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Is Advertising Relevant in a Social Media/Word of Mouth World?

The message in a nutshell….

Newly published research suggests that advertising impacts an unlikely audience – the company’s employees. Creating a consistent culture within the organization, aligning advertising with the firm’s culture, and ensuring accuracy of the advertising messages will heighten the level of customer focus exhibited by employees; this, in turn, will yield greater financial returns for the firm. This research reinforces that firms should avoid the temptation to over-simplify the marketing tactics they employ. The key is optimization, which is a function of understanding the ROI each strategy or tactic has in total (and how each may impact other strategies in play).

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We at Walker frequently counsel clients that the drivers of customer acquisition, customer retention and customer defection are different and, therefore, require different strategies. Advertising, for example, is generally associated with customer acquisition efforts, while managing the customer experience tends to be associated with customer retention (or in the case when the experience is not managed properly, customer defection).

Some proponents of social media and word-of-mouth have lately been dismissive of the investments that companies make in advertising, suggesting that these funds would be better utilized in enhancing the customer experience (see this blog entry from Deborah Eastman of Satmetrix for one such example). Newly published research suggests – once again – that business is a complex series of relationships with many interconnections that cannot (or, at a minimum, should not) be reduced to a single theme, metric or focus.

Mary Wolfinbarger Celsi and Mary C. Gilly of California State University Long Beach and University of California, respectively, just published research that demonstrates an unlikely audience for advertising – the firm’s employees. Moreover, this research shows that advertising can be an effective tool in enhancing the customer experience – that is, it has application in both customer acquisition as well as customer retention. Consider the findings of this study:

1)      Employees with a stronger identification to their firm are more likely to think that the firm’s ads are accurate and that the ads align with their own value system;

2)      When employees perceive ads to be accurate in alignment with their values, they perceive the ads as being more effective;

3)      As an employee’s perception of ad effectiveness increases, so does his/her pride in the company;

4)      Higher employee pride leads to increased customer focus;

Of interest to me is the hierarchical nature of these relationships – each stage provides the undergirding to the next, culminating in increased customer focus (and if you have followed any of the Walker blogs for any period of time, you will know that we have proven – with statistical rigor – that increased customer focus maximizes the firm’s probability of financial success).

What does this mean for companies? I would suggest the following:

1)      Make certain your ad claims are accurate and that the tone of the ad is aligned with your corporate culture – Just as perceived accuracy and value alignment yield (ultimately) employee pride and higher customer focus, perceptions of inaccuracy and misalignment can prove damaging to employee pride and customer focus.

 

2)      Don’t forget to consider cultural fit in hiring (and firing) decisions – The company’s culture is one of the few sources of long-term sustainable competitive advantage – among other things, it is an intangible that cannot be easily replicated by competitors. This research suggests that the path toward increased customer focus starts with employees that are aligned with the firm’s culture and have bought into the direction of the company. With this in mind, seek ways to ensure that potential new hires will effectively fit in the culture, and swiftly deal with employees that do not. Conducting peer interviews with prospective hires is an effective way to help ensure that a candidate will be a good fit.

This also means, of course, that you may have to deal with a strong performer that fundamentally detracts from the culture. To me, this is one of the litmus tests of the strength of the firm’s management.

3)      Realize how much complexity exists (and embrace it) – The purpose of this blog is not to dispute the power of social media or recommendation/word-of-mouth.[1] Rather, this research is further evidence that business success cannot be reduced to a singular metric or tactic – that is, this research suggests that the notion of customer centricity is an overarching theme of the entire culture that has ancillary benefit beyond just the efforts to maximize customer retention.

 

What is the best way to deal with this? I would suggest from the ground up – start with the culture and build the company around that. In my last blog series, I reviewed an HBR article about Zappos. Part of Zappos’ success is based on the fact that entire company was built upon a framework of customer-centricity – and we should not underestimate the impact this has. Here’s why – it is immensely easier to decide what the company’s culture is going to be and then build it vs. re-engineering it. Re-engineering is not only time-consuming (and, many times, emotionally draining), but it is also costly – consider the impact of the cost of reorganizations, new branding campaigns, etc.

 

It will be interesting to see how the acquisition of Zappos by Amazon works in the long run – it is not uncommon for mergers and acquisitions to underperform, and we would hypothesize that this is a function of 1) not properly understanding the security/risk associated with the acquired customer base (I’ve written previously about this here), and 2) not fully appreciating the extent to which compatible cultures drive the success of integration (or, to the contrary, the extent to which incompatible cultures can undermine the merger’s success).

 

So, to summarize – build your processes from the outside/in, but build your culture from the inside/out.

So, is advertising relevant? This research suggests it is, as it can contribute to the firm’s efforts to engender a customer-focused culture. Wise marketers will seek to optimize the tactics they employ – this requires not only an understanding of the ROI of each tactic, but also the extent to which each inter-relates (and impacts) other initiatives. Regardless, a single tactic is unlikely to yield sustainable business results.

To those who suggest that we need only a single approach to business success, I am reminded of Abraham Maslow’s quote – "If the only tool you have is a hammer, you tend to see every problem as a nail."

How full is your toolbox?

Mark A. Ratekin
Sr. Vice President, Consulting Services & Resource Management

Source: Celsi, M., & Gilly, M. (2010). Employees as internal audience: how advertising affects employees’ customer focus. Journal of the Academy of Marketing Science, 38(4), 520-529. doi:10.1007/s11747-009-0173-x.



[1] I would strongly suggest, though, that the power is not universal – that is, the impact that social media and word-of-mouth have will vary based on (among other things) a B2B vs. B2C focus, the extent to which your offering is key to the customer’s own success (that is, the more critical you are to the customer’s success, the less likely they are to recommend you to others), purchase cycles, etc.

0 thoughts on “Is Advertising Relevant in a Social Media/Word of Mouth World?

  1. You did a very nice job summarizing our results, and I like the way you frame the findings that advertising has a role in customer retention (via customer focus of employees) as well as customer acquisition. I’m glad you found our research helpful.

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