Wasting billions on marketing?

Steven Silvers, a blogger who writes about reputation management, had an interesting comment on our recent Sizing US Marketing 2006 report. I responded on his blog, but I thought I would also post the comment here. Steven wrote:

Research firm Blackfriars Communications estimates that U.S. business will spend around $615 billion on marketing this year.

That’s more than two thousand bucks per every living man, woman and child in the U.S. going toward online and offline advertising, direct mail, telemarketing, spam, promotional events, Web sites, brochures and collateral, giveaways, tchotchkes, marketing PR and everything else.
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Wow. Given the inherent hit-and-miss nature of marketing communications, it’s staggering to think about how much money American companies spend to create absolutely nothing in return. Every one percent of the “marketing industry” that is ineffective represents more than six billion dollars poured down the drain.

Yup, these are whopping big numbers. So here's a thought experiment to try to get your head around the $2,000 per man, woman, and child in the US concept: Think about all the businesses you deal with every day. Your dry cleaner. Your grocery store. The pizza shop down the block. The company at which you work. How many of them have marketing programs, like coupons, advertising, direct mail, etc. If you are anything like me, your answer is "all of them." So this is an activity that basicly every company in the US does. That's one of the reasons this is bigger than the IT business. You don't *have* to have a computer to run a business. But you almost certainly *have* to have some type of marketing to find customers.

Now on to the efficiency argument. I think the old marketing saw is accurate: "I know half of my advertising budget is wasted; I just don't know which half." Most marketing is incredibly inefficient. That said, you still have to do it or you have no customers. Even word-of-mouth marketing and networking are marketing efforts; they just show up on your expense account rather in your marketing budget. But you are still spending the money.

The challenge of US business today is that we live in a saturated media environment, and consumers naturally react by tuning out a lot of marketing. That means it is getting less efficient, and requiring more money for the same results. The one bright spot has been online marketing, where I can precisely target marketing messages to people who are searching for specific items. But in traditional marketing, efficiency is going down not up.

In summary, the answer to why businesses keep spending so many dollars on marketing is similar to that of why sharks keep swimming: if they stop, they die. And the big winners will be the ones who figure out how to spend those dollars in the most efficient ways possible.

Technorati Tags: Advertising, Marketing, Marketing measurement, Marketing spending, Sizing US Marketing