The Press, March 2007

Is marketing broken? That question was posed recently by a senior executive at Trade Me, one of New Zealand's most successful technology companies. It is an important one as many local technology companies look to replicate their success.

Controversy erupted in various internet blogs (online discussion forums) last month with a comment from Trade Me technology manager Rowan Simpson, who was quoted as saying: "Trade Me wasn't about technology, Sam (Morgan, Trade Me founder)'s insight was that marketing was broken. Rather than wasting lots of money on big billboards and TV ads he instead decided to focus on building a really great product, which people like to use and tell their friends about."

Mr Simpson was saying that marketing activities like traditional advertising are becoming less important. Create a good enough experience for the customer and you can achieve success without having a big promotional war chest.

Marketing in the sense of promoting your product is certainly changing, and is going to keep on changing. In leading American marketing publication Advertising Age, columnist Bob Garfield points to official figures that show network TV audience has eroded an average of 2% a year for a decade while the U.S. population increased by 30 million. The cost of reaching 1,000 households through television advertising in prime time increased from $7.64 in 1994 to $19.85 in 2004.

The conclusion of Garfield's article was that advertising as we know it was under severe threat, as we consumers use channels such as pay TV and the internet to gather information about the products we wish to buy. "This is revolution, and first we will be awash in the blood of the old guard."

It is not a unique position, with plenty of pundits in recent years predicting the demise of traditional advertising. Still, a recent survey released by US investment bank called Jefferies and Co says online advertising, although growing fast, only represents 6% of total ad spending in the U.S.

Recent statistics in New Zealand don't suggest a major shift in ad spending is imminent. Online advertising revenue rose 48 per cent to $65 million in 2006, but that is only a tiny fraction of the $2.224 billion spent overall. Total spending was only fractionally down in 2006 on a record year in 2005.

On stuff.co.nz advertising expert Nigel Keats predicted overall revenue growth in 2007 advertising spend. "We're seeing some growth. We're getting a strong sense that TV is doing very well at the moment. With newspapers and radio it's harder to tell. We think magazines and outdoor are soft and online is growing like crazy."

So is marketing really broken? It seems that traditional advertising mediums are still a very important part of many local companies' marketing mix. To assess the question properly we need to look at couple of key roles marketing plays.

Identifying a value proposition i.e. the unique promise of value your company can make to a customer is the first crucial role. A marketer needs to be able to look at your business from the customer's perspective and understand why choosing your product or service benefits them more than any other option. Trade Me built a very strong value proposition, offering the consumer a live, low cost way of buying and selling used goods. It was clearly different from the hard copy publications and newspaper classifieds that were on offer at the time.

The stronger your value proposition the less you need to engage the marketer's other focus - indirect persuasion (as opposed to the direct persuasion that is sales). For example, a pub in a student town offering free beer is unlikely to need to do a lot of advertising to pack out their establishment.

The weaker your value proposition the more indirect persuasion (advertising, direct mail, sponsorship, publicity etc) is required. With commodities, where there is little actual variation in the end product, indirect persuasion is really important. Think baked beans or petrol. Or when there is a lot of competition - clothing or airlines.

Simpson's comments do have something of Winston Churchill's famous observation that "history is written by the victors." Trade Me has been a huge success with remarkably little traditional promotion. They did create a great experience for customers and they did stay focussed on this as they grew. But they also had no strong online competition at the time, and they saw a gap that the hard copy publications weren't fulfilling.

Zillion.co.nz is another trading website which bills itself as technically smarter than Trade Me. But just because it is reportedly a 'better' product doesn't mean it will beat Trade Me. Zillion would struggle to overtake Trade Me even with a huge advertising campaign. Trade Me have grabbed that space, served it well and rightfully built a dominant position.

It is interesting to see that Trade Me are now using traditional newspaper advertising quite extensively to promote their online property promotion service. That's because this sector is very competitive, with a lot of offline and online publications offering property listings. Maybe marketing isn't that broken after all?

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