A guy named John Wanamaker is famous for something he said 100 years ago. He said:
“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”
Unfortunately, he’s wrong. I mean, if he didn’t know which half was wasted, how did he know it was half and not three-quarters or one-quarter of it?
He’s also wrong because it’s conceivable that 100% of his advertising dollars were wasted.
A century ago there were no ad ratings or measurement services. So how he could possibly know if ANY of his advertising spend was effective? It’s quite possible that any increase he saw in sales was due to exogenous factors like the weather, the economy, the competition raising prices or going out of business, or word of mouth among customers.
Ah, but hold on here a second. I guess it’s possible that 100% of his advertising spend was effective – or at least, not wasted – depending on what measure of success you use. If you don’t believe me, ask DeBeers.
Is it likely that the advertising he did had absolutely NO effect at all? Probably not. Just because someone didn’t make a bee line for the department store after seeing an ad, doesn’t mean the ad had no effect and should be considered wasted dollars. Some might have seen the ad and learned about the store, or the ad might have left others with a positive impression of the store.
Wanamaker thought half his advertising spend was wasted because he had no way to measure its effectiveness and didn’t even know what to measure.
Today’s advertisers have some measurement tools and services available to them, but none can claim to be totally accurate. And marketers are dreaming up new metrics every day, so you can be sure that no one measure is perfect, nor can we safely assume that even a group of commonly used metrics can truly give us a reliable picture of the effectiveness of advertising.
Bottom line: Any claim on what percentage of your advertising is wasted and what isn’t is just a random guess. We simply don’t know – and can’t know.
Here’s another claim to consider: Have you heard that its costs five times more to acquire a customer than to keep or retain one? How did they figure that? You could double the number of insurance, credit card, or mortgage customers you have by simply tweaking your underwriting guidelines, risk guidelines, or interest rates. No big cost associated with that.
But to retain those customers, you have to incur some big costs to keep branches open, provide call center support, and deliver service in an ever-growing number of channels. Many of the costs you incur to keep the business running are costs that help keep your customers satisfied – and, hence, keeping them as customers. There’s simply no way the cost of acquisition is five times greater than the cost of retention.
But, wait, that’s not right either. Because all those costs you incur to retain your customers help to make your company the great company that it is. It’s what you’ve built your reputation upon. And without that reputation you couldn’t retain OR attract customers.
Bottom line: There’s simply no way to accurately calculate the cost of acquisition or retention. It involves making too many judgments and decisions on which activities contribute to acquisition and retention. It can’t be done.
These claims – that half of advertising is wasted, or that acquisition costs are five times greater than retention costs – are examples of what I call Quantipulation:
The art and act of using unverifiable math and statistics to convince people of what you believe to be true.
The examples I just gave are just two examples of this widespread practice. In fact, the incidence of quantipulation has grown by 1273% compounded annually since 2003. And I have the math to prove it:
What’s driving this growth in quantipulative activity?
The false legitimacy that quantipulation provides gives quantipulators confirmation that the things they WANT to believe are really true.
In addition, there are many people who want to lay claim to having the secret sauce for marketing success, and sadly, many people who want that special sauce. Quantipulation provides the “scientific” proof that their sauce tastes best.
There are at a lot different flavors of this special sauce that people quantipulate about, especially about customer loyalty, influence, performance metrics and ROI.
I’ll be discussing those things in more detail during the conference. Hope you’ll be there.
Oh, and in the mean time, if I catch you doing anything quantipulative, I’ll be sure to call you out on it.