These days the press and politicians talk incessantly about the top 1% in American society. Each day, it seems, as Senator Bernie Sanders delivers his passionate and fiery stump speech, he states “and the top 1% of Americans earn 22% of the national income.” The purpose of this post is not to trash Senator Sanders. It is, rather, to dig a bit deeper in to the top 1%. What I have found will surprise many of you and perhaps shock some as well.
First, let us define terms. Numbers float around and change constantly but as I write, IRS data puts the top 1% of household income at about $394,000. It may be higher the next time the report is released or adjustments are made by an economic forecasting team. For this post, let us simply accept that.
Now, when you read comments about the top 1%, they tend to discuss these fortunate individuals as being a PERMANENT force as locked in as the 19th century British landed gentry (the Downton Abbey crowd, for example). In his thought provoking 2014 book, “Capital in the Twenty-First Century”, French economist Thomas Piketty essentially says the 1% are a world apart and “stand out in society and exert a significant influence on both the social landscape and the political and economic order.” Were he describing the top 1% in WEALTH, I would agree completely. More about that later.
The main issue that startled me about looking at the top 1% in income was how much turnover was in that group. Only half of the people with these nosebleed incomes in a given year are still there a decade later. And, it is even more pronounced among the super earners who have the 400 highest incomes in the country. Only a quarter of the top 400 last for 10 straight years. Part of that is because incomes at the high end are largely from investments which are far more volatile than virtually anyone’s salary base.
Here are some startling (to me) factoids from the Panel on Income Dynamics which is derived from rock hard IRS data:
--Some 45% of Americans will take advantage of food stamps or Medicaid before age 60.
--70% of American workers will be in the top 20% of earnings for at least one year prior to age 60.
--53% of Americans will be in the to 10% for at least a year
--11.1% will be in the top 1% for at least a year
--Only .6% of the population will spend 10 consecutive years in the top 1% of earners
Are these numbers real? I assure you they are. How is it possible? We live in a country with a relatively free market. So, we have what economists may describe as a fluid economic order. People have good years and bad.
Before you say that you will never reach the top 1% in a single year, consider this. If you have owed a house for 10 + years in a suburb of New York, Boston, Washington, San Francisco or just about anywhere in Hawaii and sell the place this year, the odds are overwhelming that for, this year, you will be in the top 1%. Do you have an aging parent or aunt or uncle? If they pass away, and leave you a reasonable inheritance you will join the lucky top 1% for 2016 when the inheritance is added to your household income. Next year, you are back in the pack. Ever get lucky with a tech stock that explodes upward like a Roman candle? Same thing. You have a big year.
So each year, many thousands come in and out of the top 1%. A few years back, SPORTS ILLUSTRATED published a stunning and sad piece about how 78% of NFL players declared bankruptcy within two years of retirement. Impossible? Remember, most players do not make it past four years and are ineligible for an NFL pension. Their income plummets and they fall from the 1% abruptly. Some may wind up on food stamps or some kind of assistance.
How about the top 400? Why the turnover? Well, some 40 people made over $1billion last year. Many were hedge fund managers. This year, some may lose money so they will have a negative income despite significant passive income (dividends and interest). Their net worth may be just great and they may still be billionaires in net worth. Yet they have fallen from the top .01% to the bottom with zero net income.
So the real issue for the reformers, politicians and even some Nobel laureates who should know better is to look at the concentration of wealth and not at income stats which I hope to have shown are very erratic at the top end. If a confiscatory income tax were put in to effect against the top 1% in the United States it would hurt many who were striving for accumulation of wealth (many of you younger readers). Those who already had significant wealth via an enormous asset base might find higher taxes an annoyance but it would not hamper their lifestyle or influence much at all.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Thursday, January 14, 2016
Tuesday, December 29, 2015
A Sort of 2016 Media Forecast
In recent weeks, I have received a number of requests from readers and friends to put together a 2016 Media Forecast. I was very hesitant as I do not see the next year with much clarity. The economic world, among others, is in great flux. After years of explosive growth, emerging markets are taking a rest. The low cost of oil is affecting Russia and Brazil significantly and many do not see the supply overload righting itself until 2017. The muscular US dollar will likely only rise as interest rates inch up in 2016, and, as a result, American exports will suffer. Friends who are uber-bullish about the stock market seem to ignore that part of the relative strength has been companies simply buying back their shares rather than investing in innovation, personnel, or capital equipment. An old friend told me to go ahead with a forecast saying, “Don, you have been on this forecasting beat for 40 years; you must know something.” He is correct. What I know is what I do not know. And, I have never been more uncomfortable as I look ahead to 2016.
This year, I decided an interesting tact would be to avoid going to my “old reliables.” These are people whom I have known forever and whose judgement I respect. Instead, I went to an ENTIRE new crew of contributors for a forecast. Candidly, I have been disappointed. There were too many remarks that were self serving. I received comments along the lines of “my medium is in tough shape. But my station (magazine, newspaper) will prance through 2016 smiling.” Others said that, “in 2016, we may have a brokered GOP convention. Think how much ad spend we will get in my state after decades of virtually nothing.” Finally, “you worry too much. Things are going to get better each quarter.”
Let me share a few things that I have often used as benchmarks for economic activity. They may not get much press but they have been my ultimate checklist over the years.
1) The Labor Participation Rate--the talking heads on TV talk about the relatively low unemployment rate. Yes, employment has slowly improved over the last few years. At the same time, my acid test, the Labor Participation Rate, is terrible. One group says that it is the lowest since 1977 while another group says that it is at the lowest level ever. Why split hairs? It stinks. One is only considered to be unemployed if he or she is actively seeking employment. If you are discouraged and stop searching for gainful employment, you are no longer considered unemployed.
2) Caterpillar (CAT)--the fortunes of the Illinois based company with the distinctive yellow backhoes and other earth moving equipment is a simplistic touchstone for me of global economic health. If CAT is not getting new orders, then ground is not being broken both in the U.S. and around the world. Right now, Caterpillar appears to be struggling. That is not a good sign for economic activity.
3) Trucking--most goods in the U.S. still move by truck. If the action slows as it has, that is not a good barometer of a vibrant economy picture.
