A more analytical understanding of Greenspan: First, If you read enough of Greenspan, he tried to master the processes by which businesses actually made decisions, to a degree that few economists ever attempt. He was intimately aware of the daily needs and habits of business. He was intimately informed in a way few others seem to have been. Second, he actually believed the new devices for distributing risk (along with the formulae of the quants) would work as prescribed. Third. like most people of the Regan/Thatcher era, he was trying to counteract socialist influences in society. They had very clear memories of the pre-johnson era and also had the unfortunate experience of living through the 1970’s, which was about as depressing and hopeless as the times we face today. It was from this contrast that they took their motivation. We forget that in retrospect, these people were trying to use monetary policy to reconstruct prior libertarian values. They hoped to rebuilt a society of individual responsibility (and ownership) using a tool which accomplishes the opposite, even if they felt using that tool was acceptable if it was only used for the short term. It is in these three errors that Greenspan built his house of cards: first, business can use credit to privatize wins and socialize losses, and did so. Deep knowledge of business is good, but deeper knowledge of human nature is even better. Personally I am not sure this device to retrain people out of socialistic beliefs would not have worked had the state provided direct liquidity into competitive innovation in the Indian model rather than general liquidity, and regulated banking such that all originated loans must remain with their originators. In effect libertarian values need to come from somewhere. They are not terribly natural to man. And liberty has always, throughout history, been the objective of a minority. (PLease don’t beat on me for advocating state intention, i”m not attempting to do so, only explain what would have been possible in context.) Second, the new devices and formulae were erroneous, and for commonly stood austrian reasons: the quantitative content of these devices is inseparable from the individual knowledge of the loan’s originator. Very little debt is predictable under duress, and it cannot be aggregated, because fundamentally all credit consists of unique categories, because these categories are determined by knowledge only available to the originator. Third, the influence of these people on the momentum of the bureaucracy, was insufficient. And that is the real Misesian/Rothbardian problem. To enact such a thing at scale would require political force actively despised by the field’s advocates. Describing an ideal state of affairs is an impressive and important research program. It has yielded most of the answer we are looking for in solving the problem of economic, political and social theory. People in our libertarian camp, have not supplied yet a sufficiently POSITIVE argument for political economy. Hoppe is closest. Hayek tried desperately. But Mises, Hayek, Parsons, and Popper all failed to provide a sufficiently positive argument. It certainly appears that Keynes did find a sufficiently positive argument even if it was an erroneous one. (Although the debate is open on whether he would have approved of how his ideas were used.) But more importantly, libertarians are a minority. We have always been a minority. And we are likely to continue to be one. We have a philosophy of the entrepreneurial class. And as a class philosophy it is an insufficient philosophy as currently constructed. That is, unless we understand that in this division of labor we need at least three philosophical frameworks: one for each class. As such, while Greenspan failed, I don’t blame him for failing, any more than I blame Rothbard, Mises, Hayek, Popper or Parsons for failing. It is becoming clear that the dominant political structure of the future consists not of democratic capitalism, nor social democracy, but of totalitarian capitalism, because only totalitarian capitalism can concentrate capital in sufficient quantity and rapidly in time to maintain the status of elites in one nation against those of others. And if we think that there will not be political elites who profit from their position, then we do not understand the history of mankind.
Theme: Incentives
-
Agency Must Become A Consumer Advocate Rather Than Ally Of ‘The Man’
January 6th, 2010
Throughout history, innovative groups have formed an alliance with ‘The Man’. Bankers have done it forever. In fact, bankers don’t exist where they DON”T ally with ‘The Man’. Capitalists allied with ‘The Man’. They concentrated wealth, by borrowing from bankers to develop ships, machinery, manufacturing, and other increased forms of production. They became ‘The Man’. Entrepreneurs allied with bankers, capitalists and ‘the man’ to distribute goods to the common man, for the first time in history, at such low costs that almost everyone could afford to have more than one pair of clothes for the first time. They became ‘The Man’. Advertisers helped market these goods to consumers, and for 150 years, they helped convert society from religious and nationalistic, to a society of consumers, and urban and suburban tribes. With the advent of technology, Advertising agencies became ‘The Man’. Creatives, who were generally hired craftsmen serving the nobility in most of history, flocked to the movies and advertising, and and allied with ‘The man’. And the demand – the boom – in demand for creatives, allowed the entry of more and more people into the creative industry, albiet, with the acknowledgment that the number of really good creatives, as well as the number of really good academics, or really good high-art artists, seems to remain constant. Like the tech boom, that made room in technology for lots of people who were not that good at it, there was a creative boom. Creatives, allied with ‘The Man’ to take advantage of the increase in available capital that allowed them to experiment with other people’s money.
Now what’s important here is understanding what makes you ‘The Man’. Being ‘The Man’ means that you have control over resources. Kings, thugs, and brigands controlled passes, trade routes, and taxation. Bankers controlled access to money. Capitalists controlled access to production. Entrepreneurs controlled access to goods. Agencies controlled access to media.
The tech boom deflated in just over a year, because it was fueled by speculative capital. The agency boom deflated along with the population that concentrated capital. concentrated production. Concentrated distribution. concentrated media. It deflated at the same rate the demographics deflated, and at the rate the mythos deflated that was held by that population.
There is no concentrated population now. That’s the important message. It’s not a moral message. It’s simply a
There is no concentrated common-aspiration, like the american dream. Instead we have tribes with little status identities.
There is no concentrated access to media now. Instead we have more media than we have content that people desire. We have a shortage of mythic content to feed identities and tribes with to replace traditional, and postwar, and consumer, and american dream mythologies.
There isn’t any concentrated culture any longer. There isn’t any concentrated trade route any longer. There is no ‘Man’ to ally with. There is no general consumer mythos to exploit. And the disappearing boom
There isn’t the problem of getting attention for a product, using a frame of reference like a mythos, so much as the problem of understanding some tribe’s mythos and figuring out how to insert your frame of reference into their mythos.
