Marketing for Investors
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Marketing for Investors
In the July 2 newsletter, “Marketing to Employees,” I argued three main points:
Customers don’t care about your brand or product, apart from whether it meets their immediate needs, as well as quality, price, and convenience.
Employees, on the other hand, care A LOT about a company’s values and actions.
When a company takes a “controversial stance,” offending a sizable segment of the population is far less risky than upsetting a large part of their professional workforce. In most cases, though, these political perspectives are not controversial among employees.
One reader asked me: “Does this idea explain why pharmaceutical companies stopped allowing their drugs to be used in capital punishment situations?”
Great question. As for the answer…maybe?
Capital punishment is a textbook example of an issue that is “controversial in the wider population”; for murder cases, 54% of Americans support the death penalty and 39% oppose. Determining the opinions held by the professional workforce is complicated, but we can refer to a few relevant categories. A majority of college grads actually support capital punishment (53–42), but attitudes reverse for postgrads (42–56). Younger adults aged 18–29 are evenly divided (47–46), while all brackets of older adults are in favor. Bottom line: I imagine that capital punishment is as divisive an issue for employees as it is for the general public.
So why were pharmaceutical companies so uniformly opposed to usages of their drugs for capital punishment? Perhaps we can trust what the companies’ PR teams claimed at the time. From an article in The Guardian back in 2017:
“...the use of the medicines for lethal injections creates a public-health risk by undermining the safety and supply of lifesaving medicines,” the lawyers added. “The use of the medicines in lethal injections runs counter to the manufacturers’ mission to save and enhance patients’ lives.” [Emphasis mine]
Let’s try to rationalize the decision to suspend the sale of medication for lethal injections. Is there a customer demand? Yes, albeit a highly niche and regulated one. Is there a fear of upsetting your workforce’s political sensitivities? Probably not, because their opinions on capital punishment mirror the general public’s feelings.
So, then, what’s the issue? Profitability.
We should never lose sight of the fact that companies exist to generate wealth. Ultimately, some decisions are based upon one key consideration: the (perceived) return on investment. In this medical example, the knowledge that a specific company’s drugs are used to execute criminals would logically impact the brand’s overall reputation for health and wellness. In reality, the connotation is irrelevant to most consumers (many of whom lack knowledge about the complicated network of pharmaceutical companies — plus, as I repeat over and over, consumers don’t really care about a brand’s values). Who would know — and care — about the relationship between lethal injection and other medications? The people who prescribe medication — doctors. As we know, pharmaceutical companies employ a number of strategies to encourage doctors to prescribe their medications instead of a rival company’s products or the generic versions. Would a doctor stop recommending the medication from a company that also provides drugs for lethal injection?
Executives at the pharmaceutical companies might reason that the profit from purchase orders used for lethal injections is negligible. In contrast, turning doctors away from their products would probably cause significant losses. So why take the risk? When the upside is minimal and fixed, and the downside is unknown but potentially large, it makes sense to avoid the investment.
Let’s put this theory to the test, by analyzing what might happen if the situation was reversed? What if the upside was very high and guaranteed, and the downside was relatively limited? Would pharma companies flip their moral stance?
Absolutely, I think.
Until recently, Procter & Gamble held a large pharmaceuticals business (in 2009, they sold the entire unit to Warner Chilcott for $3.1B). For all the reasons discussed in “Marketing to Employees,” P&G has projected a pro-LGBTQ+stance for decades. They even produced a successful documentary on how they developed their position during the 1990s, when support for gay marriage was under 25%. P&G employs a chief diversity and inclusion officer, they are strong supporters of major events like the San Francisco and New York Pride Parades, and, according to The Drum, their “support of LGBTQ+ also extends to its corporate governance and lobbying.” We know these “controversial stances” aren’t really controversial at all when it comes to employees, and — since customers don’t care — all of this support offers pure upside for the organization.
But what happens when a company’s most lucrative financial options do not support LGBTQ+ communities? When the downside of taking a strong stance would hurt profits more than it would help attract employees?