Oversimplified? You bet! Scary. You bet?
Okay, here are a few fearless forecasts for 2016:
1) Digital will continue to grow at a double digit pace.
2) Social media will likely have a majority of its action in mobile vs. laptop. Not by much but a clear winner.
3) Mobile will continue to invade our lives but growth as an ad medium may be short of expectations.
4) Conventional media will continue to weaken due to what I have dubbed “internal deterioration.” Yes, TV could be up a few percentage points overall and radio in many markets will hold steady but their share of the ad pie will get smaller despite headlines touting increased spending for elections and Olympics. Newspaper and magazines will continue to decline.
5) Outside the U.S., the rate of growth will slow a bit as China softens (still growing but at slower pace), and Russia and Brazil and other natural resource dependent countries struggle. Europe will move forward a bit in most countries.
A sleeper. You have all heard of cord-cutting--some people give up on cable or satellite and make do with Netflix, Hulu, You Tube and other options. This year, you may hear about cord-nevers. These are young people who have never had a mainstream TV service and see no reason to get one. They tend to be well educated and increasingly affluent. How will you reach them? Hint--Big Data will help.
Toothless comments? Perhaps. Yet 2016 strikes me as being a year of murkiness and contradictions.
Here is wishing all of us a happy, healthy and prosperous 2016 despite the headwinds that I see ahead.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a comment on the blog
This year, I decided an interesting tact would be to avoid going to my “old reliables.” These are people whom I have known forever and whose judgement I respect. Instead, I went to an ENTIRE new crew of contributors for a forecast. Candidly, I have been disappointed. There were too many remarks that were self serving. I received comments along the lines of “my medium is in tough shape. But my station (magazine, newspaper) will prance through 2016 smiling.” Others said that, “in 2016, we may have a brokered GOP convention. Think how much ad spend we will get in my state after decades of virtually nothing.” Finally, “you worry too much. Things are going to get better each quarter.”
Let me share a few things that I have often used as benchmarks for economic activity. They may not get much press but they have been my ultimate checklist over the years.
1) The Labor Participation Rate--the talking heads on TV talk about the relatively low unemployment rate. Yes, employment has slowly improved over the last few years. At the same time, my acid test, the Labor Participation Rate, is terrible. One group says that it is the lowest since 1977 while another group says that it is at the lowest level ever. Why split hairs? It stinks. One is only considered to be unemployed if he or she is actively seeking employment. If you are discouraged and stop searching for gainful employment, you are no longer considered unemployed.
2) Caterpillar (CAT)--the fortunes of the Illinois based company with the distinctive yellow backhoes and other earth moving equipment is a simplistic touchstone for me of global economic health. If CAT is not getting new orders, then ground is not being broken both in the U.S. and around the world. Right now, Caterpillar appears to be struggling. That is not a good sign for economic activity.
3) Trucking--most goods in the U.S. still move by truck. If the action slows as it has, that is not a good barometer of a vibrant economy picture.
Oversimplified? You bet! Scary. You bet?
Okay, here are a few fearless forecasts for 2016:
1) Digital will continue to grow at a double digit pace.
2) Social media will likely have a majority of its action in mobile vs. laptop. Not by much but a clear winner.
3) Mobile will continue to invade our lives but growth as an ad medium may be short of expectations.
4) Conventional media will continue to weaken due to what I have dubbed “internal deterioration.” Yes, TV could be up a few percentage points overall and radio in many markets will hold steady but their share of the ad pie will get smaller despite headlines touting increased spending for elections and Olympics. Newspaper and magazines will continue to decline.
5) Outside the U.S., the rate of growth will slow a bit as China softens (still growing but at slower pace), and Russia and Brazil and other natural resource dependent countries struggle. Europe will move forward a bit in most countries.
A sleeper. You have all heard of cord-cutting--some people give up on cable or satellite and make do with Netflix, Hulu, You Tube and other options. This year, you may hear about cord-nevers. These are young people who have never had a mainstream TV service and see no reason to get one. They tend to be well educated and increasingly affluent. How will you reach them? Hint--Big Data will help.
Toothless comments? Perhaps. Yet 2016 strikes me as being a year of murkiness and contradictions.
Here is wishing all of us a happy, healthy and prosperous 2016 despite the headwinds that I see ahead.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a comment on the blog
Monday, December 21, 2015
The Endowment Effect in Television Advertising
Those of you who have studied Consumer Behavior, Psychology, or Behavioral Economics are undoubtedly familiar with what is known as “The Endowment Effect.” Quite simply, it occurs when a person or persons ascribe more value to things merely because they own them.
A few examples might include when a couple decides to sell their home. Their realtor may give them an estimate based on similar homes in the same zip code but the owners insist that their home is special and deserves to be premium priced. Used cars are another great example. A seller explains that his/her old car is a “cream puff” that was beautifully maintained and has mysteriously low mileage. Selling something on e-bay? The odds are good that the owner believes her collectible is going to fetch a top price after a lively bidding war.
Over the last few years, I have come to believe that, in television advertising, the endowment effect, is beginning to wane. Historically, literally going back 60 years, media planners and negotiators always took the attitude that one “pays more to get more.” In other words, you paid a higher cost per rating point for a spot with a 15 rating than one with a three rating. The appeal was that the 15 rating reached a larger unduplicated audience so you were willing to pay a premium, often significant, to get that substantial audience all at once. The Super Bowl remains an outstanding example of this principle as it consistently delivers 44-45% of US TV households each year, and importantly, commercial attentiveness is higher for The Super Bowl than any other TV event.
The problem is that today there are few things out there that even deliver a fourth of The Super Bowl’s audience. And, commercial avoidance via DVR’s, Netflix, Hulu, or simply using the remote, is at an all time high and gaining ground. So, even if one buy’s one of today’s top rated primetime show (assume an eight rating), many will tape the show and edit out commercials as they watch it. The advertiser has paid a premium for the large audience but what are they really getting in terms of attentiveness?
