The $50 Billion Gamble and Why Ads (alone) Don’t Sell Products

Posted on June 2, 2009

I couldn’t resist the opportunity this week to comment on something I’ve been following for years: the declining correlation between ad expenditures and sales results.

In 2008, the auto industry spent an estimated $9.5 billion on advertising alone — not including incentives, rebates, and all other forms of marketing.   This expenditure comes in the face of an average 30%+ decline in unit sales thereby increasing the advertising cost per car beyond $500.  There’s a case study here for those thinking that they continue their interruption marketing practices:  YOU CAN’T ADVERTISE YOUR WAY TO SALES BECAUSE PRODUCT AWARENESS IS ONLY ONE PART OF THE CUSTOMER DECISION JOURNEY.

While the US Treasury and GM are throwing billions of dollars at addressing excess plant capacity and lack of sales (symptom) perhaps they should focus on solving why there is no car demand (cause).   It is frustrating to watch a struggling GM spend $3.5B in advertising alone to interrupt America every night during prime time television with “Truck Month” and “cash back” offers on vehicles that buyers didn’t want in the first place.  They pump out patriotic ads with John Mellancamp or Bob Segar music, but ignore the American consumer when it comes to listening to what we want.

Advertising creates brand/product awareness (first stage of purchase funnel) but does not draw a prospective buyer into a brand dialogue or convince them to purchase (see our previous blog posts on effective purchase funnel marketing).


GM’s product missteps are a symptom of a bigger problem: lack of customer participation to guide design and marketing. After watching Ford boldly re-energize the modern muscle car with the 2005 introduction of the Mustang and 2007 Shelby GT350H and GT500 models, it took GM until 2009 to warm-over their ’69 Camaro design into a car that has now arrived just in time for President Obama’s proposed carbon tax.  As it relates to green energy, an Indiana man is able to convert a Ford Escort to electric power for a total investment of $13,000 (including car) while GM has been years in the making to release the Chevy Volt at an estimated price of $40,000 — as compared to $25,000 for a base Toyota Prius.

The problem with GM is not merely needing a $50B capital infusion or shedding loser brands like Saab, Saturn, Hummer, and Pontiac (although this should have been done 20 years ago) — the problem is that GM marketers need to enter the 21st century and realize they have an opportunity to engage in a 24 x 7 x 365 relationship with their customers.   Truly connecting with customers, listening, and feeding their input into product design means delivering cars people will buy, at the right time, and at the right price point.  Connecting with customers to map individual buying cycles for the tens of millions of GM customers, means saving $1B or more each year in wasted advertising and the ability to deliver relevant and timely offers that exactly match when a customer is entering the market for a vehicle.

The real opportunity GM has squandered is generations of customer purchase loyalty that could have produced the greatest CRM database and marketing asset of all time.  No need for Twitter, Facebook, or the social web revolution — just doing what automotive dealer legend Carl Sewell and other customer service champions have done for decades … sincerely engaging with customers, listening, and responding to their needs.

Cutting costs and shedding brands will please Wall Street in 2010 — but connecting with customers will please GM shareholders for decades to come.  Let’s hope they get it correct this time around.

3 Replies to "The $50 Billion Gamble and Why Ads (alone) Don't Sell Products"

  • Rob
    June 2, 2009 (4:49 pm)

    While much of this post did allude to what continues to haunt GM, it failed to drive home the message and instead continued to claim that bad marketing was to blame.

    “the problem is that GM marketers need to enter the 21st century and realize they have an opportunity to connect with their customers”

    If anything, the failure of GM proves that advertising alone, no matter the quality, does not equal success. If your product is inferior to that of your competitor’s your brand will hurt.

    The internet has leveled the playing field no matter how you look at it and it has empowered consumers. If your product sucks, you wont survive.

  • Steve Patti
    June 7, 2009 (11:38 am)

    Rob – nice observation; but both are actually true:

    (1) Poor products (regardless of ad spend) do not sell; GM’s product problems reflect their being out of touch with its customers

    (2) Advertising (regardless of product quality) only creates awareness but not sales; even for those GM models that have sold well, GM has failed to embrace permission/relationship marketing to drive sales — in favor of relying upon “monolog” advertising

    So GM could address both by connecting with customers via permission marketing:
    * gather ongoing & timely input to guide product design
    * connect/dialogue with prospects to improve conversion to customers

  • Steve Patti
    June 19, 2009 (9:39 pm)

    Rob/all – check out the latest CNN report ….. As of today, GM is late on paying $250 million in creditor invoices. Half of it is advertising media buys, another $46 million is agency fees.

    So who is the bigger fool? (GM for spending this kind of money on interruption marketing without generating any ROI, or the agencies who kept running up the fees actually expecting to get paid.) At what point in their $3.5 billion ad spending did the light bulb not go off that consumers aren’t responding?

    Fire the CMO — I’ll do the job for a fraction of their compensation 🙂

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