A long time ago, there were castles on passes. Because the government was formed by brigands charging taxes, or protection racket fees, for people to take goods and services through a geography to reach markets. There are no media-channel protection rackets any longer. Just markets. There is no tax to levy on reaching those markets, that will fund ‘The Man’. The Agency Man.
We have no ‘The Man’ any longer. We have only these small tribes of consumers who have rejected The Man, in all his forms, because he doesn’t need him. He doesn’t need The Man. and he doesn’t need the stories that Creatives have written to serve The Man, to enter into, and he doesn’t want them either. He has his stories. He has his suite of tribal myths. He sees them as his property. He sees them as his identity. And he acts as if these myths are his identity and property. And by acting as if they are real, he makes these abstractions real things. He sees society through the lens of his identity and his myths, and judges his success at finding his place in society by using them – he has nothing else to go by. He obtains his status from using those myths, not from myths created by agencies and creatives on behalf of ‘The Man’.
The Man concentrated people for us. That’s what The Man has always done. We made popular messages for distribution on The Man’s distribution channels. We served ‘The Man’.
Our job is not to ally with The Man, and claim it’s our talent that made a difference rather than his control over passes and people because of it. Our job is to build relationships between brands and tribes. To find out who is passionate and motivate them to create status symbols from our products if possible. If that is not possible, then to create lower status reasons for social interactions. And if that is not possible the to create simple utility.
Advertising, is, and will always be, part of this process. But advertising is no longer the process of concentration people and their purchasing power using available myths and demographics. It is the process of separation and service of identities. Advertising can’t easily inspire any longer on it’s own. It isn’t intimate or meaningful enough. It can legitimize a message. It can tie messages together. It can create awareness, but not change consumer behavior, unless you apply an awful lot of money to the problem.
While vast consumer brands appealing to the low end of the market, will always need to create myths of consumer homogeneity, those myths are limited in their ability to compel consumers to aspiration rather than to the ideas of suffrage, or sarcasm or nihilism. These are negative identities. And a brand who crates homogenity is like a politician who advocates fear: it works in the short term, but it doesn’t make people love you and stick with you. And it doesn’t make them respect or trust you.
Aspirational brands must create niche appeal, with increasingly tribal identities, in order to seem sincere, and in order to make the consumer feel passionate enough to appeal to a brand whose marginal difference in utility is extremely limited if not entirely aesthetic.
Yes, those large retailers will control distribution, because of the capital that they concentrate with the use of debt – debt that they may have a hard time getting ahold of now. But brands must exist within those retail identity myths. And the retailer, like a government, will allow only so much difference between one brand and another – they don’t want intra class conflicts. So they are a resister to excellence.
But our clients, and our brands need to understand that there is no concentration of identity or mythos, or channel which we can exploit.
Creatives no longer can ally with the man. They have to ally with the consumer, and use the man for the consumer’s benefit.
In a world where there is no concentration, no homogeneity, we have succeeded in building the consumer society. There is no real scarcity. We are not afraid of running out of rice and beans, or laundry detergent for that matter. We are only afraid of being lost in society because we cannot judge our status in it – our success or failure in it, our mating ritual in it, without identities and myths that help us do so.
The consumer is The Man.
from: www.puretheoryofmarketing.com
-
Women Dominate The Veterinary Field and Not Technology. This Isn’t A Mystery.
On Carpe Diem there is a posting that references a series of articles on the state of women in the employment figures. Primarily as a result of the disappearance of risk capital, which led to a disappearance of risky, high reward careers, which will not come back (possibly ever) unless risk tolerance returns.
It’s no secret to anyone in Silicon Valley that math, science and technology fields remain dominated by men, despite some progress by women in recent years. Women make up 46% of the American workforce but hold just 25% of the jobs in engineering, technology and science, according to the National Science Foundation. To Sally K. Ride, a former astronaut, that persistent gender gap is a national crisis that will prove to be deeply detrimental to America’s global competitiveness.
Or this one
Why are there so many women veterinarians? In part because educated women are drawn to professions that are providing flexibility to combine work and careers, Harvard University economist Claudia Goldin said in a lecture at the American Economic Association in Atlanta. The increase of women in various professions since 1970 has been spectacular. But why do highly educated women enter some professions and fields more than others? “Women are 77% of all newly minted veterinarians, but they were a trivial fraction 30 years ago,” she noted.
How about a more obvious answer: In a free society, people freely pursue their careers of preference. Isn’t that the purpose of a market? To provide for people’s wants and preferences? Women prefer to empathize with all kinds of animals (human and otherwise) the way men prefer to empathize with tools and abstractions. Women have a higher preference for empathic interactions. Men have a higher preference for tools, abstractions and physical experiences. A predominantly female field (and there is good data for this) becomes a negative status symbol for men. If a field becomes predominantly feminine, ambitious men avoid it. Visible excellence , which is a status symbol for men, is a function of time and specialization. What is hard to understand about this set of fairly obvious circumstances? That once women are no longer prohibited from the workplace, that they will dominate the fields of their preference rather than distribute evenly across careers? Men dominate the physical, risky, combative, material, and abstract roles. Because they prefer to, because it increases their status. On the other hand, if we managed by some feat to make dressmaking a masculine status symbol they’d dominate that too. Men certainly dominate the restaurant industry, despite cooking being the dominant specialty of women since the dawn of time. Empathy is not valuable in objective testing, which is what most technical jobs require. This is NOT true of customer service in technology, consulting with technology, or sales of technology, or administration of technology. It is true ONLY of the craft of technology design, development and experimentation. Empathy is a function of understanding people’s views. Science is the process of objectivtly ignoring those views. These are two ends of a spectrum. Women accuse men of seeing women as objects. but it’s not that they see women as objects, they see the world as objects, because they are tool and object makers. If women did not have empathy, or the ability to ‘experience’ other people’s emotions, they could not empathize with children it would be impossible for them to be mothers, or to cooperate in groups to raise children, who must learn over very long periods, how to articulate by verbal means, their wants and needs. If men did not empathize with tools, or ‘experience’ tools they would not be able to craft them or sit forever waiting for the one moment in which they must focus all mind and body on thirty seconds of danger. WHile it is possible to train humans to do almost anything, that is not the question free people ask. It is, how to satisfy their wants and preferences. And CETERIS PARIBUS, women, given the opportunity to excel, will do so in fields where they gain most enjoyment – where the empathy of life experience , which to