What if all the money we spend on marketing has no effect at all.

An outsider’s experience in the world of marketing

Last year, just about when the pandemic was gearing up, I took over as the CEO for a marketing-tech company. Since I had zero experience in the world of marketing, I immediately set out to get a handle on things by interviewing CMOs, brand managers, agencies - just trying to get a feeling for how the market works.  

Right out of the gate I noticed something odd. No one seemed to be able or willing to explain what the actual return on their marketing spend was. I got fuzzy answers about engagement rate, reach, sentiment, blah, blah, blah. But I wanted to know if these ads actually sell more sneakers or beer - more skincare or electronics. If I were, for example, to drop a thousand bucks on facebook ads, what’s the actual, measurable impact in terms of number of sales, number of customers acquired, etc? I was never able to get a straight answer.

So I started digging into the available statistics - not on a per-company basis but on the industry overall. The results that I found, and the conclusion that they point to, is fairly shocking.   

In summary, I’m not sure if any of this stuff actually works. Could it be that the vast majority of money spent on digital marketing has NO measurable effect at all?

A crazy claim, I agree, but stay with me here. I’m not talking about ALL marketing - just the $200 BILLION of paid display ads that are placed in Facebook and Google. Consider the following:

• For every 1000 display ads served, SIX of them get clicked on (.06% CTR).
• 60% of THOSE clicks are done by mistake (fat fingers) - so now we’re down to .036% of display ads that are intentionally clicked on.
• You are 475.28 times more likely to survive a plane crash (or have twins, or win the lottery) than to click a display ad
• In 2017, 38% of people used ad blockers (and the number have been climbing yearly by double digits)
• An average 25-34-year old sees a mind-boggling 2,094 banner ads per month.
• Think that those retargeted ads that follow you around from site to site work? Nope. Once an ad is seen 40 times or more, the impact on sales is actually negative. It turns out people don’t like it when you spy on them, and then follow them around. Who knew?

So display ads are a waste of time. So, no one is using them, right? Wrong! Spending on display ads takes the the largest share of all digital spend and grew over 7% in 2020. How is this possible? Why are we spending so much when we get so little back?  

I have a theory

You’ve heard of the story of the frog in the boiling water? The temperature of the water increases so slowly that the frog doesn’t recognize the change until it becomes frog soup. So, in this analogy - we are the frogs.

Back in the dark ages (late 90s) display ads were new. Because there were so few of them around the click through rates (CTRs) were great (the first display ad had a 44% click through rate!!!). As word got out and more and more advertisers began using them, we, collectively, developed ad blindness. As the channel became saturated their effectiveness slowly, but progressively, dropped until it ended up where it is now - at around zero. 

Then the pandemic hit. The effectiveness of advertising in the real meat-space world went into the toilet at the same time we all began spending countless hours gazing into our screens. Digital advertising spend went through the roof, ad saturation became hyper-saturation, and the response (CTR) dropped by a whopping 45%.

So we’re spending more, getting less. That fact seems undeniable. But the big question is: Why is no one willing to point out the elephant in the room? What’s going on here? Is it a global conspiracy? Have we - collectively - lost our minds? I suspect the answer is a lot less glamorous and has been right in front of us the whole time. Virtually none of the people making the spending decisions has a vested interest in looking too closely at the hard ROI.

Big companies (led by CPG giants like Unilever and P&G) dole out budget to the CMO and it then trickles down to individual brand groups and brand managers. The majority of the display ad buying is then done via big marketing agencies, either directly or through programmatic platforms. No one, in that chain of command, would benefit by pointing out that the millions of dollars of spend has virtually no impact on buying behavior. In fact, they’d rather not know. It’s not that the impact on sales CAN’T be calculated, it’s just that the answer that it would likely yield would suggest to stop doing it. We don’t know because we don’t want to know.   

I know what you’re saying - as a newbie in this industry I don’t know enough about how it works to make these claims. Okay, fair enough but if you step back, remove the buzzwords, and just have an honest look at the most basic data you have to conclude that something doesn’t add up. We spent $160 billion in 2019 on display ads, the intentional click through rate on those was around .03%? I can’t find ANY data that shows that any of that money had ANY impact on buying behavior.  

So now it’s your turn. I’d love to hear your comments. Marketing professionals - prove me wrong. What am I not seeing. I’m curious about other CEOs. Am I the only person eyeing that whopping marketing expense in our P&L and wondering what we’re getting in return. Add your comment below.  

-Andy