Separately, there is the issue of sports programming. Sports has always been premium priced on a cost per potential eye ball basis. While it varies by telecast and quality of the audience, let us use a 20% premium as a benchmark for advertising in a sports vehicle. Today, some people tape football games and play them back. The average game has 12-13 minutes of action. Do people dutifully watch commercials or listen to sometimes inane commentary when playing a game back? It would appear to be highly unlikely. On fall Saturdays when college games are broadcast, it is not unusual to have seven games playing simultaneously. Hardcore pigskin fans can jump from game to game during commercial breaks lessening the impact of advertising dollars placed in specific games.
Some have commented to me that my point is well made but it is all relative. In the 1980’s, General Hospital on ABC Daytime was a soap opera that delivered a 20 household rating and was often used by buyers as a primetime surrogate depending on the product advertised. Simultaneously, some late news (WPVI in Philadelphia, for example) also delivered killer numbers that could bring buys in nicely. Today, an eight is the new 20. I see their point but there does not seem to be a lowering of the premium over ordinary fare consistent with the precipitous drop in ratings.
Now, I fully understand that TV costs are determined by the law of supply and demand. So, if media negotiators continue to bid up the prices of a handful of selected shows with either strong numbers or attractive demographics, that is simply the way the market works. Yet, when will it end or slow down? We all know that TV does not work as well as it used to not so many years ago. Measurement of a host of digital options is getting better and better so a shift away from TV may start to pick up speed and soon.
Agency media people continue to give certain aspects of TV an endowment effect that remains on steroids despite crumbling measured delivery and attentiveness. Something has to give.
To Media Realism readers all over the world, may I wish you a very Merry Christmas.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
A few examples might include when a couple decides to sell their home. Their realtor may give them an estimate based on similar homes in the same zip code but the owners insist that their home is special and deserves to be premium priced. Used cars are another great example. A seller explains that his/her old car is a “cream puff” that was beautifully maintained and has mysteriously low mileage. Selling something on e-bay? The odds are good that the owner believes her collectible is going to fetch a top price after a lively bidding war.
Over the last few years, I have come to believe that, in television advertising, the endowment effect, is beginning to wane. Historically, literally going back 60 years, media planners and negotiators always took the attitude that one “pays more to get more.” In other words, you paid a higher cost per rating point for a spot with a 15 rating than one with a three rating. The appeal was that the 15 rating reached a larger unduplicated audience so you were willing to pay a premium, often significant, to get that substantial audience all at once. The Super Bowl remains an outstanding example of this principle as it consistently delivers 44-45% of US TV households each year, and importantly, commercial attentiveness is higher for The Super Bowl than any other TV event.
The problem is that today there are few things out there that even deliver a fourth of The Super Bowl’s audience. And, commercial avoidance via DVR’s, Netflix, Hulu, or simply using the remote, is at an all time high and gaining ground. So, even if one buy’s one of today’s top rated primetime show (assume an eight rating), many will tape the show and edit out commercials as they watch it. The advertiser has paid a premium for the large audience but what are they really getting in terms of attentiveness?
Separately, there is the issue of sports programming. Sports has always been premium priced on a cost per potential eye ball basis. While it varies by telecast and quality of the audience, let us use a 20% premium as a benchmark for advertising in a sports vehicle. Today, some people tape football games and play them back. The average game has 12-13 minutes of action. Do people dutifully watch commercials or listen to sometimes inane commentary when playing a game back? It would appear to be highly unlikely. On fall Saturdays when college games are broadcast, it is not unusual to have seven games playing simultaneously. Hardcore pigskin fans can jump from game to game during commercial breaks lessening the impact of advertising dollars placed in specific games.
Some have commented to me that my point is well made but it is all relative. In the 1980’s, General Hospital on ABC Daytime was a soap opera that delivered a 20 household rating and was often used by buyers as a primetime surrogate depending on the product advertised. Simultaneously, some late news (WPVI in Philadelphia, for example) also delivered killer numbers that could bring buys in nicely. Today, an eight is the new 20. I see their point but there does not seem to be a lowering of the premium over ordinary fare consistent with the precipitous drop in ratings.
Now, I fully understand that TV costs are determined by the law of supply and demand. So, if media negotiators continue to bid up the prices of a handful of selected shows with either strong numbers or attractive demographics, that is simply the way the market works. Yet, when will it end or slow down? We all know that TV does not work as well as it used to not so many years ago. Measurement of a host of digital options is getting better and better so a shift away from TV may start to pick up speed and soon.
Agency media people continue to give certain aspects of TV an endowment effect that remains on steroids despite crumbling measured delivery and attentiveness. Something has to give.
To Media Realism readers all over the world, may I wish you a very Merry Christmas.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Sunday, December 13, 2015
The Key to Success is Failure
For most of my adult life, I have read or heard people talk about positive thinking and how some people are just born winners. There is no question that positive thinking is a good thing but to me the greatest success often comes to people who have had some hard knocks, learned from it, and overcome the difficulty.
Like many New Englanders of my generation, my childhood hero was Red Sox great Ted Williams. Urban legend has it that in retirement, Ted one said that baseball “is the only field of endeavor where a man can succeed three times out of ten and be considered a good performer.” Ted was right about baseball. If a guy hits .300 consistently for 10-15 years, he is a virtual lock for the Baseball Hall of Fame at Cooperstown.
Actually, Ted was wrong that a .300 batting average would only make you a success in baseball. Ask any advertising agency executive about his or her new business batting average. Yes, many shops have hot streaks, but virtually no one bats .300 at new business over the long pull. If you are not talking about the three-four shops who make the cut for the creative or marketing shoot-out, then the average for everyone is much much lower than .300 as many do not make the cut at the RFP (Request for Proposal) stage.
How about the new rage in marketing--Targeting models employing Big Data?
Well, look at Groupon coupon redemptions. The number is something like six coupons out of 10,000 mailed out. Amazon does far better with their Zappos offers as they have a clear look at purchase history but still, despite the best targeting ever, the failure rate is staggering.
How about science? From the time I was able to read, I also was informed of the genius of Thomas Edison. Yet, Edison performed thousands and thousands of experiments before he had a breakthrough with electricity or movie cameras. He was quoted as saying that discovery was “1% inspiration and 99% perspiration.”