which they are more ‘sensitive’, just as men would most often prefer to empathize with tools and abstractions, to which they are more ‘sensitive’. Doing otherwise is simply illogical. Why would someone pursue his or her weaker perceptions and preferences unless it was of very material benefit to them? Furthermore, and this is the important question, why should society subsidize women and penalize men, for the fulfillment of women’s’ preferences at the expense of men’s preferences? That’s the real political question here. GIven equal opportunity, if we each choose these things and men choose one set of careers and women another, and if women have a preference for child rearing and men do not, then why should men be penalized, to support child rearing, when the problem that the world faces is overpopulation, not pollution, not global warming, not scarcity of resources, but overpopulation. There is an ocean of data on this, which is why these silly little surveys about women in technology are ridiculous. Of course women are a minority in technology, because they prefer to be a minority in technology. Giving women equal legal status, equal political status, and investing in them equally so that they have equal access to THEIR OPPORTUNITIES OF PREFERENCE, all are means by which we ensure that women are not politically, or economically discriminated against. However, it is not an ambition of political equality to engineer equal PREFERENCES among men and women. That would simply be some form of slavery. Society may have an optimum that we can consistently pursue, but Men and women are unequal. We are unequal in our preferences, and unequal in our abilities, at least at the margins. We are unequal in our rate of development and unequal in our rate of maturation, and unequal in our verbal and spatial reasoning. We are unequal in the physical activity we need. We are unequal in our social development, in that girls learn to care about society by testing and developing expressions of empathy and empathic dominance, and boys to care about society by testing and developing the expression of the physical world, and physical and political dominance. We are unequal in our intelligence distribution, with men over-represented at the margins. While we are equal in productivity in the majority of the work force, because the majority of the work force is clerical and administrative. We are unequal in our ability at the margins of the work force where ability is ether physical or extraordinarily abstract and specialized. We will not build a society that is durable post the American Empire by assuming that political and opportunity equality should result in career-distribution equality, because career development is a preference among free people. Men and women are not equal in their preferences, and they are very different in meaningful ways. Even small differences like the difference in male and female daily word budgets, or how we relax or experience stress, or how we empathize with people or objects, will simply show up in the distribution. Fixing a problem of oppression is one thing. Utopianism, Platonism, and social engineering are simply a different form of oppression. If you want to look at data, then lets get away from this positivism, and back to some causal analysis. There is plenty of data out there. Not the least of which is that no matter how we engineer society, the mating ritual will prevail. And in that mating ritual, women want certain things and men do, and that dance will never change, ever, absent the application of chemistry during the natal process. Again, there is an ocean of data supporting this. A not insignificant portion of men would prefer to hunt and fish all day, and build things. Another not insignificant portion of men would prefer to hang out on street corners and drink or make tea, or something simple. Another not insignificant portion of men would rather fight, rape, murder and steal, than do an ordinary job if they could get away with it. Plenty of others would be perfectly happy to spend their lives in military service if it tolerated collateral damage. Not all, but many men live painfully dull lives instead simply to participate in the status and mating rituals. If you change that process, you will not get the utopia that you dream of. Especially if it’s in a heterogenous empire like ours. You will get the Mediterranean, or eastern european, which is that men simply check out of society, and practice corruption, and interpersonal dominance, because they feel society is against their interests. Our men are doing it right now with video games and prescription drugs. The redistribution of western technology, and western calculative technologies in particular (what we call capitalism), which have been our institutional advantage against other cultures, is eroding that western historical advantage and redistributing production, and and skills worldwide. Capitalism slows birth rates and creates aging populations. Aging populations are less productive, have less military power, and are less capable of maintaining trade routes. Therefore less capable of maintaining a justice system, and less capable of maintaining a dominant currency, and less capable of maintaining social programs that are debt financed. Aside from debt, social insurance programs have been designed not to be funded by saving, but by having the younger generations (which will be smaller, and more likely immigrant, and often from different classes and races who will eventually want political power) pay for the services of the older, rather than having the older lend saved money to the younger, as we have done for all of human history. The role changes that we see, the distribution of jobs, are all temporary functions of the conversion of world society from agrarian cooperative, to urban capitalist. They are minor temporary variations in the ebb and flow of that process of calculative urbanization, and population peak followed by population decline. They do not necessarily represent a trend toward an egalitarian utopia. If you want to know if men and women are equally productive in the work place then, except at the margins, in similar jobs, they are so. If you want to make sure that women have the same rights as men, that is only sensible. And current legislation would demonstrate tat they have MORE legal rights than do men, just as minorities have special rights against the dominant culture. To the point where, at least, economically, it appears that women now “Marry The State”, and use that state apparatus to extort money from men, replacing the interpersonal violence of man against woman, with the political violence of the state against men. Men are beginning to understand this. All men have a limited advantage over women, because they do not have to bear children or rear them. SOME men have an advantage because it appears that men can more easily specialize and dominate a field than can the same number of women. MOST men have a disadvantage over MOST women, in that they must specialize in some skill inorder to have value in the mating ritual, and that their social status, and access to mates, as well as their possible male alliances, is determined by that specialization. At some point, lazy statisticians and social science amateurs would do better to study ALL the data and then make determinations, rather than think that some subset of simple ‘vulgar’ statistics are sufficiently informative that they may draw conclusions from them: otherwise it’s not using the scientific method. It’s not even the error of positivism. It’s ignorance and idealism.
-
Schiller Takes A Step Toward Capitalism 3.0
From an article in the NY Times. A Way To Share In The Nation’s Growth Robert Schiller, who I greatly admire, recommends one step toward Capitalism v3.0. Why? Because investment in the productivity of a nation does not privatize wins and socialize losses, as does debt. It is gambling, but gambling by people who know what they’re doing, rather than simply impoverishing citizens for government’s incompetence. I have worked on this particular theory quite extensively, and it appears that the worldwide impact would be positive and durable. The argument against it, is that it makes governments accountable. And the entire purpose of government seems, at least from the historical record, to be one of avoiding political accountability at all costs. Which is precisely why we need this particular solution.
