How advertising actually works

It’s hard to believe it but there once was a time before John Lewis did amazing Christmas advertising.

Before they did any Christmas advertising.

The fact that they started making creating famous, often tear-jerking, festive ads many years ago and are still doing it to this day is testament to an important fact: it works. It has helped them drive share in an incredibly competitive UK retail sector while maintaining a premium positioning.

And not just at Christmas time.

This approach has supported the business year round, even though investment is heavily weighted towards the last few weeks of the year. While they have struggled of late, the 'golden age' of John Lewis advertising still stands as an awesome case study on the power of famous, creative advertising in driving tangible business results in the toughest of categories.

And this success is, in turn, largely thanks to the advertising agency that made it happen: adam&eveDDB. Last week, they were awarded Agency of the Year by Campaign for about the gazillionth time, and deservedly so. I had the pleasure of working with Adam&Eve myself a few years ago developing some epic ads for Aviva and working with many very talented people including legendary strategist, Nick Hirst .

I could think of no better person than Nick to chat to to find out why creativity matters for part 5 of my current series, ‘Developing Effective Creative’. To find out how advertising actually works, the importance of emotion and fame in advertising and how creativity can be your secret weapon as a scale-up taking on big incumbent brands with deep pockets, read on!

Nick, thank you very much for joining. Perhaps you could start by giving us an overview of your career highlights to date.

I have worked in advertising for 20-something years now. Mostly big advertising agencies. I did two to three years in the middle at a digital agency called DARE which was the digital agency of the decade. That was a very interesting experience from a learning perspective. But other than that, I've been working at bigger agencies that usually work with bigger brands, thinking about brands and how to grow them. I've sold SUVs for VW; I've tried to help people quit smoking with Stoptober; I've helped the British Heart Foundation and I've worked with companies like Unilever, Mars and GSK on their brands. And while they're big companies, some of their brands are quite small and don’t have much money to play with. And this makes them a bit like a scale-up in terms of how they think about having to eke out every sale they can from less money than they'd like. Almost no brand has ‘enough money’. All brands wish they had more and if only they had more they could do more stuff.

Today I’m at Adam & Eve DDB, which is one of London’s largest agencies, and was in the top three globally at Cannes last year. I've been there for almost 10 years which is way too long to be at an agency really, but it remains fun.

Fantastic. Well, we worked together a while back when I was on Aviva and more recently I saw you at last year’s IPA awards (Institute for Practitioners of Advertising Awards, aka the ‘Oscars for Marketing Effectiveness’). You came away with an embarrassingly large haul of awards (Cazoo won Silver), which I think is quite common for Adam & Eve. I’m keen to understand your perspective on the link between creativity and business results.

"There's a fundamental misapprehension about how advertising works a lot of the time."

The first thing to say is that there is a link, and the thing that we try to think about and talk about a lot is exactly what that link is.  It’s very easy for us to say, ‘creativity is great for business’, but we try to go a bit further than that. To understand what that link is, it helps to go on a bit of a detour and think about how advertising actually works and then you can come back to what creativity’s role is in that.

I think for a lot of businesses - not just scale-ups - there's a sort of fundamental misapprehension about how advertising works a lot of the time. A lot of people seem to think that advertising works generally by persuading or informing. There's this idea that advertising is salesmanship in print, which is an old idea about what advertising was. And in that paradigm, creativity is there to get people to listen to what you have to say. It's there as  an ‘envelope around the selling message’.

But actually more and more of the data fundamentally questions whether that is really how creativity works. When you think about the John Lewis Christmas ad, it doesn't really say very much about the product at all. There is an implication that we have a large range at John Lewis but beyond that, not really very much. And yet it's hugely effective. And there are countless IPA papers as testament to that.

So advertising doesn't really work by persuading people with information. Its most valuable contribution to a business really isn't short term sales volume. It's actually profitable sales volume over the longer term. And there's a few implications to that. The big one is that most of the value of advertising doesn't come from talking to people who might buy soon. Its value is in priming people for a sale much further down the line. When you look at what the econometric data says, a lot of the value of advertising comes in the second and the third year of it running.

"Creativity is a way of making advertising work much harder at making brands memorable and making brands desirable so that businesses can essentially charge more for them and can create sales long into the future."

So it's not really about working in the here and now with information. It’s about working in the long term and having an effect on pricing power as well. And the implication of that is that you're speaking to people who aren't really thinking about your category. If you're selling to people right here and now then, of course, relevant information, USPs and all that  stuff is really useful. But if you're talking to people who are months away from buying your product and not really thinking about your category, none of that stuff is really that relevant.

What is much more relevant are things like being memorable, making people feel a certain way about your brand. Memories are encoded when there's lots of feelings going on. So when we think about creativity, we're not necessarily talking about a way of making advertising more persuasive. We're talking about a way of making advertising work much harder at making brands memorable and making brands desirable so that businesses can essentially charge more for them and can create sales long into the future.

That makes total sense. And if you're looking at the range of ideas for a client, are there some key principles that you apply when you think about what does or doesn't make creative effective?