Know many investment millionaires? Most will tell you that most of their purchases lost money or were lackluster. A couple of 10 baggers (1,000% return) or one 100 bagger (10,000% return) put them on easy street.
How about those dealing with addiction? Most fail a few times before turning their lives around in re-hab. And, it is a verifiable fact that the majority of “overnight successes” in the entrepreneurial world may have struck gold on their third or fourth attempt.
Failure is so important in the business world. If you learn from your mistakes, you improve your chances significantly on your next effort. And, importantly, failure teaches you true humility which is the differentiating characteristic of many great leaders.
So, we all have failures and will continue to experience them. Analyze them and try and learn from them. Dust yourself off and get back in the game. Over the long pull, failure can be your friend.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Like many New Englanders of my generation, my childhood hero was Red Sox great Ted Williams. Urban legend has it that in retirement, Ted one said that baseball “is the only field of endeavor where a man can succeed three times out of ten and be considered a good performer.” Ted was right about baseball. If a guy hits .300 consistently for 10-15 years, he is a virtual lock for the Baseball Hall of Fame at Cooperstown.
Actually, Ted was wrong that a .300 batting average would only make you a success in baseball. Ask any advertising agency executive about his or her new business batting average. Yes, many shops have hot streaks, but virtually no one bats .300 at new business over the long pull. If you are not talking about the three-four shops who make the cut for the creative or marketing shoot-out, then the average for everyone is much much lower than .300 as many do not make the cut at the RFP (Request for Proposal) stage.
How about the new rage in marketing--Targeting models employing Big Data?
Well, look at Groupon coupon redemptions. The number is something like six coupons out of 10,000 mailed out. Amazon does far better with their Zappos offers as they have a clear look at purchase history but still, despite the best targeting ever, the failure rate is staggering.
How about science? From the time I was able to read, I also was informed of the genius of Thomas Edison. Yet, Edison performed thousands and thousands of experiments before he had a breakthrough with electricity or movie cameras. He was quoted as saying that discovery was “1% inspiration and 99% perspiration.”
Know many investment millionaires? Most will tell you that most of their purchases lost money or were lackluster. A couple of 10 baggers (1,000% return) or one 100 bagger (10,000% return) put them on easy street.
How about those dealing with addiction? Most fail a few times before turning their lives around in re-hab. And, it is a verifiable fact that the majority of “overnight successes” in the entrepreneurial world may have struck gold on their third or fourth attempt.
Failure is so important in the business world. If you learn from your mistakes, you improve your chances significantly on your next effort. And, importantly, failure teaches you true humility which is the differentiating characteristic of many great leaders.
So, we all have failures and will continue to experience them. Analyze them and try and learn from them. Dust yourself off and get back in the game. Over the long pull, failure can be your friend.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Tuesday, December 1, 2015
The Big Deal About Big Data
Over the last few years, unless you were in a very remote part of the marketing world, the term “Big Data” has become increasingly prominent. Just what is it? How important is it going forward in the discipline of Consumer Behavior and the world of Advertising and Marketing?
To me, Big Data is the legitimate heir to popular terms of the new century such as dot.com, social media, and wireless. It means a lot of data. No joke! That is it!
The issue to me is not that we have more data than ever before, a great deal more of it, but we have far more analyses. A tremendous amount more.
The driving force of this marketing or sales revolution is not the massive data itself. It is the AVAILABILITY of the information. To repeat, Big Data means more analyses, but, at the same time, it also means more bad analyses as well. In today’s world, there is no way to escape people crunching numbers (I have done it forever). And now, marketers and analysts have vastly more numbers to review.
Today, by employing Big Data, marketers, especially online players, know a great about their regular customers and they are constantly fine tuning their methods. A friend said that he is searching for the holy grail of communication--making the right offer to the right person at the right time.
How do they do it? To wildly oversimplify, they essentially get needed information two ways:
1) Loyalty cards--This is clearly the most direct way for a marketer to learn your shopping habits. Retailers “bribe you” in essence, by obtaining your personal data with rebates, gifts, or other benefits. The best example that I have ever found was a few years back when JPMorgan Chase issued an Amazon credit card. The carrot that they offered was that you received three reward points for every dollar purchased on Amazon with the Chase Amazon card. All other purchases received one point for each dollar spent with the card. With a powerful incentive in place, a large number of people put much of their expenditures on that one card and used Amazon more often. So, in crude terms, Amazon gets the platinum mine and you get the shaft. Only a few would think this. Most would say they get the benefits of a souped-up Amazon reward plan. A handful, generally very mature would worry about privacy. The younger demographic by a rate of 95% to 5% would opt for convenience over privacy. So, with the loyalty card Amazon has a rather clear view of your spending habits. They can customize offers to you and others like you to push you over the edge and grab a deal.
2) Loyal or Regular Customers--A retailer or company site will graze through your past shopping records and look for clues to your shopping behavior. If you come up without a clearcut profile, they will link you with customers who “look like” you in some way or share several demographic characteristics. This leap of faith is known as PROXY DATA and can include basics such as age, income, nine digit zip, education, subscriptions to selected magazines and even if you have a cat or a dog. The mountain of Proxy Data that is being built up almost defies description. Companies have massive databases that cover nearly 75% of all US Households. They peddle this information to many takers and slice it up in infinite variations. A few examples are:
1) The basics such as age, gender, education, income and ethnicity
2) Consumption data--What do this household spend on liquor, fine wine, even ice cream. Ice Cream? A quick story. On Saturday, my wife sent me to a toney grocery store to pick up two items. As I passed the ice cream section, the marketer in me stopped. They had a brand unfamiliar to me that was selling for $7.25 cents a pint. I laughed to myself and wondered who would be buying ice cream priced at over $50 a gallon. An instant later, a very beautifully dressed woman said, “Excuse me, sir, may I get in to the freezer.” As she put two pints of the designer ice cream into her shopping cart, she smiled and told me that her daughter was home for Thanksgiving break and just loved this ice cream. I very quickly drew a demographic profile of the lovely mom. Coincidentally, we checked out at almost the same time and left the store simultaneously. My hunch was correct. She hopped in to a new Land Rover and, as she drove away, I saw a sticker on the rear window for both Brown University and Williams College. With that, I could narrow her home to one of three zip codes. If I can do that by inspection, imagine what a marketer can do with a few dozen data points!