Shiller: Sell Shares in the U.S., Not Just Its Debt Thursday, 31 Dec 2009 09:09 AM Article Font Size By: Julie Crawshaw Yale economics professor Robert Shiller says a new kind of government security is needed, one based on equity instead of debt. “Corporations raise money by issuing both debt and equity, the latter giving investors an implicit share in future profits,” Shiller writes in The New York Times. “Governments should do something like this, too, and not just rely on debt,” he says. “We would sell shares in America instead of just debt of the American government.” Shiller even suggests a name for the new security, which would be based on Gross Domestic Product: a “trill,” because it would represent one-trillionth of annual GDP. Though GDP numbers still are subject to periodic revisions, “the basic problem has been largely solved,” Shiller says. “Such securities might help assuage doubts that governments can sustain the deficit spending required to keep sagging economies stimulated and protected from the threat of a truly serious recession.” If substantial markets could be established for them, Shiller notes, trills would be a major new source of government funding, issued with the full faith and credit of the respective governments — which means investors could trust that governments would pay out shares as promised, or buy back the trills at market prices. “What the average citizen doesn’t explicitly understand is that a significant part of the government’s plan to repair the financial system and the economy is to pay savers nothing and allow damaged financial institutions to earn a nice, guaranteed spread,” Bill Gross, co-CIO of Pimco, told The New York Times. “It’s capitalism, I guess, but it’s not to be applauded.” © Newsmax. All rights reserved.
When governments no longer can justify violence, they resort to fraud. Debt at this level is either ignorance, stupidity, the replacement of wisdom with ‘hope’ which is a secular version of trust a divinity, or simple outright fraud. And it is not a question of political parties. The left destroys through it’s kind of policy debt, and the right though it’s kind of monetary debt. The only difference is that the right’s method can be corrected through a recession, depression, price adjustments and fiscal collapse. The left’s will require a bloody revolution, and destruction of the civilization itself. Between those two ‘bads’, perhaps, the ‘bad’ of the left is worse, but it is only marginally worse. It would simply be better for all of us if government could not commit fraud on such a scale, ever, under any circumstances. To prevent policial fraud we need methods and processes that are measurable, and to measurable they need to be calculable. Calculability is an extension of perception, and an extension that is necessary because our innate human perception is unable to make judgements without the aids that calculation provides for us. (Numbers represent consistent immutable categories.) Accountability requires calculability. Capitalism 3.0 creates political accountability through plain old fashion calculability. Curt
-
Losses Are Losses Regardless Of Size: Tiger Woods, Losses and Celebrity Endorsements
December 29th, 2009 § 0 Comments
Over on The Sports Economist, I found a posting about a UC Davis Press Release on the Tiger Woods scandal and the losses incurred by companies that had sponsored him.
And Felix Salmon editorializes that the number is an example of specious academic research (in other words, like most academic research that has popular appeal, it’s nonsense.) I’m not a big fan of Felix for historical reasons, but his criticism is spot on.
Now, how am I going to spin this as another example of a strategic marketing error that is the fault of executive management?
It’s easy. Because what makes the estimated $12B (or 1b, or whatever number of millions) in losses from the Tiger Woods scandal more interesting, is that celebrity endorsements have very little positive impact on brands, and advertising agencies have known this for decades.
Celebrity sponsorships improve the public’s awareness of the celebrity outside of his or her own field. But that awareness does not translate to the products themselves. In general, Tiger made more people (especially minorities) interested in golf. But he did not necessarily advance the revenue of the “non-golf” brands he was associated with. (I do not have data on Tiger, I’m using comparisons of past celebrities – although I would honestly love to be proven wrong on this).
For example, some of the models and actresses do fairly well with brand development, and have impact on the brand, but they manufacture that value – they don’t bring it to the table. Wilford Brimley’s commercials for grape nuts were a positive example, but he created that value as a character actor, rather than brought it to the table in the form of external legitimacy.
So given the data on losses to shareholder value from the Tiger Woods scandal, it at least appears to confirm what most of us already know: celebrities increase awareness of the celebrity, but have little or no impact on the bottom line, but celebrity exposure once engaged in a brand, has a serious downside that is logarithmically more negative than any possible gain can warrant risking.
And if you pick a reasonably attractive high performance high stress male athlete that marries a woman clearly outside his social class, and who travels extensively among fans (especially homogamous status-seeking females) that you helped create through increasing his exposure, you are simply asking for trouble. You get the same problem if you bring in a young female olympic medalist from a small town, and give her unfettered access to the media – she will speak honestly, and pragmatically, from her heart, and that is not the job of politicians or brand representatives whose job it is, is to perpetuate myths. (Yes, that’s a politicians duty: to perpetuate a myth, because political decisions in large groups are decided according to mythos.)
Now, part of the problem is his own agency’s fault. They positioned the poor guy as a saint. Nike never does this kind of thing that I’m aware of. THey leave room for human frailty. If you don’t you just create a vehicle for necessary failure. They did. He stepped in it. It cost a lot of money – specious self promoting academic research or not.
Celebrities cannot legitimize brands by bringing external legitimacy to them. Characters that symbolize brands, rendered by talented actors bring acting talent to the process of creating brand value. (Mr Whipple – played by Dick Wilson, Wilford Brimley – for Grape Nuts, and Catherine Zeta Jones for T-Mobile, for example, all created brand value.)
In other words, blame the CEO and CMO, and agency for the lost $X-Billion, because it wasn’t Tiger’s fault for being Tiger, it was their fault for using a celebrity as a means of promotin when celebrities have near-zero positive impact on the business.
Advertising should not be comprehensible to executive management. Sales data that is the result of advertising should be comprehensible to executive management. But that’s not how it works. A very smart guy, Larry Ellison, CEO of Oracle personally knows the agency and who is representing his company. And while I, he id due his how personal criticisms at times, as a CEO he should be respected for his depth and flexibility and accountability – he demands accountability and is involved in how his company is marketed.