Well, in that case, the company needs to spin.
Some countries, such as Russia, foster environments that endanger LGBTQ+ populations. Can P&G operate in regions that turn a blind eye toward (or even perpetrate) heinous actions like purges or torture based on gender identity?
Of course they can.
Moreover, companies can articulate ideas to justify their presence in countries with human rights records that don’t align with their brands’ values. For instance, consider this explanation from P&G’s Associate Director of Communications (PR), Brent Miller:
If we pull out [of Russia], we’re actually missing an opportunity to continue a conversation. And if we pull out, that's not going to change their policy. But if we have a positive and active conversation within these markets, we have the opportunity to bring people with us and to drive things forward. [Emphasis mine]
Russia is, obviously, a major world market. Refusing to sell a small quantity of medication to a few justice departments wouldn’t even be noticed on a balance sheet. Closing the door to Russia, on the other hand, impacts a bottom line in significant ways. So, pro-LGBTQ+ stance or not, P&G’s commitment to its investors drives its decision in this situation.
To be clear, I don’t mean to single out P&G as a rare traitor to moral values; among every major consumer brand that signals a pro-LGBTQ+ position (i.e., most of them), I could not find a single one that chose to pull out of Russia for moral reasons. At the end of the day, marketing is not primarily designed to serve consumers or employees, but the investors. If a marketing campaign elicits a positive return on consumer spend or on employee engagement, that spells good news for investors. If, in contrast, a marketing campaign does not produce some measurable positive returns, then the company will likely curtail that marketing spend.
Let’s look at marketing FOR investors from a different angle — marketing TO investors. In some cases, what looks like consumer marketing might actually provide an invisible side effect of marketing directly to the investors.
In March of this year, professors Jura Liaukonyte and Alminas Zaldokas published a paper that looked at the effects of consumer TV advertisements on stock trading. Their research offered this fascinating nugget of information:
Using minute-by-minute data, we study the real-time effects of TV advertising on retail investor search for financial information and their subsequent trading activity. Our identification strategy exploits the fact that viewers in different U.S. time zones are exposed to the same national advertising at different times, allowing us to control for contemporaneous confounding events. We find that an average ad leads to a 3% increase in SEC EDGAR queries within 15 minutes of the ad’s airing.The ad-induced queries on the advertiser increase trading volume and contribute to a temporary rise in the stock price. [Emphasis mine]
In other words, when a TV viewer watches an ad for a product, they may be influenced to not only buy the product, but also to purchase stock in the company that sells the product. Liaukonyte and Zaldokas demonstrated that the stock-buying effect is immediate; people see the ad and then buy the stock within the next 15 minutes. Presumably, you would also expect the ads to provide long-term impacts as well (of course, long-term effects are difficult to measure).
Here is my favorite finding from Liaukonyte and Zaldokas’s work: “Additionally, an ad yielded more investor curiosity if the brand’s name matched the name of its parent company, making it easier to find online.” When it comes to marketing, improving convenience and reducing friction matters more than you think. According to this study, one simple action — looking up the brand owner’s name — reduced the willingness to buy the stock.
One important note: the ability of TV commercials to boost stock interest is a phenomenon that very few marketers would recognize or consider.
During my time at A Place For Mom, we considered going public. One advisor told me, “you should definitely buy a lot of ad space on morning news shows leading up to the IPO.” Before the initial public offering, the SEC mandates an embargo on promotional publicity. But…you CAN continue to buy consumer ads marketing your company. Many of the people interested in stock activity spend their mornings on a treadmill, watching Bloomberg and CNBC. And if you think that marketing doesn’t work on bankers, you probably haven’t met many bankers.
Amazon: Masters of Marketing
In last week’s newsletter, I argued that Amazon Prime Day’s primary purpose is not the selling of products, but rather the luring of new Amazon Prime members.
