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Advertising failure

Hedge funds are selling the advertising sector short. The era of "passive" advertising is over. Advertisers need "active", "disruptive" or "smart" strategies to interact with customers, consumers and investors

Advertising break or break from advertising?

Television viewers who fear the problems in the advertising sector means they have less time to put on the kettle for a cup of tea in the middle of their favourite soap need not worry. Big advertisers claim they are not cutting advertising time, just making it more productive.

But that message has not been bought by hedge funds. They see the advertising sector as a beast wounded by the big advertisers trimming their promotions - succumbing to pressure from shareholder activists whose goal is to increase shareholder returns.

Unquantified blunderbuss

It was Lord Leverhulme, the founder of what has become Unilever, who famously declared, "Half of my advertising is wasted, and the trouble is, I don't know which half". Firms like Unilever, in the consumer goods sector, are having to face up to the growing dominance of quantifiable, online advertising placed with the likes of Google and Facebook. The unquantified blunderbuss of advertising spend of Lord Leverhulme's days are over.

That is counterintuitive to some who think that more brand advertising, not less, that is required to increase revenues: after all, the endless "romantic sagas" and jiggling of a handful of coffee beans by Nescafé have preserved its position as the best-selling instant coffee.

Consuming commodification

Shareholder activism may be a red herring. Consumer multinationals may be suffering from the waning of brand loyalty as cheaper, more local, more innovative and exciting start-up brands erode the heights that famous brands have for so long commanded.

The South African supermarket chain Pick 'n' Pay pioneered competition with consumer brands by inventing the ironical "No Name Brand" in-house brand of baked beans, yoghurts etc.

Today the supermarkets are assaulting both ends of the consumer pay packet: Tesco with its cheap and cheerful "Everyday Value" brand opposite its top of the range "Finest" range. Sainsbury's with its "Basics" at the bottom end and its "Taste the Difference" at the top.

In retail financial markets too the commoditised, low-commission vendors of passive, indexed products are supplanting the "branding" of the skill and wisdom claimed for active asset management.

The Other Half

It is more than just the "other half" of Lord Leverhulme's passive advertising budget that needs to be reassigned to more direct, targeted and quantifiable approaches to market penetration and preservation.

There need to be active or reactive strategies like the search for a potential purchase on Google or a mention of one within earshot of Facebook's eavesdropping microphone that elicit a blizzard of advertising offers.

Thought leadership

Investment banks, private wealth managers and corporate financiers also need to react to disruption in the advertising "space". Glossy magazine advertisements are no longer an end in themselves – they have to work for their money. "Smart" advertising appeals to the readers' emotions, intellect or curiosity. An intriguing or provocative statement needs to incite potential customers to actively link to a thought-provoking read or a recipe for the solution of their commercial, investment or wealth management problem.

Proactive shorting of advertising stocks investment strategies by hedge funds is an allegory for the end to the era of passive advertising. All the components of branding, marketing and advertising increasingly have to earn their keep.

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