So it’s CEO’s and CMO’s that lost billions by manufacturing a celebrity that they can talk about with their friends, when the data is clearly that celebrities have very little positive impact on brands, and very high negative impact on brands, and they were betting on the chastity of a guy (probably with a lot of legal nonsense that assumes far more of a human animal that is possible) who has about zero chance of holding to those achievements – not because of a character flaw, but because any person under duress for a long enough period will seek human comforts and rationalize them.
We worry about CEO corruption as if it’s an intentional malice rather than the foibles of being a human being in the midst of disconnected, fragmentary, and often erroneous data, in a rapidly changing market, under considerable time pressure, with credit money distorting all financial data worldwide, when CEO’s appear to be, at least from the data, some of the most ethical people in the world – especially given that they must fight the daily battle of tax, banking, investment, regulatory, journalism and political leader’s desire to attribute predictive value to temporal noise in data as if it is a trend, without resorting to calling the leadership of each of these categories ignorant fools, or giving away their current strategy. That’s a task that makes a centrist politician’s duties look tame by comparison. Yet we do not hold CEO’s accountable for malinvestment that was made despite being clearly contrary to all existing evidence.
Except for Nike, who is in this kind of business with full knowledge of the consequences, (and employs some of the smartest people in marketing today) and EA, which of course, is directly profiting from Tiger’s name, (and is an exceptionally well run organization with deep knowledge of it’s customers) and Golf Digest who again profits directly from his participation and legitimacy in expanding the sport of golf, we should blame the CMO’s of the companies that invested in Tiger Woods. (Accenture, Amex, ATT, Gatorade, TLC, Gillette ) because it’s their decision to invest in a risky strategy (most likely because it’s easy to get through the bureaucracy) instead of developing a character or characters that represents their brand. (Geiko, and Progressive insurance are the current popular winners.)
Tiger’s downfall was a foregone conclusion, and certainly, in the trade, the topic of a barstool raffle on his time-to-failure. He’s a human being, and no matter how many layers of paper indemnification we wrap a human in, he is still a human living in a world of other humans.
But while the contract clauses can stop you from paying out your sponsorship fees, and some well spent money will help consumers forget the negative association with your brand, it cannot so easily recover lost shareholder value, despite the fickle memories of investors. Billions are BFN’s to lose. And they are lost by executives who buy into celebrity endorsements instead of building brand value around characters that they actually own, and in particular, fictional characters that can’t get caught in infidelity in hotel rooms with waitresses.
from: www.puretheoryofmarketing.com (offline)
-
A Subtle Redefinition In Opportunity Cost
I am going to redefine Opportunity Cost from the difference between one choice and another, to include the opportunity of expending violence. Because that is the FIRST cost that they pay in every transaction. I’m going to redefine Time preference from the silly Austrian implication that all purchasing decisions are made primarily by price, to the acknowledgement that all prices are in fact habits, and that decisions are made primarily by the culmination of OTHER factors, (and logically must be since prices are rarely different in any meaningful way) such that Time Preference is the aggregate approach to either consumption or capitalization. Such that a high time preference in the classical sense means consumption, and therefore is a short time preference, and that low time preference in the classical sense means capitalization, and therefore is a long time preference. A subtle difference, but the difference is meaningful: people do not care about prices between one object and another as much as they care about the other properties. In a universe of aesthetic rather than material differences, Prices simply allow people to categorize similar choices together so that they can apply other preferences, social biases, and subsidies. Because unlike the idea types to derive from marginalism’s attempt to make possible quantification, people actually ACT in the way I describe, even though that way is resistant to modeling.
-
Our Different Organizational Models Keep Agencies Digital Or Traditional
December 13th, 2009
Different agencies specialize in different services such as media, direct, digital, PR, or Creative, because the risk tolerance, organizational model, financial model, and in particular the model for concentrating or distributing rewards needed to provide incentives to employees, is different in agencies that function in each channel, and that the efficiency gained by unified account management, is counterbalanced by the impediments imposed on risk, organizational, financial, and incentive models – effectively creating a division of labor that is more competitive, effective, and efficient, than monolithic organizations can be.
For example, for all our emphasis on creativity, few people in agencies have creative responsibilities. As Ogilvy stated, the majority of jobs in a media organization are clerical, and only marginally related to marketing. My view is similar: the vast majority of jobs in a digital agency are technical, and have little to do with marketing.
Furthermore, the vast majority of delivery management jobs in a media agency consist of traffic management – communication, while the vast majority of jobs in a digital agency are project management – risk mitigation. In a media agency, delivery management is concerned with customer service, and fast iteration. In a digital agency, risk mitigation, defect free code, and on-time delivery are the primary preoccupations of delivery management. The kind of people who are traffic managers are terrible project managers and visa versa. Yet they are pivotal role within each type of business.
The accidental side effect of this difference in internal processes and preferences is that digital agencies are often less likely to ‘game’ the client. For example, we have a much higher customer loyalty score than any other agency in our field, and we believe it is for three reasons: we aren’t greedy about nickels and dimes, we are very selective about clients, and we understand that delivery is what a customer is buying from us. And if there is a trend that will continue in this industry, I suggest it will be this trend toward trusting a digital agency because it’s internal processes foster that kind of trust, and they will do so because delivery success is materially demonstrable in a field where delivery success has largely been subjective. Small things in large numbers, over time, create vast differences. These differences will grow increasingly important over time.
For all our emphasis on creativity, it is not scarce and the difference between agencies is not marginal: it is not sufficiently different to be meaningful to the client. The resistance to experimentation and risk on the part of clients more than counteracts the creativity within the industry, even if that opportunity for creativity from anarchic personalities is what draws them to the field. However, the organizational biases needed to deliver creativity, marginal or not, within each particular channel of media, direct, pr, brand, or digital, is, at least over time, cumulatively marginal across channels, and the quality of execution is marginal across agencies within a channel.
