Do great products and services need advertising?

Why are we fascinated by how companies grow without advertising? Well, we work with early stage companies who need to acquire new customers as efficiently as possible and reduce the need to raise more money to grow.

There are a range of fundamental changes enabled online that expand the range of options for companies wanting to grow in new an interesting ways. For example, Roelof Botha, of Sequoia Capital talks about key concepts underlying the success of PayPal and Youtube (Zappos is on the list below). We have talked about word of mouth before (and the impact of its ongoing documentation online via product reviews). We dont think this is the only thing powered brand growth, but certainly a powerful part of the new suite of tools which reward great product and service experiences and make them easier to find.

So we have set about identifying companies that spend little or no money on advertising, to understand how they have managed to grow. For now we aren’t limiting ourselves to a specific industry and we are going to attempt to cover large public companies as well as early stage private ones.

Following is an initial list of companies, along with a short summary of why we picked them, beginning with the behemoths:

Google - sits atop the pile, according to the Brandz 2007 ranking (pdf). But Google doesn’t spend very much relative to its rivals and most of its spending has been for its enormous recruiting efforts.

Starbucks - may be experiencing some headwind in the slowing global economy, but it has spent even less than Google historically, running a TV ad for the first time at the end of last year in the US.

Zara - the Spanish retailer, spends just .3% of sales on advertising versus 3-4% for rivals. It uses its retail stores and rapid product turnover to do the communicating.

Amazon - famously cancelled ads in favor of free shipping and appears to be reaping the benefits today. Its online ad spend, goes mainly to Google.

Some other megabrands under consideration are spending much less on advertising than competitors,  or spending when they don’t seem to need to. These include: Porsche, Samsung, Nintendo, Costco, eBay, Harley-Davidson.

On the not-so-mega, but loved-and-respected-scale, here are some for consideration:

Zappos - is spending what it might have spent on advertising, on customer service.

Newegg - has built an almost $2b in sales, while focusing on keeping its community of tech users happy.

BitTorrent - reviled by the media industry, but downloaded an unprecedented number of times around the world.

Ducati - took a page from the Harley book and focused in its loyalist Ducatisti to jumpstart sales.

Tupperware - party anyone?

In-N-Out Burger – revenous fan base, underground menu. Its a secret society. Hold the ads.

Method Products – interview reveals how Method invests more in their products and less in talking about them to create another Inc star.

Kiehlsgive away samples, no ad dollars.

Trader Joes – the “Trader Joe’s Fearless Flyer” circular is the only communications spend.

Zipcar - a new form of transport.

And finally, on the smaller startup scale, some companies we are considering, that you may or may not be familiar with

37Signals – celebrated for simple products and word of mouth.

Daylife - created a showcase and drew a crowd.

Meraki – connecting people together is a good way to spread the word.

Sigg - where did the Swiss water bottle makers come from?

Orb Audio – small speakers, big sound. And a commitment not to spend on anything except making speakers.

Denim Therapy – never replace your jeans, just repair them.

We’re just getting started, so lots of research to do. The list is likely to grow and change and we’ll start to dive into how each of these companies work their magic.

2 Comments

  1. it is a pretty interesting thesis. I think the world would be a lot nicer place if fewer companies yelled about their products and let their customers whisper the benefits to each other.

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