3) Lifestyle data--How often have you moved (average home stay is seven years in the US) and how long is your marriage and is it your first.
4) Neighborhood information--How long do people commute to work and how many own their dwellings
In 2008, when the economy appeared to be in shambles, the great Chris Anderson wrote a magazine article entitled “The End of Theory.” Anderson is the author of THE LONG TAIL (a book which I highly recommend) and is the former editor of WIRED Magazine. It was the first article that really brought the concept of Big Data into the mainstream. His thesis was that data would become so big and so complete that models to reach target prospects or even project sales forecasts would be obsolete.
To quote, the lead passage from his article we find: “This is a world where massive amounts of data and applied mathematics replace every other tool that might be brought to bear. Out of every theory of human behavior, from linguistics to sociology. Forget taxonomy, ontology, and psychology. Who knows why people do what they do? The point is that they do it and we can track and measure it with unprecedented fidelity. With enough data, the numbers speak for themselves.”
Now, that you have looked up the definitions of taxonomy and ontonology, let us continue.
If you study Consumer Behavior with any depth, you soon realize that the true causes for buying defy simple measurement. With so much data available, we may weigh various data points incorrectly and make unwarranted assumptions.
Big Data is wildly useful but it cannot tell you why fads occur or why all of us at one time or another make impulsive purchases. Statisticians refer to these as LATENT FACTORS as they cannot be seen or observed. Is Anderson totally right about the future of Big Data? I doubt it for one big reason. My favorite statistician, Kaiser Fung, put it beautifully when he wrote, “It is just hopeless to distill the kaleidoscope of human behavior in to a set of equations.”
What does this mean for the future of both Consumer Behavior as a marketing discipline and for the future of Integrated Marketing Communications? Plenty, but the impact of Big Data is not clearcut. One could make a safe bet that as logarithms improve marketers will depend more on online and mobile options to reach people. Traditional media has to struggle even more than they do today. Facebook may grow in stature as the word of mouth it provides re products and services will help while legacy media flounders.
Remember, that statistics are no substitute for judgement but unbiased analyses should be a great help to marketers going forward.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
To me, Big Data is the legitimate heir to popular terms of the new century such as dot.com, social media, and wireless. It means a lot of data. No joke! That is it!
The issue to me is not that we have more data than ever before, a great deal more of it, but we have far more analyses. A tremendous amount more.
The driving force of this marketing or sales revolution is not the massive data itself. It is the AVAILABILITY of the information. To repeat, Big Data means more analyses, but, at the same time, it also means more bad analyses as well. In today’s world, there is no way to escape people crunching numbers (I have done it forever). And now, marketers and analysts have vastly more numbers to review.
Today, by employing Big Data, marketers, especially online players, know a great about their regular customers and they are constantly fine tuning their methods. A friend said that he is searching for the holy grail of communication--making the right offer to the right person at the right time.
How do they do it? To wildly oversimplify, they essentially get needed information two ways:
1) Loyalty cards--This is clearly the most direct way for a marketer to learn your shopping habits. Retailers “bribe you” in essence, by obtaining your personal data with rebates, gifts, or other benefits. The best example that I have ever found was a few years back when JPMorgan Chase issued an Amazon credit card. The carrot that they offered was that you received three reward points for every dollar purchased on Amazon with the Chase Amazon card. All other purchases received one point for each dollar spent with the card. With a powerful incentive in place, a large number of people put much of their expenditures on that one card and used Amazon more often. So, in crude terms, Amazon gets the platinum mine and you get the shaft. Only a few would think this. Most would say they get the benefits of a souped-up Amazon reward plan. A handful, generally very mature would worry about privacy. The younger demographic by a rate of 95% to 5% would opt for convenience over privacy. So, with the loyalty card Amazon has a rather clear view of your spending habits. They can customize offers to you and others like you to push you over the edge and grab a deal.
2) Loyal or Regular Customers--A retailer or company site will graze through your past shopping records and look for clues to your shopping behavior. If you come up without a clearcut profile, they will link you with customers who “look like” you in some way or share several demographic characteristics. This leap of faith is known as PROXY DATA and can include basics such as age, income, nine digit zip, education, subscriptions to selected magazines and even if you have a cat or a dog. The mountain of Proxy Data that is being built up almost defies description. Companies have massive databases that cover nearly 75% of all US Households. They peddle this information to many takers and slice it up in infinite variations. A few examples are:
1) The basics such as age, gender, education, income and ethnicity
2) Consumption data--What do this household spend on liquor, fine wine, even ice cream. Ice Cream? A quick story. On Saturday, my wife sent me to a toney grocery store to pick up two items. As I passed the ice cream section, the marketer in me stopped. They had a brand unfamiliar to me that was selling for $7.25 cents a pint. I laughed to myself and wondered who would be buying ice cream priced at over $50 a gallon. An instant later, a very beautifully dressed woman said, “Excuse me, sir, may I get in to the freezer.” As she put two pints of the designer ice cream into her shopping cart, she smiled and told me that her daughter was home for Thanksgiving break and just loved this ice cream. I very quickly drew a demographic profile of the lovely mom. Coincidentally, we checked out at almost the same time and left the store simultaneously. My hunch was correct. She hopped in to a new Land Rover and, as she drove away, I saw a sticker on the rear window for both Brown University and Williams College. With that, I could narrow her home to one of three zip codes. If I can do that by inspection, imagine what a marketer can do with a few dozen data points!
3) Lifestyle data--How often have you moved (average home stay is seven years in the US) and how long is your marriage and is it your first.
4) Neighborhood information--How long do people commute to work and how many own their dwellings
In 2008, when the economy appeared to be in shambles, the great Chris Anderson wrote a magazine article entitled “The End of Theory.” Anderson is the author of THE LONG TAIL (a book which I highly recommend) and is the former editor of WIRED Magazine. It was the first article that really brought the concept of Big Data into the mainstream. His thesis was that data would become so big and so complete that models to reach target prospects or even project sales forecasts would be obsolete.
