Chapter 68 - Ogilvy on Advertising
Today’s Chapter is based on the book “Ogilvy on Advertising” by David Ogilvy, also known as the Father of Advertising.
Previously on David Ogilvy:
Here’s what I have learned:
Knowledge is Power
“I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up and boy does that help, particularly when you have a long run ahead of you.”
— Charlie Munger
David Ogilvy once asked Sir Hugh Rigby, the surgeon to King George, what it takes to be a great surgeon. His response? “What distinguishes the great surgeon is that he knows more than other surgeons.” Similarly, Ogilvy believes this is true both in advertising and in life in general. Those who succeed tend to have superior knowledge.
As Ogilvy, once said, “You don’t stand a tinker’s chance of producing successful advertising unless you start by doing your homework.” In terms of advertising, Ogilvy recommends a few steps one should take in order to succeed:
Learn everything about the product that is to be advertised. It is only by knowing all about it that one can find a great idea on how to sell it.
Find out how similar products are being advertised and how successful their advertising are.
Identify who the customers are and find out what they think about the product you are advertising (i.e: what attributes are important to them and what promise would be most likely to make them buy your brand again)
And finally, consider how you want to “position” your product. Ogilvy defines positioning as asking yourself “what the product does, and who is it for?”
As we have previously learned from Ogilvy, “every advertisement is part of the long-term in the personality of the brand.” He mentions that the company “who dedicates his advertising to building the most favourable image, the most sharply defined personality, is the one who will get the largest share of the market at the highest profit—in the long run.” For this reason, it is primordial to decide what “image” you want for the brand.
Ogilvy provides the example of brand image in whiskey. He mentions that brand image is 90 percent of what the distiller has to sell. He explains that the reason why some people prefer Jack Daniel’s while others prefer Grand Dad or Taylor is purely because the three brands have different images that appeal to different people.
“Give people a taste of Old Crow, and tell them it’s Old Crow. Then give them another taste of Old Crow, but tell them it’s Jack Daniel’s. Ask them which they prefer. They’ll think the two drinks are quite different. They are tasting images.”
— David Ogilvy
Furthermore, Ogilvy is a keen believer of using researches as a tool to improve his advertising. As he once said, “Advertising people who ignore research are as dangerous as generals who ignore decodes of enemy signals.” He mentions that while there aren’t any rules in advertising, it would be foolish to ignore the results of researches. Yet, it happens more often than you would think. Here’s a few advertising advices Ogilvy provides based on researches:
Research suggests that if you set the copy in black type on a white background, more people will read it than if you set it in white type on a black background.
On the average, five times as many people read the headlines as read the body copy. It follows that unless your headline sells your product, you have wasted 90 per cent of your money.
Advertisements in four colors cost 50 per cent more than black-and-white, but, on the average, they are 100 per cent more memorable. A good bargain.
This idea of learning from researches reminds me of how Kobe Bryant achieved greatness by learning from what other people have already figured out. As Isaac Newton once said, “If I have seen further it is by standing on shoulders of Giants.” Similarly, Kobe is a believer of learning from the all-time greats in basketball. As he once said, “If something has worked for other greats before you, and if something is working for you, why change it up and embrace some new fad? Stick with what works, even if it’s unpopular.”
As such, when Kobe was younger, he had a habit of ordering game tapes of Michael Jordan in order to watch and study how Michael Jordan played the game. And more importantly, he would always “why?” at every single decisions or plays made by Jordan. Kobe explained that watching game tapes wasn’t only to learn what happened but also what could of and should of happened:
“Film study eventually became imagining alternatives, counters, options, in addition to the finite details of why some actions work and others don’t work.”
— Kobe Bryant
Outside of watching game tapes from the greats, Kobe figured that another great way of learning from them is to simply build a great relationships with them. As Kobe once said, “Just as important as reading was cultivating relationships with the greats who’d come before me.”
As such, no matter who he was with, whether it was a coach, a hall of famer or a teammate, Kobe would always ask them question after question in order to learn and improve. Notably, Kobe learned a lot from all-time greats such as Muhammad Ali and Bill Russell. As Kobe once said, “After all, why reinvent the wheel when you can just talk to the wheels that were created before?”
In Muhammad Ali, Kobe learned that one must work hard in the dark in order to shine in the light. He explains that Ali taught him that “It takes a lot of work to be successful, and people will celebrate that success, will celebrate that flash and hype. Behind that hype, though, is dedication, focus, and seriousness—all of which outsiders will never see. If you stop being dedicated to the craft, the commercials and contracts will all fade away.”