"The best objective to set for advertising is fame"

There are. And there are some which are quite well established in the data and then there are some which, frankly, is where the ‘Hail Mary’ of creativity comes in. And unfortunately, you have to be able to do both of those things. There's a lot of data, for example, that tells us that in order for advertising to work at its hardest, you have to get the objective right. And the best objective to set for advertising is fame, as it turns out. It's actually not persuasive power or anything like that. So we know that whenever we're looking for a famous idea that we think will catch fire in culture, there is data behind that which tells us that it's likely to lead to more effective advertising.

"You sort of know you're looking for something famous and you sort of know you're looking for something emotionally powerful."

Another one would be emotional effect. We should probably be more explicit about this sometimes, but we tend to be looking for ideas which work emotionally and that's the thing we brief for. But that doesn't give you a machine that produces ideas. It just tells you what type of ideas to look for. Beyond that, that is where the art comes in. Often what you're looking for is an idea which feels novel and interesting and attention-grabbing and that almost by definition is quite a hard thing to code, because it has to be different from what went before. John Lewis is a good example of this.

When John Lewis started doing emotional, tear-jerking Christmas advertising, no one was really doing it. It was novel and original, and that's a large part of its power. And of course lots of other brands started doing tear-jerking, emotional Christmas advertising. And while John Lewis remained effective, you know, those brands wouldn't have found it to be as effective for them . Then Aldi comes along with Kevin the Carrot, which is a completely different but also incredibly effective campaign.

So you sort of know you're looking for something famous and you sort of know you're looking for something emotionally powerful and there are good reasons and rigorously researched reasons for that. Beyond that however, we're fishing for something new and that's where it's a bit of a leap of faith to get to those things. And that's where you start operating more in the world of art, if that's not too pretentious, versus the world of science.

Very interesting. This conversation is focused on scale-ups. Brands that win IPA awards tend to be big, famous brands with big budgets that are quite established whereas scale-ups either don't have the time or certainly the budget to apply for those sorts of awards. All the same, creative effectiveness is going to be hugely important. Are there challenges that you would expect to be different for scale-ups when it comes to cracking effective creative or do you think it's broadly the same as bigger established brands?

"You are inevitably going to be coming up against people who have more money than you to spend, and that is where creativity becomes your secret weapon."

I guess the most obvious one is likely to be money on the face of it, because no brands have more money than they need. It is a very rare situation that brands are awash with money, or at least feel like they're awash with money. But there are plenty of brands that we work with, who do not have big budgets, certainly versus their competition. And the most important thing about your budget, both from a working and non media perspective is how big it is versus your competition. So you can be constrained in a very similar way to a scale-up brand if you're Marmite, for example, which is another one of our clients. They operate in a world of FMCG competitors, who have much bigger budgets. Marmite does not enjoy big budgets and yet it punches well above its weight creatively. It has to rely on creativity to do so.

So I think there's a challenge that if you're a scale-up and you're at that stage of growth where you're starting to have to battle the competitors in order to see the double-digit growth that you're looking for, you are inevitably going to be coming up against people who have more money than you to spend. You’re inevitably, to some degree, going to be a challenger brand. And that is where there is a similarity with some brands like Marmite where creativity becomes your secret weapon to really take on some of the bigger players and scale out of the start-up phase of growth towards something that's a bit bigger.

So, would you say being creative and taking a risk or being braver is even more important as a scale-up?

"It’s a lot braver, arguably, to do something boring and hope that it will pay back because it probably isn't going to."

I think so. But I'm not sure how helpful it is using the word ‘brave’, because I think it makes it feel like you're doing something which is inherently riskier than the other thing you'll do. But actually, the other thing you could do is to be essentially boring and straightforward and invisible and that's almost never going to work. There's a very interesting piece of research done by Peter Field recently, which featured on the Uncensored CMO podcast, where he talked about the ‘tax on being boring’. This means that you have to spend more money on media if you do not have creatively interesting ideas.

So creativity can feel risky, because you are essentially going into the new. You're doing something novel, you're trying to find something which is newer, but from a purely financial point of view, it's really not brave at all. In fact, it’s a lot braver, arguably, to do something boring and hope that it will pay back because it probably isn't going to.

Fantastic, very helpful.

And so what would your top three tips be for any scale-up trying to develop effective creative for their brand for the first time? 

"Don't lose who you are, but be ready to think about it in much simpler terms."

The first one is that it really will help you to think about simplifying your story. A lot of founders will have a very rich sense of what their brand is all about. And if you've been operating in a world of investor pitch decks which are pithy and short and snappy, even they are likely to contain more information and more arguments than the typical piece of communications. There's a very famous chart that goes around planners every so often about the number of messages you should have in an advert and if it’s any more than one you're starting to dilute the effectiveness of your communication. So, you have to be ready to simplify, ready to be super focused. And I think external voices can help you with that. It’s one of the benefits of having either an agency or a single freelance person, or even just somebody you know who works in communications who has a fresh pair of eyes that can help you really brutally simplify your story. Don't lose who you are, but be ready to think about it in much simpler terms and that will help you to unleash creativity and the power of creative advertising.

