Advertising “In Structural Decline”: NYU’s Scott Galloway

Advertising “In Structural Decline”: NYU’s Scott Galloway
SHARE
THIS



As new technologies change the way companies interact with customers, NYU Stern marketing professor Scott Galloway has predicted advertising’s death as the value chain upon which brands are built is reshaped, and capital re-allocates from traditional media into product innovation, discovery and distribution.

In arguably the best presentation at Cannes this year, Galloway stated – a belief he has since repeated – that the sun has passed midday on the role of traditional brand as a function of broadcast media.

He said the traditional channel-customer relationship managed by a push approach in communication, where an average product with great advertising was the brand building algorithm, is over.

“Simply put you want to be a builder, not a brander – great products breakthrough,” Galloway said.

“It is not that brands do not matter – it is they just don’t matter as much.”

According to Galloway, traditional brands as we know them are declining in value due to digital “diligence tools”.

He said the tools of product discovery have turned from broadcast to Amazon, TripAdvisor, social media and search, and therefore consumers now no longer need to defer to a brand.

“Their favourite brand is going to be whatever Google tells them at that moment it matches their exact needs,” Galloway said.

In fact, the percentage of consumers that can identify their favourite brand across key categories has declined by somewhere between 30 and 50 per cent, Galloway added.

Consequently, the traditional media industry is on the wrong end of this change in consumer diligence, and TV specifically is ripe for disruption, he said.

Galloway noted that TV has raised its prices faster than inflation but with no underlying increase in productivity, innovation or effectiveness.

“There are going to be more people with Amazon Prime subscriptions than cable in the US in seven years’ time,” he said.

“The people who are cutting cords are young and wealthy, so effectively they are exiting the platforms where they can be exposed to traditional marketing.”

Galloway said innovation, as well as the young and rich, are going to non-ad-supported programming where the storytelling is not interrupted by ads.

He said that these over-the-top platforms are growing 30 per cent year-on-year, while all the ad-supported media is in decline.

“You pay a price to effectively exit the advertising ecosystem,” he said.

“I think advertising has become a tax that only the poor and technologically illiterate pay.

“Anyone with any money is going to have the technology and the ability to start avoiding most advertising out there.

“Advertising is not a great business – it is in structural decline.”

Galloway predicts this will put a strain on advertising industrial complex as capital re-allocates from traditional advertising into product innovation, and also into direct-to-consumer retail.

He noted that Apple spent almost 50 per cent less of its revenue on advertising, compared to Samsung, who dominates digital advertising and has chosen to re-allocate its capital into stores.

“Samsung may come out with a better product in the next few months, but it will take them about ten years to match the brand of Apple,” he said.

“Apple has taken about $4 billion in a year and allocated it into 450 retail stores such that no matter how cool Samsung’s VR is, it is never going to match the brand capital that Apple has invested in their unbelievable purchase temples to the brand that Apple calls their stores.

“But with Samsung, you are still going to have to walk into a Verizon or AT&T store and talk to someone with a name badge on who does not really know how to sell the product.

“Apple’s core competitive killer product is not their iPhone – it is their stores, and they are the most productive retail stores in the world.”

Galloway said retail stores dying and going out of business is a myth.

“That is bullshit,” he said.

“The middle class are dying. Stores in wealthy neighbourhoods are doing just fine.

“Show me a middle-class neighbourhood, and I will show you all businesses are going out of business, including stores.

“General Growth Properties and Simon [Property Group] are the largest mall developers in the US. Moreover, their stocks are at an all-time high. Why? Because they own malls where rich people live.”

Galloway said the brands that are doing well, with the most visibility, are those that re-allocate capital from broadcast advertising into product innovation, innovative product discovery and distribution.

“How much does Tesla spend on traditional advertising? Zero,” he said.

“The big idea in the auto industry 20 to 30 years ago was ‘let’s have Cindy Crawford talk about Cadillac’ or ‘let’s call the Volkswagen a lemon’.

“Now all the big ideas in the auto industry are around product innovation like self-driving cars and self-parking cars.

“It is the reallocation of advertising dollars into R&D.

“If you look at the companies that are winning, they all spend a disproportionate amount of capital on products trying to make a better product, because better products break through the algorithm.”

Galloway said the death of advertising will also hurt companies who have built great businesses on traditional media, specifically consumer packaged goods (CPG) brands.

“CPG is the house that advertising built,” he said.

“Of the top 100 CPG brands in America, 90 per cent lost share and two-thirds of them lost revenue.”

Galloway attributes this to every aspect of CPG being attacked by a well-financed player who is exiting the advertising ecosystem and investing in subscription models.

“If you look at Google Search – a great proxy for brand equity – you will see the Honest Company has more searches than Pampers or Huggies,” he noted.

“Moreover, you will see the same thing with Dollar Shave Club versus Gillette, which used to have an 80 per cent market share.”

Galloway argued that subscription is a better business model because it creates a sufficiently large lifetime value that enables a brand to invest into customer acquisition.

He said recent behavioural research supports the idea people have limited bandwidth to make decisions. Moreover, the more daily decisions people have to make, the greater the likelihood they will make a bad decision.

“I think the reason we are moving towards a subscription-based economy is young people are figuring out if you take every non-critical decision in your life and move it out, you can focus your limited bandwidth on decisions that matter,” he said.

The top advertisers in the world have not changed much in 50 years, and according to Galloway, data analysis reveals the world’s biggest advertisers are losing share of revenue relative to GDP.

In a bid to reverse this trend, some of the largest brands are moving towards new business models to recapture market share.

“P&G are now investing in Amazon dash trying to make CPG products with recurring revenue,” Galloway explained.

“They are reducing their ad spend as a percentage of sales in the last three years.