As for Bill Russell, Kobe shared this great anecdote about Bill Russell:
“There’s one anecdote Bill shared that stuck with me. He recounts how people always said he wasn’t a good ball handler, just didn’t know how to handle and shoot the ball. He said sure, he could do all of those things, but why would he lead the fastbreak when Bob Cousy was playing with him? Why would he shoot jumpers when Sam Jones was on his wing? The message was that if you want to win championships, you have to let people focus on what they do best while you focus on what you do best. For him, that was rebounding, running the floor, and blocking shots.”
— Kobe Bryant
Finally, this concept of having superior insights, reminds me of the power of second-level thinking in investing. In his memo “I Beg to Differ”, Howard Marks summarizes the basic idea behind second-level thinking as follow: “In order to outperform, your thinking has to be different and better.”
“Remember, your goal in investing isn’t to earn average returns; you want to do better than average. Thus, your thinking has to be better than that of others – both more powerful and at a higher level. Since other investors may be smart, well informed and highly computerized, you must find an edge they don’t have. You must think of something they haven’t thought of, see things they miss, or bring insight they don’t possess. You have to react differently and behave differently. In short, being right may be a necessary condition for investment success, but it won’t be sufficient. You have to be more right than others ...which by definition means your thinking has to be different.”
— Howard Marks
Big Idea
“Ideas can be life-changing. Sometimes all you need to open the door is just one more good idea.”
— Jim Rohn
In his book, David Ogilvy explains that one’s success usually comes from a mere handful of big ideas. Even if he is considered the Father of Advertising, Ogilvy admits that in his long career as a copywriter, he did not have more than 20 big ideas, if that. In terms of advertising, he explains that “it takes a big idea to attract the attention of consumers and get them to buy your product. Unless your advertising contains a big idea, it will pas like a ship in the night.”
So, how does one identify a big idea? Ogilvy usually asks himself the following five questions:
Did it make me gasp when I first saw it?
Do I wish I had thought of it myself?
Is it unique?
Does it fit the strategy to perfection?
Could it be used for 30 years?
In my opinion, Ogilvy’s biggest reason to success is his ability to identify big ideas and to stick to them. As he once said, “If you are lucky enough to write a good advertisement, repeat it until it stops selling. Scores of good advertisements have been discarded before they lost their potency.” The reason behind is that, once again based on researches, “readership of an advertisement does not decline when it is run several times in the same magazine. Readership remains at the same level throughout at least four repetitions.”
“You aren’t advertising to a standing army; you are advertising to a moving parade. The advertisement which sold a refrigerator to couples who got married last year will probably be just as successful with couples who get married this year.”
— David Ogilvy
I believe this concept of big ideas is eerily similar to what we have learned about investing from Charlie Munger and Warren Buffett. It only takes a few insights to achieve incredible results. Here’s how Charlie Munger explains it in his famous talk at USC Business School back in 1994:
“To me, that’s totally insane. The way to win is to work, work, work, work and hope to have a few insights.
How many insights do you need? Well, I’d argue: that you don’t need many in a lifetime. If you look at Berkshire Hathaway and all of its accumulated billions, the top ten insights account for most of it. And that’s with a very brilliant man—Warren’s a lot more able than I am and very disciplined—devoting his lifetime to it. I don’t mean to say that he’s only had ten insights. I’m just saying, that most of the money came from ten insights.
So you can get very remarkable investment results if you think more like a winning pari-mutuel player. Just think of it as a heavy odds against game full of craziness with an occasional mispriced something or other. And you’re probably not going to be smart enough to find thousands in a lifetime. And when you get a few, you really load up. It’s just that simple.
When Warren lectures at business schools, he says, “I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches—representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all.””
— Charlie Munger
Similarly, I think we can be inspired from Ogilvy’s five questions to identify big ideas in order to find superior insights in investing:
Did it make me gasp when I first saw it?
Is the investment thesis presented in front of ourselves a no-brainer? The best investment ideas are usually easy to understand and do not require much explanation. As Warren Buffett once said, “I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.”
Did I wish I had thought of it myself?
Pretty self-explanatory, if we wish we would have thought of the investment idea ourselves, then it must be a pretty good one.
Is it unique?
As we have mentioned previously, in order to achieve superior investing results, we need to think differently from the crowd. Being right also helps.
Does it fit the strategy to perfection?
