Rory Sutherland: Marketers should see capitalism as a ‘discovery mechanism’

The framing of marketing as an efficiency driver, rather than a creator of opportunity, should be of concern to all marketers according to Ogilvy UK vice-chairman, Rory Sutherland.

In fact, the whole concept of capitalism and what business means has been “dangerously distorted”, he argued yesterday (8 June) at the Festival of Marketing: Fast Forward. Sutherland pointed first to the definition of how businesses create value – namely through marketing and innovation – coined by management thinker Peter Drucker.

“Everything else is a cost. You’ve all heard it said and seen it quoted, but I don’t think anybody could confidently say that in a board meeting,” Sutherland argued.

Given the way business culture has shifted to see marketing as a cost, marketers should stop looking at capitalism as a “vehicle for exploitation and ever-increasing efficiency”, and instead look at it as a discovery mechanism.

“That’s the only correct way to actually look at what a business does. It’s a process of discovery, uncovering value that no one knew existed. It’s either discovering an unmet need or servicing an existing need through a previously un-envisaged innovation or idea,” said Sutherland.

“When you think about it there are two ways of adding value in the world. You can either work out what people want and find a really clever way to make it, or you can work out what you can make and find a really clever way to make people want it. The money you make is no different regardless of the direction of travel. In reality, most things are a mixture of the two.”

The value of creating a customer is inordinately higher than the value of identifying a customer, but the distinction is completely lost.

Rory Sutherland

The problem now is that marketing is perceived as not being part of the value creation process. For Sutherland, this issue has been compounded by the fact FMCG brands like Unilever and P&G, which inherently believe in the value of marketing, are now below 25% of all ad spend, compared to around 68% in the 1980s.

Today, the advertising “slack” has been taken up by mobile phone network operators, handset manufacturers, broadband providers, insurance comparison websites and cable TV providers. These businesses, he argued, are either dominated by a financial or tech-focused mindset.

“Both those particular mindsets are reductionist, they’re Newtonian, they’re engineering-focused and they focus on efficiency maximisation above everything else. My argument is that marketing fundamentally isn’t an efficiency maximisation game and shouldn’t be allowed to become one,” said Sutherland.

“I know you’re all having tech stacks imposed on you by the rest of the organisation, because they believe marketing should be effectively a cost reduction and efficiency optimisation game. It isn’t and it never should be. It’s an opportunity maximisation game. The whole purpose of marketing is to maximise possible opportunity.”

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The framing of marketing as a source of efficiency optimisation, a perception the Ogilvy vice-chair believes is being driven by mainstream economics, is causing marketers to become trapped in an “incremental world” where there are no significant gains to be made or growth to be had.

“We’re also fragilising ourselves, because the point is that great targeting identifies customers, great creative actually makes them. The value of creating a customer is inordinately higher than the value of identifying a customer, but the distinction is completely lost in most of these metrics we’re currently using and it’s nuts,” he added.

Instead, Sutherland favours a ‘both and’ mentality of short-term and long-term thinking shared by Marketing Week columnist Mark Ritson, which regards the top and bottom of the funnel as being “multiplicative”. He argued that marketers should start by optimising the bottom of the funnel and getting the conversion right, but then go up and start creating customers.

The lost joy of experimentation

Considering the trade-offs between short-term tactics and long-term brand building, Sutherland believes the danger with performance marketing is a tendency to become obsessed with optimising things which are not important, but easy to measure.

“The point of marketing is to get people who weren’t thinking of buying your product to pay full price for it. The main role of performance marketing, if we’re being cynical, is to get people who would have bought your product anyway to buy it a bit sooner at a discount,” Sutherland stated.

“There’s nothing wrong with doing that. Overcoming inertia is a perfectly reasonable function of advertising and I don’t disparage it. I don’t disparage sales promotion, I don’t disparage discounting, but it’s not the whole game.”

This obsession with optimisation could, he argued, be killing creativity on a mass scale. Sutherland recalled being a creative director in 2007 and assuming the future focus would be on testing a wide variety of creative approaches. However, he believes the industry has failed to do so.

The main role of performance marketing, if we’re being cynical, is to get people who would have bought your product anyway to buy it a bit sooner at a discount.

Rory Sutherland

In fact, the shift to digital marketing, which allows brands to fail fast and kill ideas quickly, should have led to marketing becoming “wildly more experimental creatively”, but Sutherland believes this promise has not materialised.

“I think there’s a kind of weird conspiracy between media agencies and tech companies to turn the whole of advertising into a targeting, optimisation incremental improvement game. Google, who don’t have any incentive to say this, say ‘No, the thing that makes the biggest difference is creative experimentation’, and yet we hardly do any of it,” he said.

“I genuinely believe behavioural science, combined with creativity, has a magical power to invest marketing with a real process of efficient discovery.”

Sutherland pointed to how the Ogilvy behavioural science practice worked with the Dishoom restaurant chain on the Matka giveaway, which enables customers who roll a bronze dice and get a six to have their meal for free. While to an economist this is just a 16% discount, he argued, to a customer it’s the most exciting thing to happen to them all month.

The curse of ‘uncertainty reduction’

Sutherland also believes brands that choose to only measure the effectiveness of an activity by the extent to which it achieves a pre-defined metric are at risk of undervaluing their work.

“First of all, if there was a logical answer in advance someone already would have solved it and most good ideas are only explainable in retrospect – Red Bull, Nespresso, Dyson, Uber, Five Guys. I can take $10bn – $15bn companies and transport us back in time to 2005 and explain why all those companies are a really stupid idea,” he added.

“If James Dyson had come to me and said: ‘I think there’s a market for an $800 vacuum cleaner’, I would have said ‘I’m not really sure, let’s look at the market’. And if he’d said, ‘Wait, you haven’t heard about my $400 hairdryer’ I’d have had him escorted out of the building as a dangerous lunatic.”

The beauty of experimentation is that it requires a creative leap, something Sutherland believes functions like finance and procurement are fundamentally averse to. He argued finance is focused on both cost and uncertainty reduction, meaning having to ask the “most risk averse people in the organisation” for permission to experiment is counter intuitive.

It is, however, difficult to quantify the impact of lost opportunity and compromised resilience that comes with classifying marketing as short-term efficiency, cost-cutting game, Sutherland added.

“What we’ve done within companies is in functions like procurement and finance we’ve created a monster, because we’ve created siloes within the business which can take the credit for cost reduction, without exposing themselves to any blame or responsibility for lost opportunity and a dangerous loss in resilience,” he said.

“It’s what Nassim Taleb would say ‘They’ve got no skin in the game’. They can claim the credit for any cost savings they make, but they never have to take the blame for the consequences of those cost savings.”