To quote, the lead passage from his article we find: “This is a world where massive amounts of data and applied mathematics replace every other tool that might be brought to bear. Out of every theory of human behavior, from linguistics to sociology. Forget taxonomy, ontology, and psychology. Who knows why people do what they do? The point is that they do it and we can track and measure it with unprecedented fidelity. With enough data, the numbers speak for themselves.”
Now, that you have looked up the definitions of taxonomy and ontonology, let us continue.
If you study Consumer Behavior with any depth, you soon realize that the true causes for buying defy simple measurement. With so much data available, we may weigh various data points incorrectly and make unwarranted assumptions.
Big Data is wildly useful but it cannot tell you why fads occur or why all of us at one time or another make impulsive purchases. Statisticians refer to these as LATENT FACTORS as they cannot be seen or observed. Is Anderson totally right about the future of Big Data? I doubt it for one big reason. My favorite statistician, Kaiser Fung, put it beautifully when he wrote, “It is just hopeless to distill the kaleidoscope of human behavior in to a set of equations.”
What does this mean for the future of both Consumer Behavior as a marketing discipline and for the future of Integrated Marketing Communications? Plenty, but the impact of Big Data is not clearcut. One could make a safe bet that as logarithms improve marketers will depend more on online and mobile options to reach people. Traditional media has to struggle even more than they do today. Facebook may grow in stature as the word of mouth it provides re products and services will help while legacy media flounders.
Remember, that statistics are no substitute for judgement but unbiased analyses should be a great help to marketers going forward.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Sunday, November 22, 2015
The Network TV Security Blanket
Earlier this year, tracking services indicated that television as an advertising medium had declined in real terms for one quarter. This sparked a few headlines and some gloom and doom comments. Yet looking at the last few years, as newspaper, magazines and, to a lesser degree radio have faltered, TV has held is own in terms of dollar share of total advertising expenditures as internet and mobile spending has increased smartly.
For nearly a decade many pundits have been talking about the death of TV as an advertising medium. It definitely has not happened. I have felt that it inevitably will decline but that the fall off will take a very long time. Recently, I surveyed a number of agency people across the country as well as a handful of advertisers and their comments only reinforced my belief.
Each year, several people ask me whether this coming year will be the final bow for the network TV upfront marketplace. I always say no but, when pressed, refuse to forecast when it will become obsolete. People who put precision around such events remind me of the economic Cassandras who pen books entitled with catchy titles such as HOW TO BEAT THE CRASH THAT IS SURELY COMING. Every generation someone gets the timing right but much of that has to be luck.
Is advertiser supported TV in trouble? Yes and no. It is definitely changing and no longer packs the communications wallop that it had not that long ago. Here is a motley mix of comments that I received from agency professionals, a few retired media executives, some active and very anonymous broadcast sales executives, a digital media director, and a local cable trailblazer.
--Retired Network Sales Executive--“Of course, we are in a steady and permanent decline. Hell, even I am a Netflix junkie these days. My former colleagues are a scrappy bunch and they will be standing longer than many realize. They are doing a nice job of bringing new advertisers on air. Some of the tech guys should know better as they do not need us all that much.”
--Agency Media Strategist--“You once asked me how things were going in my shop as we evolved in to digital. I was annoyed with you but there is a “knife fight” (your term) going on each year among the network buyers and the planning team. We keep pulling network TV back in our initial plans and adding more digital. Clearly, we are winning but the haves, the old line negotiators, are not rolling over. We spend too much in all forms of TV but directionally things are getting better.”
--Agency Media Chief--“My big problem is a few of our biggest clients. Network TV is a security blanket to them. Off the record, we still do too much. I am trying to have my team wean them away from it. Several years have gone by and we are making progress. To me, network TV is not going to dry up and blow away. It is getting downscale and a lot older. That argument seems to work with our more traditional clients.”
--Sales Manager, Local Market (Network Affiliate)--“it comes down to two things, Don. We are taking clients that we never would have considered 10 years ago and are proud to get them. Also, we are licking our chops about the upcoming political season. This would never have happened years ago. And, as you and I have discussed the last decade, TV does not work nearly as well anymore. Our local news is awful but is still a station cash cow. Go figure.”
--Digital Media Director--“I try to move people along into more digital options. We are always recommending tests. I have avoided wars with the broadcast players at my agency and traditional clients. The smart old ones see what is happening and are riding it out until retirement. A lot of money is being wasted but it used to be worse.”
--Local cable sales star--“We are doing more and more with zoned buys and strong promotions. The little retailers love it and we have made TV affordable for them. It is a lot more work but we will prolong the life of our version of TV longer than most are betting.”
--Local TV sales chief--“Whenever I have a bad day, I tell myself, it could be worse. You could be selling newspaper or radio (laughs). We have lost the under 30 crowd except for a few sporting events. Game over? No way. But, we cannot turn this ship around no matter what New York says.”
So, US TV is still a big force in advertising. Its influence is sagging and smart young people are going to work elsewhere according to my sources. Video usage will continue to grow but advertising avoidance should move in lockstep with it.
If you would like to contact Don Cole directly, you may reach him at doncolemedia @gmail.com
For nearly a decade many pundits have been talking about the death of TV as an advertising medium. It definitely has not happened. I have felt that it inevitably will decline but that the fall off will take a very long time. Recently, I surveyed a number of agency people across the country as well as a handful of advertisers and their comments only reinforced my belief.
Each year, several people ask me whether this coming year will be the final bow for the network TV upfront marketplace. I always say no but, when pressed, refuse to forecast when it will become obsolete. People who put precision around such events remind me of the economic Cassandras who pen books entitled with catchy titles such as HOW TO BEAT THE CRASH THAT IS SURELY COMING. Every generation someone gets the timing right but much of that has to be luck.
Is advertiser supported TV in trouble? Yes and no. It is definitely changing and no longer packs the communications wallop that it had not that long ago. Here is a motley mix of comments that I received from agency professionals, a few retired media executives, some active and very anonymous broadcast sales executives, a digital media director, and a local cable trailblazer.