For these reasons, agencies will continue to specialize. And the client will continue to select the appropriate tool from the suite of specialists to accomplish his or her objective. The problem facing the industry is the creative lottery: we sell ideas but bill for and make profits from, execution. Creativity is a loss-leader. Clients often understand this, and award the production work to agencies who present good ideas. However, many clients do not, and either buy creative from one company and production from others, or they steal creative through the pitch process, and award production to someone else. Thankfully, the market tends to end careers of these people. But that doesn’t change the fact that it’s private sector corruption.
For this state of affairs to change would require a collapse of advertising leading to the the consolidation of businesses, or a radical new technology that disrupted all existing agency models. What we are seeing instead, is a moderate consolidation of media businesses as capital is directed to digital businesses that have higher production costs, but lower distribution costs.
We have to learn to see the rise of television and the big agency, as a temporary distortion of the state of affairs. It glamorized our business. It generated wealth. But it was a bubble, and not a trend. Our agencies, our employees, and our industry publications, operate under the assumption that they are competing to participate in a bubble that no longer exists. The future is an increasing division of labor across channels, and agencies that specialize in channels, none of which are particularly dominant over the others.
Likewise, it will be difficult to produce another round of holding companies for agencies in the near term because we are unlikely to concentrate any semblance of the amount of capital produced by the rise of television.
This lack of any ability to concentrate capital and dominance in a channel, plus the long term decline in the availability of credit, as governments lose their ability to redistribute wealth using monetary policy, plus the general completion of the demographic movement of generations of people from farm and labor occupations with basic needs for consumer goods that allowed them to achieve status improvement from the possession of goods, upon which the growth of consumer products, and consumer product advertising on media depended, and upon which the current concept of brand instead of product properties depends, to suburban and urban clerical occupations that instead need to acquire increasingly differential goods to obtain the same status within small tribal networks with more granular identities than that of past mass market consumers, will mean a more competitive landscape for agencies, but an ongoing retention of our current structure as a division of labor in the process of delivering products and services to market – barring some financial or technical innovation that is as disruptive as was television.
From: www.puretheoryofmarketing.com (offline)
-
What will be the biggest opportunities for agencies in the next 5 years? Displacement.
December 12th, 2009 § 0 Comments
We see opportunities for all categories of agencies. Large traditional agencies will continue to dominate the world of the large multi-national, brand portfolio–based clients because they are the only ones who can scale to the needs of those clients in the production of large volume, broad reach traditional media like broadcast and print.
Small agencies will thrive because they are the outlets of anarchistic creative talent. Small agencies also represent where the most specialization will occur. For every new technology, new media, and new channel, it will be the small specialized agencies that will blaze the trail for the rest to follow because they are the least risk averse and are not motivated by the same business drivers as their larger counterparts. These specialized agencies will be able to displace other agencies whose institutional mindsets, business organization, and cost structure reduce their ability to deliver creative value and niche expertise.
The greatest opportunity over the next five years will be in the midsize agencies like Ascentium though. The most successful of these will evolve out of the current digital agency world, although they will be complemented by the best of the midsize agency typified by Crispin Porter + Bogusky. These agencies will excel because of three distinct advantages: they will be freed of the financial handicaps placed on both the large and the small agencies, they will be able to build their reputations around demonstrated leadership in their particular area of specialization, and they will be able to execute their ideas based on deep technology skills.
Independent midsize agencies are not saddled with the high overhead, executive compensation, holding company taxes, and other built-in financial impediments that make large agencies more risk averse and less able to deliver services cost effectively. And midsize agencies hold a distinct advantage over small shops whose restricted access to capital can limit their ability to grow, scale, and, more importantly, attract top talent (especially business-oriented management).
While expertise in communicating using digital and emerging media is what is most often associated with the recent generation of high-growth, successful agencies, it is really their specialized expertise that makes them successful. Take Crispin Porter + Bogusky, for example. Whether it is their work for VW, Burger King, or Best Buy, they repeatedly demonstrate adeptness at connecting with a defined audience (young males, 18-34). In the same way, clients flock to Ideo whose tagline proclaims that they “create impact through design.” And we at Ascentium are very proud of our work with clients like Microsoft and T-Mobile, bringing their brand experiences to life for unequalled customer satisfaction and measurable results.
Deep experience, expertise, and thought leadership in technology are what wins us business and what every successful agency will need to achieve success in the coming years. Traditional agencies will find this hard to excel at because of their focus on delivering volume creative across vast, though not complex, distribution media. And it requires a sophistication of delivery resources that go well beyond what small agencies can muster. So, in the end, technology expertise will belong primarily to midsize firms that we associate with what have become known as digital agencies.
Technology is not a “nice to have” or a gimmick; it is the means for delivering meaningful customer experiences, with rich content, relevant to each micro segment of the audience through an inexpensive distribution channel with higher production costs.
We have had four generations now where the cost of distribution into major media has been artificially constricted by a highly distributed media selling to large numbers of similar consumers through a narrow distribution channel. This circumstance occurred in parallel with limited differences in the properties of major consumer products. We now live in a world of extraordinary diversity of choice, tribal micro communities, and complex dissimilar associations. It’s a world where people take the time to look for their information and find advertising entertaining or curiosity invoking but not necessarily actionable.
The information that consumers seek out on digital media, and the structure of that information and the trust they put in it, will increasingly require technology and media customized for that technology—where the brand imagery is simplistic and constant, but the content varies dramatically from channel to channel. In the past, we spent more money on distribution and less on creative. Over time, this trend will continue to reverse itself, requiring that we spend more on creative and less on distribution. Agencies that can implement diverse technologies and campaigns will continue to capture increasing amounts of the same revenue from clients.
-
Toward A Pure Theory Of Marketing
Key Ideas:
1) Business exists in the sociological context. That means that companies, and agencies, are organized in order to sell according to both our assumptions about society, and the way society is organized, and the commonly held beliefs in society.
2) What we think of as the consumer culture, is part of the process of post-empire, post-war western european cultural dissolution. That culture emerged as a series of identities that made people very similar, and therefore easy to market to using mass media. But we are no longer living in a world of postwar consumer identities. Where people were the same. With same ambitions and beliefs about what made a better life. But we aren’t the same anymore. We’re not even similar.
