Who Wants To Be Spun?

by BILL WADDELL

The truth always comes out in the end.  That is a universal fact, even though sometimes it takes a while for the end to come around and the truth to be known. In the meantime, what Lincoln said about fooling all of the people some of the time and so forth may be true, but sooner or later, the facts matter.  In the case of business - any business - the truth and the facts mean the value of the product or service. 

I am becoming more and more convinced that there is an inverse relationship between a commitment to lean and the advertising budget.  There are those companies that provide a superior value proposition and don't have to spend much money to sell the high value products - and those that do the opposite.  You can read all about those Type B companies - lousy value/lotta advertising in a Business Week article called The Great Trust Offensive.  The article cites American Express, for instance, as a company with a growing trust issue they are addressing via a campaign to represent themselves as the business partner of the mom-and-pop-main-street-entrepreneur.  People trust the local small business person, so American Express is going to ride their coattails.  The problem is that American Express jacked up their rates and fees on good customers to cover their losses on bad deals, even though the Fed has slashed rates to just about 0%.  Providing a service that is not worth the price charged, then launching an ad campaign to paint the situation as something else is not going to work in the long term because no lie can withstand the test of time.

"Trust is what drives profit margin and share price," says Larry Light, CEO of the Stamford (Conn.) brand consultancy Arcature. "It is what consumers are looking for and what they share with one another."  I suppose that is true enough, but value is what creates trust - not spin.  In fact spin destroys trust when the truth behind the spin comes out.

GM advertising spending this year will be in the $2 billion range - versus about $1.2 billion for Toyota.  Kia/Hyundai is the fastest growing auto company and they will spend a third less than Toyota.  It seems to me that the worse the deal offered to the customer, the more money has to be spent trying to dupe people into thinking otherwise.

Business does not need to be nearly as complicated as too many make it.  Create a good product - sell it at a fair price - earn a profit.  That formula has always worked and always will.  Cutting every conceivable corner on the product by outsourcing it to some third world hole in the ground, or by hiring the cheapest people rather than the best, then spinning it into something it is not never works.  It really is pretty simple.

Comments

[Mark Graban]

Seth Godin frequently makes a similar point on his outstanding blog. He argues that the best marketing is a great product (great service / great experience). All of the advertising in the world can't trick people into buying a crappy product for long.

[Steve Harper]

It's just like that scene from Tommy Boy where he explains when talking to his customer that he can take a dump in a box and put a guarantee on it (because the other supplier has a guarantee), or he can buy the better product, to which the customer agrees to buy from him.

However, some products are their image (just think of anything you see a celebrity wearing).

[Adam]

Umair Haque at Harvard has made some similar comments. According to him, investments in advertising made more money than investing in product for the last twenty to thirty years, but recently that relationship has begun to break down. However, all the executives currently in charge come from that era, so it seems like you really can't teach an old dog new tricks. Here's the link to his blog for anyone that's interested: http://blogs.harvardbusiness.org/haque/

[Pete]

I think the drug companies are the best examples of spinning products that are not a good value. Older, off-patent drugs already exist for most of the heavily advertised drugs. The drug companies do all they can to create demand for new products which cost a great deal. Remember, the FDA only requires that a drug show some activity and some initial safety. The is no requirement that a drug be as good as or better than the old ones.

[Matt F.]

Keep in mind Kia and Hyundai are making very inexpensive cars. Most of the cars don't have the greatest of material or the highest of quality, but they are pushing to support the current demand within this economy. New cheap cars that work and get you from point A to point B while not completely falling apart down the first street. Their huge warranty also is a big plus for consumers. The value is high even though the cost is low.

At this time people want those type of cars. American cars, specifically GM, don't have the same value. Who wants a regular warranty, poor quality car that costs more?

[Bill Waddell]

Matt,

Don't sell Hyundai quality short. According to the latest JD Powers data, they rank 4th behind Lexus, Porsche and Cadillac - ahead of Toyota, Honda, Chevrolet and Ford.

Kia ranks 15th - ahead of Volkswagen, GMC, Volvo and Lincoln

Hyundai - Kia is shaping up as a force to be reckoned with, and Toyota and Hinda should worry about them a lot more than they need to worry about GM and Ford.

You can see the JD Powers results at:

http://www.jdpower.com/autos/ratings/quality-ratings-by-brand/sortcolumn-1/ascending/page-#page-anchor

[Matt F.]

Bill:

Gotta say, that is surprising. And I was thinking about getting a mazda3 next year, and they are ranked 25th! Insanity. Puts it all into perspective on how the auto industry has changed in the past few years.