"Think about giving people an ‘emotional free sample’."

The second one is a helpful metaphor for the way to think about how emotion in advertising works and that’s to think about giving people an ‘emotional free sample’. So, instead of telling them things in a memorable way that will persuade them to buy you, try to think about giving people a feel for what your brand feels like or what using your brand is like because those things stay with people longer. And if you're at a scale-up stage, and you're essentially trying to drive organic growth, you're trying to drive profitable growth, so what you want is for people to remember you when they come to whatever market you're in. So think about ‘emotional free samples’ because they're a very powerful way of remaining memorable and driving pricing power and profitability.

"Talking and thinking about it in the language of finance and in financial terms can be incredibly helpful."

And then the third one is more of an internal thing. It's tempting to suddenly adopt a whole set of new, weird language when you start to think about brands and creativity.  But talking and thinking about it in the language of finance and in financial terms can be incredibly helpful. We often do this when we're talking to clients and not necessarily marketing clients, but boards and CFOs, about advertising investment, because that's what it is. It's an investment. I think trying to remain in that world as much as you can and trying to think about advertising as an investment can be incredibly helpful. That might sound like folly because there's a tradition of thinking about advertising as a discretionary cost not an investment. 

I saw a very interesting piece of research at the IPA Effworks by a consultancy called Liberty Sky working with the IPA, and they've been interviewing financial analysts to ask them what their point of view is about advertising. And interestingly, more and more financial analysts on the buy and sell side are starting to consider advertising more as an investment than as a discretionary cost. Because I think they're increasingly aware of its effect on brands – so if you try to talk about advertising as an investment you won't be alone. Many analysts and people who think about companies purely from a financial perspective will be with you. And that takes you away from thinking about brand and creativity as a ‘nice thing to have’. And it reminds you that actually what you're doing is giving yourself a better chance of financial success. It's an investment and you should talk about it as such.

Just to build on that. In my first job at l'Oréal, we would often talk about the price earnings ratio premium you get by having strong brands. So that’s a hard fact in a financial context that there is a benefit having a strong brand in terms of your share price.

"The last few years of turmoil and COVID and inflation has essentially created a huge experiment in the power of brand."

Absolutely. It's not the biggest effect by any means, but it's there and I think the other thing is that a lot of this goes back to pricing power. Again, my colleague Les Binet talks about price as one of the often-overlooked but most powerful effects of great, long term advertising. One of the other topics that kept coming back at Effworks was this notion that the last few years of turmoil and COVID and inflation has essentially created a huge experiment in the power of brand. And the reason for that is a lot of brands have been putting up their prices more than they'd probably like to and have been surprised at how little volume they've lost as a result. 

We've all discovered that we maybe have better price elasticity than we thought we did. Not everybody, but it's given us this really interesting data set which some people, such as the consultancy Magic Numbers, have started to look at.  And it helps people realise that the reason we've managed to put up prices as much as we have is that we have strong brands. And in some cases brands actually drive profit far beyond just covering the greater cost of ingredients and materials. And it would be a silver lining if we came out of the last few years of not brilliant news everywhere with a greater appreciation of one of the best things that brands can help us do: not just drive publicity for our products, but also actually help us charge a premium for those products.

Great. Those are three fantastic top tips there. And do you have one mistake that scale-ups should avoid?

"If somebody sits down and decides to type your brand into Google, or scrolls past someone else’s search result to click yours: why have they done that?"

I do. It's a quite specific one, but it has greater ramifications. I think the mistake to avoid is to be very wary of short term sales attribution measurement. It's a tempting thing, particularly when we live in a world where we're awash with data and a lot of the things that you're doing as a start-up and or even if you're a small brand - activating, chasing every sale – means that you get bewitched by this idea that you can measure everything and you can measure the effect of everything.

But actually, the huge danger of short term sales attribution measurement is that they massively overestimate some short term response channels and they massively underestimate some Brand channels. There was some research Les published with Data to Decisions that we shared at Cannes and in SXSW again this year, trying to put a number on some of these misestimations. And the research suggests that it's short term sales attribution techniques - search, for example - can overestimate their return by something like 190%. And it's about 60% for DM and inserts. And this approach conversely underestimates both DRTV and TV by something like 80% to 90%. 

The reason for that is that it is just measuring the last click. Search is a great example of this. You have to think about where that search has come from if somebody sits down and decides to type your brand into Google, or scrolls past someone else’s search result to click yours: why have they done that? What's caused them to do it? So you can see the problem with it if you think about it, but I think there's an over reliance on it because we can measure something. It almost feels like it's a lighthouse in an otherwise dark sea, but there's a real danger of it in that it tells you to do the wrong things. And it will tell you to spend more and more of your time and money thinking about short term attribution, and less of your time doing the thing you should be doing as you're scaling up, which is thinking about driving future buyers and profitability and essentially creating base sales.

Very good tips. Thank you so much, Nick!