Today, I want to examine the other big Amazon news from last week. A July 11 article in The New York Times provides the following context:
The e-commerce giant said Thursday that it planned to spend $700 million to retrain about a third of its American workers to do more high-tech tasks, an acknowledgment that advances in technology are remaking jobs in nearly every industry — and that workers will need to adapt or risk being left behind.
Amazon said the program amounted to one of the world’s largest employee-retraining efforts. It will apply across the company, from corporate employees to warehouse workers, retraining about 100,000 by 2025. Amazon has about 300,000 employees in the United States. [Emphasis mine]
How should we react to this announcement? Without question, $700 million is a staggering amount of money. But how big is that sum, really? For most large companies, we can only comprehend the scale of their spending if we think about costs on a per employee or per year basis. With 300,000 employees in the US alone, Amazon plans to stretch the money over the next six years. Some simple math (700 million divided by 300 thousand divided by 6) reveals a total of $389 per employee, per year. All of a sudden that gigantic number doesn’t look so gigantic anymore.
The plot thickens even more. Amazon indicated the training will focus on 100,000 workers, about one-third of their American workforce; by concentrating their budget on fewer people, Amazon has earmarked approximately $1167 for each of the selected employees, during each of the next six years. In comparison, The Association for Talent Development, notes that the AVERAGE spend per employee for US-based companies is $1252 (in 2015).
In essence, then, Amazon is boasting about plans to train 33% of their workforce for the next six years, spending 7% below the average of what US-based companies allocate for 100% of their employees.
Shouldn’t we be shaming — rather than celebrating — Amazon’s investment in employee training?
And yet, the story in The New York Times (and elsewhere) suggests that Amazon is investing heavily in employee training. From the Times:
“The scale and pace of the changes in the work force are unprecedented,” said Susan Lund, an economist at the McKinsey Global Institute.
Do you know what’s TRULY unprecedented about this situation? Forget about the scale of the organization and the pace of change — the real story is Amazon’s ability to transform a below-average training budget into a marketing bonanza. Why did it work? As the Times themselves wrote, “the fear that robots are taking jobs, and that automation will lead to mass unemployment, has grabbed the popular imagination.” Journalists search for stories about how technology will replace human jobs, and Amazon just provided a (seemingly) good example of a solution.
The retraining announcement wasn’t the first time Amazon took a standard business decision and turned it into an effective marketing tool. Consider the case of employee recruitment: Amazon needed to dramatically scale quality warehouse workers. How do you attract and retain more employees? You pay them more. So, Amazon raised wages to $15/hour (while cutting some benefits) and self-proclaimed themselves the leaders in employee relations. Searches for “Amazon $15/hour” now returns 18 million search results on Google. Here’s another recent example of the company’s ability to write their own narrative: Amazon decided to expand their footprint on the east coast, with a goal to improve operations and attract top-tier employees. Their solution? Dominate a year-long news cycle by turning the search for HQ2 into a public competition between regions.
All of these “marketing activities” raise awareness and consideration for Amazon. Moreover, they also communicate a message to investors who are happy to pay a price-to-earnings ratio of 89+ (vs ~14 for Apple). I recognize that Amazon’s ratios are skewed by the fact that the company reinvests its earnings in R&D and marketing to grow new businesses — that’s actually the point. Amazon has convinced investors of two related ideas: (1) the company is a mature steward of money, and (2) they SHOULD hold onto potential earnings for reinvestment. In building a case for themselves, Amazon demonstrated a string of successful new businesses like AWS and Alexa/Echo (and most recently advertising). In addition — and perhaps even more importantly — Amazon tells a great story about themselves, suggesting that the future promises more successes (like AWS) and fewer failures (see: the Amazon Phone).
Marketers believe their job involves connecting with customers. Often, the industry’s self-perception is pretty accurate. But every single marketing message released out into the world also influences current and future employees — as well as current and future investors (and government regulators). There is more than one audience for any given message. Once we internalize that concept, we can understand the nuanced drivers behind most marketing tactics.