Obviously, we need to make sure that the investment idea reflects with our investment philosophy. It is hard to have conviction in a stock, especially when it goes through drawdowns, when it is a borrowed idea and when it does not fit our investment ethos.
Could it be used for 30 years?
Does the business we are considering investing in have competitive advantages that will allow it to produce sustainable superior returns for the long-run (30+ years)?
Finally, this concept of a few big ideas providing the largest returns reminds me of the Pareto Principle we have learned from Tom Monaghan at Domino’s Pizza. He realized that although he sold three different sizes of pizzas 80% of his sales came from 12-inches pizzas. Similarly, 90% of beverage sold were either Coke or Pepsi.
As such, he decided to reduce his products’ offering by selling only one size pizzas. This was a major revelation and breakthrough in Domino’s Pizza history. By doing so, the company was able to leverage its profits even further. It may seems counter intuitive that simplifying a business may increase its revenue, but here’s how Monaghan explains it:
“The main argument for having only twelve-inch pizzas was faster service. But quality would be improved, too. A pizza maker has to learn how to make each size pie. The twelve-incher is easier and larger ones are much harder. There would be fewer mistakes too both in taking orders and boxing them. With three sizes of pies and just two inches difference between them, it sometimes happened during a rush that a worker would ruin a large pie by trying to jam it into a medium size box. Then there were the saving we would make in purchasing. Having one size would cut our box inventory requirements by two-thirds.”
— Tom Monaghan from the book “Pizza Tiger”
Surround Yourself with Good People
“Tell me who your friends are, and I will tell you what you are.” — unknown
Charlie Munger once said, "The best single way is to deserve a good spouse... To get what you want, you have to deserve what you want." Similarly, Ogilvy explains that if one wants to build a great business, you need to surround yourself with great people. He once said, “Success in running an agency depends on your ability to hire men and women of exceptional talent, to train them thoroughly, and to make the most of their talents.”
As a matter of fact, whenever someone becomes the head of an office at Ogilvy & Mather, David Ogilvy always send him a Matrioshka doll and the following message inside of the smallest doll: “If each of us hires people who are smaller than we are, we shall become a company of dwarfs. But if each of us hires people who are bigger than we are, we shall become a company of giants.”
This reminds me of what Steve Jobs once said about hiring A-team players:
“I observed something fairly early on at Apple, which I didn’t know how to explain then, but I’ve thought a lot about it since. Most things in life have a dynamic range in which [the ratio of] “average” to “best” is at most 2:1. For example, if you go to New York City and get an average taxi cab driver, versus the best taxi cab driver, you’ll probably get to your destination with the best taxi driver 30% faster. And an automobile; what’s the difference between the average car and the best? Maybe 20%? The best CD player versus the average CD player? Maybe 20%? So 2:1 is a big dynamic range for most things in life. Now, in software, and it used to be the case in hardware, the difference between the average software developer and the best is 50:1; maybe even 100:1. Very few things in life are like this, but what I was lucky enough to spend my life doing, which is software, is like this. So I’ve built a lot of my success on finding these truly gifted people, and not settling for “B” and “C” players, but really going for the “A” players. And I found something… I found that when you get enough “A” players together, when you go through the incredible work to find these “A” players, they really like working with each other. Because most have never had the chance to do that before. And they don’t work with “B” and “C” players, so it’s self-policing. They only want to hire “A” players. So you build these pockets of “A” players and it just propagates.”
— Steve Jobs
Similarly, David Ogilvy, not only did he made sure to only hire great talents, more importantly, he only wanted to work with great companies. His policy which is inspired by JP Morgan is “Only first-class business, and that in a first-class way.” Meaning that, for Ogilvy, it was primordial to only work for great companies with similar values and mindsets. As he once said, “Avoid clients whose ethos is incompatible with yours.”
This is something that Ogilvy promises to never compromise even during economic downturns. As he once said, “When you are head of an agency, you know that your staff looks to you to bring in new business, more than anything else. If you fail to do so over an extended period, you sense that you are losing their confidence, and are tempted to grab any account you can get. Don’t. Above all, don’t join the melancholy procession of agencies which always accompanies a dying brand on its way to the cemetery.”
“Clients get the advertising they deserve. I know some who are a malediction, and others who are an inspiration.”
— David Ogilvy
Beyond the Book
Read "Standing on the Shoulders of Giants" by Farnam Street
Read "Second-Order Thinking: What Smart People Use to Outperform" by Farnam Street
Read "I Beg to Differ" by Howard Marks
Read "The Importance of Working With “A” Players" by Farnam Street