--Retired Network Sales Executive--“Of course, we are in a steady and permanent decline. Hell, even I am a Netflix junkie these days. My former colleagues are a scrappy bunch and they will be standing longer than many realize. They are doing a nice job of bringing new advertisers on air. Some of the tech guys should know better as they do not need us all that much.”
--Agency Media Strategist--“You once asked me how things were going in my shop as we evolved in to digital. I was annoyed with you but there is a “knife fight” (your term) going on each year among the network buyers and the planning team. We keep pulling network TV back in our initial plans and adding more digital. Clearly, we are winning but the haves, the old line negotiators, are not rolling over. We spend too much in all forms of TV but directionally things are getting better.”
--Agency Media Chief--“My big problem is a few of our biggest clients. Network TV is a security blanket to them. Off the record, we still do too much. I am trying to have my team wean them away from it. Several years have gone by and we are making progress. To me, network TV is not going to dry up and blow away. It is getting downscale and a lot older. That argument seems to work with our more traditional clients.”
--Sales Manager, Local Market (Network Affiliate)--“it comes down to two things, Don. We are taking clients that we never would have considered 10 years ago and are proud to get them. Also, we are licking our chops about the upcoming political season. This would never have happened years ago. And, as you and I have discussed the last decade, TV does not work nearly as well anymore. Our local news is awful but is still a station cash cow. Go figure.”
--Digital Media Director--“I try to move people along into more digital options. We are always recommending tests. I have avoided wars with the broadcast players at my agency and traditional clients. The smart old ones see what is happening and are riding it out until retirement. A lot of money is being wasted but it used to be worse.”
--Local cable sales star--“We are doing more and more with zoned buys and strong promotions. The little retailers love it and we have made TV affordable for them. It is a lot more work but we will prolong the life of our version of TV longer than most are betting.”
--Local TV sales chief--“Whenever I have a bad day, I tell myself, it could be worse. You could be selling newspaper or radio (laughs). We have lost the under 30 crowd except for a few sporting events. Game over? No way. But, we cannot turn this ship around no matter what New York says.”
So, US TV is still a big force in advertising. Its influence is sagging and smart young people are going to work elsewhere according to my sources. Video usage will continue to grow but advertising avoidance should move in lockstep with it.
If you would like to contact Don Cole directly, you may reach him at doncolemedia @gmail.com
Thursday, November 12, 2015
The Disease of Short-Termism
In recent years, American business has increasingly ceased to look at the long term benefits of a strong and consistent approach to marketing and to advertising. When you ask people about it, most simply shrug. Those who talk to me about it are in one of two camps:
1) Things are changing so quickly with all the new platforms and media opportunities that people do not know what to do so they pull in their horns a bit too much.
2) The simple truth is that Wall Street runs America and not Main Street. Publicly traded companies will do anything to avoid missing Wall Street earnings estimates so many things suffer, particularly marketing and also, not insignificantly, honest accounting.
It might surprise many of you who know me that I tend to lean toward camp #2.
I have a long standing habit that amuses my wife but other people find to be more than mildly eccentric--I devour annual reports of companies from all over the globe. As I have gotten better at analyzing them, I notice that, increasingly, seemingly reputable companies are engaging in what I would categorize as accounting shenanigans. A CPA wrote to me recently, “I was up for a contract with a company somewhat larger than my usual client. The presentation went well and the prospect seem comfortable with my both me and my team. Then she asked, “How imaginative are you guys at managing earnings for your clients.” “I responded that we used every legitimate loophole to lower taxes but we never managed earnings. We were (politely) shown the door.”
A tax lawyer with international experience tells me that multi-nationals have a tough and bewildering job paying taxes in dozens of nations. He even added that the IRS often does not have the expertise to sort it all out. Given currency fluctuations and local taxes, the temptation is often great to move funds around or account for them in different years to avoid a “roller-coaster effect” of up and down earnings.
Years ago, I read an editorial from then Wall Street Journal editor Robert Bartley. One line will stay with me forever. He wrote, “True profits are represented by cash--a fact--rather than reported profit--an opinion.” One does not find such candor or clear thinking much these days.
Games are always being played. In recent years, more and more companies are doing huge buybacks of their stock. By decreasing the number of shares outstanding, earnings tend to rise. Even Warren Buffett admitted considering it for Berkshire Hathaway during the dark days of 2008-2009 but he found other ways to deploy his huge capital which he felt promised a better return. When your stock is clocked 50% yet earnings are holding up and the future looks solid, buying back shares in a great idea. Yet, CEO’s almost always believe that their shares are undervalued. I have seen a very prominent company continue to buy back its shares from a price of 110 down to 70. Surely, it may be a good buy at 70 but it definitely was not at 110. And, a few companies are even borrowing at today’s historically low interest rates to buy back some of their shares.
In 1974, I read a book by Robert Townsend, former president of Avis Rent A Car entitled UP THE ORGANIZATION (1970). It was a wonderful primer for someone just entering the business world. He had a mini-chapter in it where he talked about telling the press when you thought you stock was priced too high. I am a business news junkie. NEVER have I ever seen or heard or anyone acting on Townsend’s suggestion. Not once in over 40 years!
So businesses answer to Wall Street and are worried almost exclusively about the next 90 days rather than the long term health of their brands. I remember vividly owning Kellogg’s share in the early 1980’s. Earnings were stagnant one year and the CEO wrote to us saying that with many new product introductions marketing expenses would be unusually large for the coming year and would effect earnings. I see nothing like that today. Not even close.
Okay, what does this have to do with advertising and media? A lot.
An agency chief wrote to me to say that he provided a five year plan to his biggest client showing how they should increase spending across many platforms for the next 24 months and then ease up as two of their brands could become “cash cows” for the company. The client smiled and said no five year plans. They call up and want quick promotions or some carpet bombing couponing effort in print, online, and mobile but no one, client side, is in to the long term establishment of company brands. He put it nicely when he said, “These guys are all smiles and nod vigorously when we talk of brand-building but they never open their wallets when the time comes.”