Prime Day Boycotts
No follow-up commentary about Prime Day would be complete without mentioning the protests of some Amazon employees. As described by a Vox article:
In Shakopee, Minnesota, around 75 demonstrators — including current warehouse workers, at least three Seattle-based Amazon software engineers (with the written endorsement of 200 members of Amazon Employees for Climate Justice), and several former Amazon workers — assembled outside the city’s Amazon fulfillment center for a planned six-hour strike, chanting, “We work, we sweat, Amazon workers need a rest!” reports CNBC.
Beyond the Minnesota walkout, protests formed across the US. I’ve yet to find a source that identifies whether crowds were mostly composed of actual Amazon employees or supporters from the general public. The Vox article offers some insight:
Demonstrations weren’t confined to Amazon fulfillment centers. Hundreds of people attended rallies in Seattle, San Francisco, New York, Portland, Arlington, and Washington, DC, held in solidarity with warehouse workers’ rights and against Amazon’s ties to anti-immigration policy. And, with arguably more reach than in-person marches, labor unions like the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) called for a mass boycott of Amazon and Amazon-owned companies on Twitter, where the hashtags #BoycottAmazon, #AmazonStrike, and #PrimeDayStrike trended. Many consumers retweeted images announcing, “It’s Strike Day!” and urged shoppers not to cross the digital picket line.
Let’s consider the scale of this protest: a few hundred of Amazon’s (300,000) workers participated in rallies. Despite the small scale of employee dissention, the protests received considerable media attention. I would rather judge the impact of these actions on Amazon’s sales. The calls to #BoycottAmazon trended on Twitter, but how did customers respond? The short answer: with deafening silence. Quite likely, the protests — both digital and physical — did not affect Amazon’s sales to actual consumers. Total figures for Prime Day have not been fully verified yet, but Amazon has already claimed that 2019’s two-day version of the event was their biggest sales period ever — larger than 2018’s Black Friday and Cyber Monday sales COMBINED.
Once again, consumers have spoken and — once again — their actions indicate they just don’t care about companies’ values or political stances.
Moments after the July 16 announcement of the nominations for the Emmy Awards, most media sources highlighted the obvious story: the final season of fantasy epic Game of Thrones earned a record 32 nominations. Do you know what award received far, far less attention from the media? The category for “Outstanding Commercial.” The eligibility criteria for the award is relatively clear: a commercial between 30 and 120 seconds in length, that was distributed via broadcast or cable channels that could reach at least 50% of the US population (web-only ads are disqualified). The judgement criteria, on the other hand, is vague; there are no clear parameters for the definition of “outstanding.” Based on my review of previous winners, the entertainment appeal seems to be the most important factor. Whether the commercials were actually effective at selling products seems somewhat (or entirely) irrelevant.
You probably remember many of the award-winning commercials since the category was introduced in 1997, including this iconic campaign from Apple:
Apple has continued to earn regular recognition, along with Nike, which holds the record for most nominations with ten (including one my favorites, a hilarious send-up of Y2K anxiety, “The Morning After”). P&G has collected the most Emmys (four), using their Old Spice “The Man You Could Smell Like” commercial to develop an entire series of buzz-worthy ads for that brand:
The 2019 nominees for “Outstanding Commercial” include:
Nike, “Dream Crazy” (the same commercial I wrote about when it was nominated at Cannes)
Sandy Hook Promise, “Point of View”
Netflix, “A Great Day in Hollywood”
All five candidates are highly engaging to watch; the ability to entertain and/or inspire seems to be the primary metric for nomination. The winning commercials receive two award statues: one to the agency that conceived the ad and one to the production company that created the commercial. Who doesn’t get a statue? The company behind the brand (although I suspect they’re much happier with gaining brand exposure than collecting a gold sculpture).
You could do worse than spending eight minutes watching the five nominees, but don’t expect to be a better marketer when you’re finished!
Thanks for reading and keep it simple,
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Edward Nevraumont is a Senior Advisor with Warburg Pincus. The former CMO of General Assembly and A Place for Mom, Edward previously worked at Expedia and McKinsey & Company. For more information, including details about his latest book, check out Marketing BS.