Just like a potlatch ceremony, advertising works when it appears to cost a fortune, writes Zenith’s Richard Shotton.
My stint at university was twenty years ago, so most of it’s a blur. However, one ethnography lecture that sticks in my mind was about the strange phenomenon of potlatches. It’s only recently though, that the relevance to marketing has become apparent to me.
What is a potlatch?
Potlatches were gift-giving feasts held by the indigenous people of the North Western USA and Canada. They were held at important events, such as weddings or births, and involved the hosts giving away much of their property.
There was a competitive element to the generosity: the more extravagant the largesse, the more status. If the host craved respect they destroyed precious items as well. They built pyres out of pots, pelts and precious coppers and burnt them. To a cinder.
Potlatches were powerful status symbols as they couldn’t be faked. It’s easy to claim you’re wealthy, but only the genuinely rich could afford to burn their possession and still survive the winter.
The signals given off by potlatches were costly and, therefore, commanded respect.
Why costly signals work in advertising
A similar effect occurs in advertising. John Kay, an economist at Oxford University, suggests that advertising works not because of the explicit messages, but because it’s a costly signal. Advertising is known to be expensive and signals the resources available to the brand. As Kay says in his landmark paper:
“The advertiser has either persuaded lots of people to buy his product already, a good sign, or has persuaded someone to lend him lots of money to finance the campaign.”
Like a potlatch, advertising works when it seems costly.
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Kay further states that since advertising tends to recoup its costs in the long term, only companies with substantial commitment to their brand would invest significant sums in advertising. A poor quality brand can advertise to generate trial, but no amount of spend can deliver repeat purchase to disgruntled customers.
In his words, advertising acts as a screening mechanism that:
“convincingly signals the quality of a product by displaying the producer’s sincere faith in his own output, reflected by the money spent promoting it.”
All ads are expensive, but some ads are more expensive than others
Kay’s theory shows that the ads perceived to be the most expensive will be the biggest beneficiaries of costly signalling. Ads can convey a sense of extravagance through their use of celebrities, long second lengths, high profile sponsorships or even media choice.
But are consumers attuned to such nuances? Do they really have an opinion on the costs of a cinema ad versus a YouTube pre-roll? Zenith’s research aimed to find out. We surveyed 502 nationally representative consumers about how much they thought advertising on TV, cinema and YouTube cost.
The median estimate was £25,000 for a million views of a 30″ ad on cinema and TV but only £5,000 on YouTube. Of course, their guesses might be wrong. But that’s irrelevant. What matters is the perception.
How can brands capitalise on these findings?
In 1884 well-intentioned Canadian colonialists outlawed potlatches, as the perceived waste offended their sense of propriety. Over one hundred years later, well-intentioned marketers are keen on eradicating advertising waste.
However, while it is easy to reduce short-terms costs by trimming creative budgets or ad lengths, there are longer-term repercussions. What is efficient in the short-term is not always effective in the long-term.
There should always be a role for bold brand statements. The occasional extravagance displays a confidence that mere ad claims cannot emulate.
Richard Shotton is head of insight at Zenith – follow him on Twitter: @rshotton
