early years of the printing press, advertising in newspapers and magazines was product-oriented, trying to convince people to use products they had never heard of by describing their use and functional benefits.
  2. With the advent of radio, cinema, and color printing, advertising became more about attraction to a given product. Now that there was greater choice, the consumer needed a reason to prefer one option over another.
  3. Television gave rise to the importance of personality and lifestyle in advertising, showing consumers what they might become by consuming a specific brand.
  4. Mainframe computers brought database marketing and a focus on market segmentation, coupled with multiculturalism and social fragmentation of the consumer market
  5. Personal computers, the Internet, and mobile have triggered the current "digital revolution" that breaks from the previous four in the customers are communicating, and are empowered to choose which information they consume.

In the present day, the Internet has outstripped television, newsprint, and all other forms of media in terms of the amount of time that people spend engaged. And while advertisers lag a step behind, it is predicted that it will also become the primary channel for advertising.

However, leveraging the Internet requires advertisers to rethink their approach to the market. Unlike other advances, which largely enabled the application of the same tactics using different tools, the Internet requires an entirely new approach

The author pauses for a moment to consider the broadly accepted by entirely silly notion that a new technology replaces its predecessors. In most instances, it takes a very long time for an old technology to die out. People didn't stop reading newspapers when radio came out, didn't stop listening to radio when television came along, and did not abandon television for the Internet. Granted, the older media are in decline, but many people still use newspapers, magazines, radio, and television - they will not be phased out for several decades.

The early attempts at online advertising were a miserable failure, but that does not mean the new media are impenetrable - just that different tactics are needed. If anything, the new media are fueled by advertising: Google derives 95% of its revenue from advertising, and Facebook gets 84% of revenue from advertising (and more, considering that it is indirectly fueled when it sells its audience to others who seek to advertise to them). So it is fair to say that the future of the internet and social media is tightly related to advertising.

The disloyal consumer

Consumer loyalty to brands is constantly achieving new lows. Companies have accepted responsibility for this, recognizing that their dominance over the customer is an illusion and probably always was - the customer will not be loyal to a brand that does a poor job of serving their needs, or demands too much of them to obtain service, if there is a competitor who makes a better proposition. But it may be too little and too late.

A study by Accenture in 2010 indicates that:

Over the last few years, brands have stated an increasing interest in improving their relationships with customers, but it is clear they are driven by their own financial interests in doing so. They are still seeking to minimize costs rather than improve service, and invest more heavily in cross-selling and up-selling as a means to get more revenue from the customer than they do in increasing customer satisfaction with existing products.

From the perspective of the customer, loyalty is shared. For example, a person may carry five different credit cards and consider himself loyal to all five of the companies - but he does not perceive his own "credit card business" to be a single and indivisible thing: he uses different cards for different purposes (one for online purchases, one for purchases to be paid off each month, one for big-ticket purchases to be paid off over time, etc.) and does not share the brands' desire for him to choose only one card for all his spending and personal finance needs.

Lots of brands are also placing their hopes on social media to maintain customer loyalty. They take great pride in their "fan base" on Facebook and other social media sites, not realizing that this has no correlation to customer loyalty. Many "fans" are non-consumers who wish to be associated with a brand to bolster their own social standing, others are discount-seekers who are fans of competing firms and are monitoring for one-time deals, etc. "The contribution to the sales of brands through social media sites ... is very limited."

There's a brief mention of promotions such as sweepstakes and sweetheart deals and their ability to build customer loyalty. The common example of Groupon is mentioned as a gimmick that brings in hordes of discount-seekers who never revisit, while meanwhile making loyal customers feel unappreciated.

Decreasing Confidence in Brands

The authors indicate a decline in the confidence consumers place in brand. One study is cited that shows a 50% decrease in brand confidence, and another indicated two-thirds of customers indicated they "would not miss their current brand should it disappear tomorrow." This suggests brands are of decreasing relevance to consumers.

This is particularly true of the banking industry, which suffered a tremendous loss in customer loyalty during recent financial crises, but it has also spread to other industries as customers regard every company as being interested in its own (financial) welfare and indifferent to the consumer. In all, it is estimated that ...

What should be clear to brands is that they will have to work harder than in the past to earn the respect and loyalty of customers - to become distinguished brands rather than merely recognized ones, or surrender the notion that customers care about them (any more than they care about customers).

Price-Driven Competition

In the past, store brands and generic brands were not able to gain much ground: they were regarded as being a cheaper and inferior alternative to recognized national brands, which supermarkets in particular used to accommodate price-sensitive customers and gain higher gross margins on product sales.

While generics remain the object of much contempt, store brands and private labels have gained in popularity. For some retailers, their private-label brands are regarded as being the equivalent of national brands, and have enjoyed greater success. Research varies, but generally indicates between 33% and 50% of customer5s consider private labels to be equivalent to national brands.

This does not necessarily mean that store brands have gotten better. It is suggested that customers select a private label when they have no preference for a brand - and in that sense they win not on their own merits, but by default when national brands fail to establish loyalty.

Particularly in the grocery business, the retailers are gaining power - but this too may be by default. Because customers do not have strong enough loyalty to demand a retailer provide their favored brands and a willingness to select among the options provided, the supermarket gains power in the channel to determine which brands it will stock. Walmart in particular is cited as a virtual despot in its own channel and is largely phasing out national brands.

This also reflects a shift in favor of "place" in the marketing mix, as customers demonstrate greater loyalty to stores than the products they carry. The percentage of customers who claim to be willing to visit a different retailer in order to obtain the brands they want has sharply decreased in recent years.

Growing irritation with advertising

While customers have never been delighted by advertising, research shows a growing annoyance with intrusions into their experience, and are irritated not only at the quantity of advertising but its quality (in terms of relevance). This is particularly true in the online medium, and even so in social media, where there is an expectation that the site operator has sufficient information to know when ads are inappropriate and irrelevant.

A survey among the Dutch, who are particularly rabid about maintaining privacy online, surfaces an unreasonable expectation that their personal information should remain private, but that advertising should be tailored to that very same information.

A survey of social media users finds little tolerance for advertising on social media sites than on standard websites because of the non-commercial nature: when they are interacting with friends, they do not want advertisers to intrude. Opposition to advertising is even stronger in the mobile platform, due to the personal nature of the device and the task-oriented way in which mobile is used.

Reference is made to clutter studies, in which it was found that when there are fewer advertisements during a television or radio program, people recall and have a more favorable opinion of the messages and the brands - a recent study (Nelson 2013) finds the same about advertising online.

It's further speculated that online advertising is a victim of its own success: when advertisers on a given property are successful, others want to pile on until the property is cluttered with ads and they lose their effectiveness. Likewise when advertisers see they are getting little return on a cluttered site, they withdraw their ads and those who remain benefit when it becomes decluttered.

There is also evidence that advertising in other media bleeds into the online channel. People refer to advertisements, particularly television ads, in their social media conversations with other users - though this is less true of other media such as radio and print.

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