A marketing director whom I respect says, “ You have to understand the reality. My CEO gets compensated for good stock performance. So, he buys back shares when he has excess cash. Sometimes his timing is good, sometimes not. And, he is manic about quarterly earnings. His long term is 90 days. He is not a bad guy or a crook. All he does is reflect the culture of the times which is dominated by Wall Street.”
If you think this is bad, talk to senior executives at media companies. A few comments from some old pros:
--“It is a cliche but still true. Many companies cut the ad budget when there is the first sign of trouble. They get away with it, FOR A WHILE. Earnings float along okay and then bam. They have to buy market share back. It is hard for us to plan.”
--“I have a very seasoned sales team. They warn me when clients are cutting back with no rational reason. My CEO does not care and give me the old chestnut about our debt service. We scramble like hell to get new clients on board. And, if people knew how inexpensive and effective lots of social media is, we would be finished.”
So, will things change? Will Wall Street loosen its grip? Will earnings be straightforward again? Will companies stop giving guidance to analysts and or will they refuse to turn somersaults to hit their numbers?
I would say that it is unlikely. A century ago, Upton Sinclair, the great journalist, put it well--“It is difficult to get a man to understand something when his salary depends on not understanding it.”
If you would like to contact Don Cole directly, you may post a comment on the blog or reach him at doncolemedia@gmail.com
1) Things are changing so quickly with all the new platforms and media opportunities that people do not know what to do so they pull in their horns a bit too much.
2) The simple truth is that Wall Street runs America and not Main Street. Publicly traded companies will do anything to avoid missing Wall Street earnings estimates so many things suffer, particularly marketing and also, not insignificantly, honest accounting.
It might surprise many of you who know me that I tend to lean toward camp #2.
I have a long standing habit that amuses my wife but other people find to be more than mildly eccentric--I devour annual reports of companies from all over the globe. As I have gotten better at analyzing them, I notice that, increasingly, seemingly reputable companies are engaging in what I would categorize as accounting shenanigans. A CPA wrote to me recently, “I was up for a contract with a company somewhat larger than my usual client. The presentation went well and the prospect seem comfortable with my both me and my team. Then she asked, “How imaginative are you guys at managing earnings for your clients.” “I responded that we used every legitimate loophole to lower taxes but we never managed earnings. We were (politely) shown the door.”
A tax lawyer with international experience tells me that multi-nationals have a tough and bewildering job paying taxes in dozens of nations. He even added that the IRS often does not have the expertise to sort it all out. Given currency fluctuations and local taxes, the temptation is often great to move funds around or account for them in different years to avoid a “roller-coaster effect” of up and down earnings.
Years ago, I read an editorial from then Wall Street Journal editor Robert Bartley. One line will stay with me forever. He wrote, “True profits are represented by cash--a fact--rather than reported profit--an opinion.” One does not find such candor or clear thinking much these days.
Games are always being played. In recent years, more and more companies are doing huge buybacks of their stock. By decreasing the number of shares outstanding, earnings tend to rise. Even Warren Buffett admitted considering it for Berkshire Hathaway during the dark days of 2008-2009 but he found other ways to deploy his huge capital which he felt promised a better return. When your stock is clocked 50% yet earnings are holding up and the future looks solid, buying back shares in a great idea. Yet, CEO’s almost always believe that their shares are undervalued. I have seen a very prominent company continue to buy back its shares from a price of 110 down to 70. Surely, it may be a good buy at 70 but it definitely was not at 110. And, a few companies are even borrowing at today’s historically low interest rates to buy back some of their shares.
In 1974, I read a book by Robert Townsend, former president of Avis Rent A Car entitled UP THE ORGANIZATION (1970). It was a wonderful primer for someone just entering the business world. He had a mini-chapter in it where he talked about telling the press when you thought you stock was priced too high. I am a business news junkie. NEVER have I ever seen or heard or anyone acting on Townsend’s suggestion. Not once in over 40 years!
So businesses answer to Wall Street and are worried almost exclusively about the next 90 days rather than the long term health of their brands. I remember vividly owning Kellogg’s share in the early 1980’s. Earnings were stagnant one year and the CEO wrote to us saying that with many new product introductions marketing expenses would be unusually large for the coming year and would effect earnings. I see nothing like that today. Not even close.
Okay, what does this have to do with advertising and media? A lot.
An agency chief wrote to me to say that he provided a five year plan to his biggest client showing how they should increase spending across many platforms for the next 24 months and then ease up as two of their brands could become “cash cows” for the company. The client smiled and said no five year plans. They call up and want quick promotions or some carpet bombing couponing effort in print, online, and mobile but no one, client side, is in to the long term establishment of company brands. He put it nicely when he said, “These guys are all smiles and nod vigorously when we talk of brand-building but they never open their wallets when the time comes.”
A marketing director whom I respect says, “ You have to understand the reality. My CEO gets compensated for good stock performance. So, he buys back shares when he has excess cash. Sometimes his timing is good, sometimes not. And, he is manic about quarterly earnings. His long term is 90 days. He is not a bad guy or a crook. All he does is reflect the culture of the times which is dominated by Wall Street.”
If you think this is bad, talk to senior executives at media companies. A few comments from some old pros:
--“It is a cliche but still true. Many companies cut the ad budget when there is the first sign of trouble. They get away with it, FOR A WHILE. Earnings float along okay and then bam. They have to buy market share back. It is hard for us to plan.”
--“I have a very seasoned sales team. They warn me when clients are cutting back with no rational reason. My CEO does not care and give me the old chestnut about our debt service. We scramble like hell to get new clients on board. And, if people knew how inexpensive and effective lots of social media is, we would be finished.”
So, will things change? Will Wall Street loosen its grip? Will earnings be straightforward again? Will companies stop giving guidance to analysts and or will they refuse to turn somersaults to hit their numbers?
I would say that it is unlikely. A century ago, Upton Sinclair, the great journalist, put it well--“It is difficult to get a man to understand something when his salary depends on not understanding it.”
If you would like to contact Don Cole directly, you may post a comment on the blog or reach him at doncolemedia@gmail.com
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