3) Our citizenship today comes not from service to the state, or from religious affiliation, or even from cultural affiliation, but from debt participation. We aren’t united in any set of beliefs or myths other than as consumers. As consumers we have different consumptive and productive abilities. So we are buying our identities with goods rather than adhering to mythos and beliefs. In other words, globalization is happening in America as well as everywhere else in the world. We are finally returning to the level of globalization that we had prior to 1900.
4) Identities are not just fashionable, they’re necessary. Without a shared mythology or shared social beliefs, we literally cannot judge ourselves in such a vast division of labor, or know our status or progress in life, or even what is ‘good’ or ‘bad’ without these identities. These identities are our belief systems. Imagine we lived in a world without numbers, without clocks, without myths, without formulas. Humans beings literally can’t think. they can’t make judgements. Rational civilization has made our mysticism, our world of magic, into one that at least appears to be rational. But we take for granted advanced technologies like time and myths, without understanding that they are formulas that we use to calculate the future. Formulas that we use to make judgements. We live in a complex world where we almost never have enough information to make any decision, which forces most of our decisions to be tie-breakers. Our formulas, our myths and most importantly OUR IDENTITIES, are how we make tie-breaking decisions in real time. Without identities we literally cannot think, any more than we can think without numbers, common sense, or time.
5) Agencies think its hard to create ads and make money in major media, because of the infiltration of the web. But that’s only a symptom of the social change. The web has helped facilitate that social change. But that change was there before the web. Agencies, marketers, creatives, and even, indirectly, CEO’s, are selling products into the postwar identity, using companies, marketers, agencies, and media channels, that were specifically developed to sell into that homogenous postwar population, each of whom had the postwar identity.
6) It’s not just ads, not just campaigns, not just marketing that needs to change. We have to restructure business to sell into this new world order. We have to restructure marketing departments. We have to restructure agencies. Mass media will still have it’s place. But it will largely be for poor people, and major media will continue to become the channel for poor people, rather than postwar consumers.
7 ) Agencies need to learn how to build campaigns and creative for multiple channels, and multiple identities, and to accumulate consumer attention and loyalty, rather than sell broad big-win campaigns into the postwar narrative. We need narratives that appeal to identities. That help people build their identities. Rather than market to absurdity, which is the only common factor the fractured-identity-world we live in can comprehend, and the only campaigns that work today. We need specialized agencies that monitor identities and match them with people, and their disposable income.
8 ) Marketing organizations need to build ‘wardrobes’ of identities, and survey those identities, not their products, but the identities that those products service, rather than demographics, which are simply geographic representations of the postwar identity. These identities then become markets with measurable success criteria. In effect, giving marketers a portfoilio of measurable assets. Marketers need to learn to build campaigns that consist of multiple narratives that sell into a ’set’ of identities, each of which enriches that identity. And to build accumulating interest by consumers rather than asking for their direct attention. This creates a sense of sincerity. It may be that many marketers cannot exist in the post-postwar world of the citizenship-by-debt-participation society. It’s up to you to change. Society changed already. Campaigns need to keep a heartbeat. A lot more of your job will be to determine what’s popular in six or eight different identities rather than to simply shop popular culture for the most widely appealing message. I’ m overstating this a bit – but marketers all want to do what they did yesterday and call it creative. So we need to overemphasize the difference for a few years.
9) CEO’s need to demand that CMO’s become to the brand asset what CFO’s are to financial planning and controller’s are to cash. Balance sheets and income statements need to track brand asset on a timely, if not weekly basis. CMO’s need to have a portfiolio of identities and the measurement of how that product sells into an identithy and plans for addressing each identity and budgets for doing so. CEO’s need to hire external auditors who will audit that brand information so it’s not fudged any more than real estate values are fudged. CEO’s need to look at identities and products and services as related investments, and develop budget and funding processes. The unspoken issue here is that many marketers are campaign managers, not brand managers, and you may have to fire a lot of them, or train them with discipline to get them to perform. Conversely, the board should fire a CEO for NOT doing this because if the CEO doesn’t do it, it means he or she is behind the times, uncompetitive, ignorant of the company’s asset holding, and not fast enough to manage a company in our new environment.
10) Shareholders need to hold companies accountable for brand measurement. Most of the nonsense that is possible for CEO’s to pull off, and destroy asset value, is done because a) we measure only postwar and prewar assets (cash and real property) instead of market potential and employee potential, and b) because accounting rules exist largely to help organizations avoid taxation, or adhere to regulation that increases taxation instead of accurately reflecting the business’ performance, rather than provide accurate pictures of performance in the service of customers and investors, and c) accounting processes are mired in an ancient past, and because of the primarily manual (rather than macro-transactional) nature of the accounting processes is unsophisticated and only reinforces the antiquated culture in accounting.
11) By building our businesses around the new sociological context: the culture of citizenship by debt participation, we can make more profits, build better brands, dispose of antiquated companies, and literally change society for the better while providing an opportunity to a new generation of entrepreneurs, marketers, and creatives who, rather than sit mired in a decade long economic depression, can help raise us out of it by transforming this complex and fascinating world we live in.
12) For technologists, I have given you a glimpse of that amazing future that is very different from the engineering that you have done since 1960. Your concept of what makes ‘good’ technology is dead. Put a stake in the vampire’s heart. Pattern oriented, durable code that is deep and rich and flexible is as useless as phlogiston theory. Discreet data and documents are dead technologies. The future is perishable, not flexible. It’s where subjectivism is incorporated into the code. It’s not isolating companies from consumer subjectivity, but collecting and analyzing consumer subjectivity. Not periodicity. But non-periodicity. If you’re smart enough to guess what that means, then you have a career ahead of you. We can change the world if you’re willing to change your thinking. If not. Go find the guys who write COBOL and ask them for a job.
This set of steps will build the 1to1 marketing capability that business and consumers need today, to service their wants. And it will fix the corporation that consumers feel alienated by – because without these processes, capitalism’s core, which is to serve customers, is being undermined by market failure: ‘general liquidity’ and risk-driven bankers, result in the concentration of capital in large companies that allows businesses to get away with poorly serving customers.
There is more to it. But this is the core of A Pure Theory Of Marketing.
