The power of advertising (it is not what you think it is)

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Advertising is an act of buying space in third party media to promote your own content. Third party media is able to attract customers and customers want to or must consume their content, but they do not want the advertising content. Under such limitations advertising is forced to be very quick and rely on messages and values which are short, direct, clear, and strong. Another important parameter of advertising is that it is expensive. Since customers do not want it both, creative services and media buying are expensive.

This is why many market leaders invest heavily in advertising, but not because it is necessary to reach the customers but to use it as a competitive moat.

Once a company starts to dominate the market it advertises not only because it wants to reach customers, but because it wants to keep the cost of market entry high. For competitors to enter the market they must advertise even more. If a company in such position stops to advertise it will allow its competitors to win only with highly creative and valuable content and without advertising investment which is cheap and easy. Market leaders can not allow this and therefore they condition customers to high advertising investments.

The best example of this strategy is the USA two-party political system which fights off other parties mainly by advertising costs. There is no relevant third political party in the USA dominantly because advertising costs are too high. In the 2016 USA presidential elections total political ad spend was 9.8 B USD which was approx. 2 % of the global ad spend. To participate in such competition with any relevance a third political party would need to outspend the current Democratic and Republican party with 5-6 B USD or 1 % of total global ad spend.

The point is that medium and small businesses should avoid competing with market leaders in advertising. It is impossible for them to win with advertising and it will only drain their budgets. They should focus on high-level innovation in products and content instead.

Written by: Nikola Tosic
Publishing date: 7 Nov 2018