“The writing is on the wall – the biggest advertisers in the world are reducing their ad budgets and reallocating capital out of traditional marketing.”

Please login with linkedin to comment

Latest News

Attention! B&T’s Inaugural Bootcamp Launches!
  • Advertising
  • Marketing
  • Media
  • Technology

Attention! B&T’s Inaugural Bootcamp Launches!

B&T announces its new industry bootcamp! And, if you're like us & didn't know anything about it, all's revealed here.

by B&T Magazine

B&T Magazine
Brand Safety “Considerably More Complex” Than The Industry Thinks: Inskin Media GM
  • Advertising
  • Marketing
  • Media

Brand Safety “Considerably More Complex” Than The Industry Thinks: Inskin Media GM

The relationship a reader has with a publisher has far more impact on the effectiveness of online ads than the surrounding editorial content, according to a new study, which suggests some concerns around brand safety may be misunderstood. The study – by Inskin Media, Research Now and Conquest Research – compared the conscious and subconscious […]

Nova’s ‘Kate, Tim & Marty’ Show Goes Regional
  • Media

Nova’s ‘Kate, Tim & Marty’ Show Goes Regional

Nova has announced that its Kate, Tim & Marty drive show will expand its reach beyond the metropolitan market to be syndicated across 48 regional stations from today. Kate Ritchie, Tim Blackwell and Marty Sheargold, who won the Best On-Air Team (Metro FM) trophy for the second year running at the 2017 Australian Commercial Radio […]

Over 50s Insurer Apia Unveils New Work Via DDB Melbourne
  • Campaigns

Over 50s Insurer Apia Unveils New Work Via DDB Melbourne

Apia takes a look at the real-life, relatable moments over 50s experience with its new campaign via DDB Group Melbourne. For 30 years Apia has been designing products and services for Australians over 50. This new Home Insurance, Health Insurance and Multi-Policy Discounts campaign aims to speak to people in a way that’s refreshing, relatable […]

Facebook Makes Another News Feed Change
  • Media

Facebook Makes Another News Feed Change

Social media behemoth Facebook has announced its second major update for News Feed to make sure the news people see, while less overall, is high quality. This week, Facebook announced that the platform will launch a small test in the US focused on prioritising news from publishers that users find trustworthy. Facebook is also exploring ways […]

Domain Boss Antony Catalano Exits
  • Media

Domain Boss Antony Catalano Exits

Mystery surrounds Domain boss's surprise exit, although the Mystery Machine nor a talking dog not spotted at Fairfax.

PHOTOPLAY Offers A Ghost Train Ride Like No Other At Sydney Festival
  • Media

PHOTOPLAY Offers A Ghost Train Ride Like No Other At Sydney Festival

Jasmin Tarasin, director at boutique production company PHOTOPLAY, is inviting invites audiences to take a trip through the inner-workings of the mind in ‘Ghost Train’, her latest multi-sensory VR project set to feature at this year’s Sydney Festival. Working in collaboration with musician and co-creative director Jonnine Standish, Tarasin’s uniquely immersive ‘Ghost Train’ is a […]

March One To Rebrand Fundraising Institute Australia
  • Marketing

March One To Rebrand Fundraising Institute Australia

Independent advertising and branding agency March One has been appointed to oversee the rebrand and repositioning of Fundraising Institute Australia (FIA). FIA is the national peak body representing professional fundraising in Australia. It was established to advance advocacy and professional standards, and has identified the need to better promote its role as the industry self-regulator, […]

Victorian Government Launches VR Bushfire Experience Via The Fuel Agency
  • Advertising
  • Campaigns
  • Technology

Victorian Government Launches VR Bushfire Experience Via The Fuel Agency

As part of its summer fire campaign, the Victorian government has launched a virtual reality (VR) bushfire experience and content series via The Fuel Agency. The VR experience places the user in the midst of a large bushfire, and is designed to encourage people to leave early on high-risk days before it’s too late. The […]

Local Ad Tech Company VeNA Partners With RugbyPass
  • Advertising
  • Media
  • Technology

Local Ad Tech Company VeNA Partners With RugbyPass

ad tech company VeNA has signed an exclusive reseller partnership covering Australia and New Zealand with digital rugby network RugbyPass. Across Asia and parts of Europe, RugbyPass is the exclusive digital rights holder and over-the-top broadcaster for live rugby, including the Super Rugby, the Rugby Championship and autumn internationals, the Six Nations, the Aviva Premiership, […]

SpotX Appoints Gavin Buxton As Asia MD
  • Advertising

SpotX Appoints Gavin Buxton As Asia MD

Video advertising platform SpotX has announced it has appointed Gavin Buxton as managing director of Asia to lead the company’s expansion in the region. Buxton has over 17 years’ global experience in the digital advertising space, having worked in leadership roles at tech and publishing companies, including Microsoft, Turner Broadcasting, and LinkedIn, with the last […]

Big Mobile Doubles Down On Ad Tech & Rebrands
  • Advertising
  • Technology

Big Mobile Doubles Down On Ad Tech & Rebrands

B&T Awards 2017 finalist Big Mobile has unveiled a fresh look to reflect its new ad tech credentials. The company successfully pivoted its business from ad network to mobile ad tech vendor when it announced a joint venture (JV) with Widespace in October last year. As a result of the business changes, Big Mobile wanted […]

March One Appoints New Senior Account Manager
  • Advertising

March One Appoints New Senior Account Manager

Independent ad agency March One has appointed a fresh face to the team, with Melanie Tozer to reinforce its mission to put humans first as a senior account manager. Tozer (pictured above), an up-and-coming talent from New Zealand, will align her extensive experience in FMCG marketing with March One, having worked on accounts for Bunnings […]