And there is only one company that can help you make that change: Ascentium
www.puretheoryofmarketing.com
A Pure Theory Of Marketing: December 2009Table Of Contents
1. INTRODUCTION
2. THE ECONOMY OF MARKETING
3. THE FUTURE: A THEORY OF MARKETING
4. COMMUNICATING WITH CONSUMERS: CAMPAIGNS
5. RETAINING CONSUMER ATTENTION AND LOYALTY
6. THE MARKETING ORGANIZATION OF THE FUTURE
7. THE EXECUTIVE ORGANIZATION OF THE FUTURE
– The ACCOUNTABLE CMO:
– THE CEO, AND ADDING THE FUTURE ORIENTED ASSET OF BRAND POTENTIAL
8. THE AGENCY OF THE FUTURE
9. THE ECONOMICS AND ETHICS OF MARKETING AND ADVERTISING
10. CLOSING SUMMARYComments on “A Pure Theory Of Marketing”
“This is a manual for CMO’s, CEO’s, Shareholders, and Consumers. It’s effectively a theory of marketing. And because of that, it’s a prescription for the future. It’s the biggest change in marketing MANAGEMENT since the television era. It will work not because it is a fad, or because it’s inspirational, or because it’s a tactical improvement, but because it is pure economics and sociology: because once consumers, shareholders and investors understand what I’m saying, the will DEMAND that much of it be implemented in companies. Because taking better care of customers is taking better care of investors. In other words, we can solve the problem of ‘the corporation’. It not only tells us how to market: how to talk to people, create the right narratives that will engage them, but how to organize our marketing organizations. We can solve the under-funding of marketing. we can solve the waste of marketing dollars. The problem in marketing hasn’t been marketer’s laziness, so much as their lack of a means of working in a quantitative world, and therefore their dismissal by the executive team as irresponsible. But if you follow what I recommend, the only person who can fail, isn’t the CMO. It’s the CEO. And CEO’s are pretty good at preventing failure – especially when it’s theirs.”
“I’m not so much simply confident that we should recommend our customers begin transforming their organizations, as I feel that it’s a deterministic process that will punish companies who do not.”
“I am sure somewhere, someday, someone will figure out that this theory of marketing solves not only a business problem. But it solves a social one as well. Marketers can build a better world, and make money doing it, and make consumers happier, rather than be next in the line of disrespected professionals, with the unenviable claim that at least they’re thought better of than prostitutes, politicians, journalists and lawyers.”
From: www.puretheoryofmarketing.com (offline)
-
A Convert: Winterspeak and the Public Purpose Of Banking
Over on Winterspeak, I found another convert.
….a bank should be required to keep all loans it makes on its books until maturity.
In under six hundred words he provides a solution to a great deal of the problem. I’ve extended this basic line of reasoning to explain WHY banking should be run this way, WHY the public should and must insure banks, and WHY we can provide redistribution using these institutions, and HOW to look at government differently. But then I’m trying to solve the broader problem. To determine how we must govern, we must agree on what life we desire. To agree on that life we must understand what kind of creatures we are. These two statements are as old as philosophy itself. However, these ancient questions are formulated with an assumption about our power of decision making: we may not be able to make decisions with out the institutions that help us do so. The civic republican tradition of political participation assumes we can make such judgements, or that we need only philosophical knowledge or religious tradition to do so. When, at some level of complexity we cannot sense the data with which to make these decisions in any possible way. I’ve included the article here in it’s entirety for posterity.
Winterspeak The Public Purpose Of Banking THURSDAY, NOVEMBER 12, 2009 The Public Purpose of Banking While Lloyd Blankfein claims bankers are worth Billions, even as they destroy Trillions, it’s worth taking a look at what the public purpose of banking is. Chicago economists, sit back down, the public purpose of banking is not to enrich their shareholders any more than the public purpose of pharmaceutical companies is. Capitalism works by enriching owners as they compete to provide some value to customers. So, what is the value that banks deliver to their customers? First, what is a bank? My definition is simple and goes to the heart of their public purpose: a bank is an entity that has a reserve account at the Fed. That is it. If you have a reserve account at the Fed, it means you can lend unconstrained by your reserve balance. Briefly, this is how it works: 1. You make a loan. This debits your reserve account, and you credit a receivable account. 2. The loan gets deposited, which credits that reserve account, and credits a liability. Note how the loan created the deposit, not the other way around. 3. If the loan and the deposit are made at the same institution, that institution has no net change to its reserve levels. If the loan and deposit were made at different institutions, then the institution short reserves borrows what it needs from the institution long reserves overnight. That’s it. If you or I make a loan, we cannot use the reserve credit that the corresponding deposit creates to top up our own reserve levels. Thus this clear, operational difference between banks and non-banks. Ultimately, the Govt creates all reserves, so why not just have the Govt make loans directly? Because we do not want the Government to make credit decisions, they are too likely to dole out money to politically connected constituencies, while starving worthwhile, but unconnected borrowers. You can see this today, as banks and unions get Billions, while shop keepers, dry cleaners, manufacturers, and restauranteurs shutter their businesses and go on the dole. An institution that makes loans it knows will not be paid back is not making loans at all, it is making gifts, and the operational bankruptcy of the FHA is a great example of this in action. Many adjectives come to mind: corrupt, wasteful, abominable, unfair, fraudulent, etc. This is the opposite of Responsible Governance. Barry, we really expected more. So, to keep responsible lending, we put private capital infront of public capital and ask that private capital take the first loss on loans it makes which turn out to be bad. Ultimately, taxpayer money is there as backup, but it should not be directing investment. We call this institutional arrangement a “bank”. This simple sensible construct is utterly lost on policy makers and the commentariat alike. For banking to do the job it is meant to do (ie. make loans that will be paid back), a bank should be required to keep all loans it makes on its books until maturity. It should be forbidden to participate in any secondary markets, in any way. It should not run a prop trading desk. It should not sell insurance. It should not have a fee-for-service business. It should simply conduct its own credit analysis, make loans, and service them. And in return for providing this public purpose, a bank shall have a reserve account at the Fed.