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Sunday, December 11, 2022

Commercials are not logical. FTX edition.

Some people asked me to comment on FTX since I teach Crypto. My insights are no better than anyone else; however, I have wanted to do a blog post about the illogic of commercials, so I will do that with FTX as an example. 

ALL conversations in the post are fictional.

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Alice: Bob,  why did you invest $1,000,000 with FTX?

Bob: Because Tom Brady endorsed it. (See here for an article about that and here for a commercial Tom Brady did for FTX.) 

Alice: But Tom Brady is a football player, not a finance person. 

Bob: Well... I know that now. 

(For an absolutely fantastic and now ironic commercial for FTX see here.)

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The people in commercials are  paid to hawk the product. 

a) Are they experts? In the above case about about FTX  NO, they are not. So this should not work. 

b) There are commercials where the people ARE experts. For example, a basketball player endorsing Sneaker brand (not quite an expert, but they DO use the product). But even this should not work since the viewers KNOW that the person is being PAID to tell us it's a good product. 

c) Commercial spokesman (Geico-Gecko, Progressive-Flo, Dos  XX- the worlds most interesting man, see his commercial here and a Ramsey Meme based on it here) are even stranger- they are fictional characters who are urging me to buy something.  So the question are they experts? doesn't even make sense. Someone pretending to be someone they are not is pretending to like a product they do not use. 

d) Some commercials pretend to be  informative but are not. For example, the Insurance Companies seem to brag about something that ALL of the insurance companies do (bundling, not-paying-for-what-you-don't-need). 

e) A truly new product may have an informative commercial, just to tell me that its out there. For example. Stephen Colbert's Americone Dream Ice Cream which is awesome. (My spellchecker thinks Americone is not a word. This time they are probably right.) 

f) SO, if I did a commercial for Stephen Colbert's Americone Dream Ice Cream would you try it? Lets say I wasn't being paid and I truly did it for my love of that ice cream. STILL doesn't make sense- my tastes and yours may differ. However, you can try it and decide, and  it costs far less than $1,000,000.

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So what are we left with? The only commercials that make logical sense would be those where 

a) the person is an expert

b) the person is not being paid

c) the person is telling you something about the product that distinguishes it from its competitors OR  its a new product

d) Its not a matter of taste- there is an absolute standard that is easily understood. 


Do you know of ANY commercials like that? Influencers who are NOT paid by the people whose product they are hawking (are there such influencers?) might begin to qualify. 

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So LOGICALLY commercials should not work. So why do they?

a) They don't. Its possible they just are not that effective. See here for DON"T WORK and here for 8 times when it did work. I think this is a great commercial (watch it to the end) but it does not make me want to out and buy soup. (Stan Freberg wrote some GREAT commercials. They are on You Tube and I recommend them highly for entertainment. He also has several great novelty-song albums.) 

b) Indirectly. They build brand awareness.

c) Because people are stupid. This is not an interesting answer since I still want to know what their reasoning is, whether or not its faulty.

d) Because you are part of a movement. Drink the Uncola (7UP) to be rebellious! Or the 1984-Apple commercial (see here). These are both odd since drinking 7UP or having an Apple Computer seem to me to be the opposite of rebellious. 

e) Buying the product to express your philosophy: 

Ted: Carol, why did you invest in $1,000,000 in FTX? 

Carol: Because I believe in effective altruism.

Ted: Do you still?

Carol: This might need a rethink. But for now I'll  invest by getting a Freedom Unlimited credit card that gets cash back since Kevin Hart says I should (see here).



8 comments:

  1. I think because people thinks celebrities care about their credibility; ie, he/she has a well paid experts so that they won't jopordize their name for a Ponzi scheme.
    & Some other times if the product is not that expensive, they may try it or favor it because they liked the advertisement

    ReplyDelete
  2. While TV/radio shows often had hosts reading commercial messages, and sports stars often endorsed products, it seems that having A-list actors do TV commercials as themselves only really got going in the early 1970s. (See the
    following NYT article
    which references TV commercials with Laurence Olivier and Alan Alda endorsing the Polaroid SX-70 camera as breaking the ice for many others. (The article unfortunately is behind a paywall.)

    BTW: the focus of your questions does seem to miss the point of having celebrity endorsement by focusing on whether the endorsement has intrinsic value to the potential purchaser.

    None of this is actually about the product itself, or even taking the word of the celebrity as something you should believe; it is about associating purchasing that item with *being* that celebrity. That is true at least as much for sporting equipment - if I have these shoes I will be able to be like Michael Jordan or Le Bron James. (The sports stars may have expertise in the area but that is actually irrelevant.)

    Many of these celebrities seem to have taken some of their pay in cryptocurrency even before endorsement (and probably for the commercials themselves). When these are Ponzi schemes, this is just one more way in which you can be like a celebrity.

    ReplyDelete
  3. I think this article goes well with your argument here
    https://www.dailyfetched.com/celebrities-silent-after-taking-ftx-cash-as-sam-bankman-fried-arrested-in-bahamas/

    ReplyDelete
  4. I thought it was accepted that the main reason publicity works is by exploiting cognitive biases, such as the fact that simply being repetitively exposed to a brand makes us want to buy it. It is hard to have control over these biases, and that is why publicity should be more heavily regulated.

    ReplyDelete
  5. Some additional explainations from economics:
    - Demonstrating the product is so excellent and will be so profitable they can afford to waste money on advertising (similar to the logic for peacocks)
    - Create a barrier to entry for competition (not only do you need a better product, you also need a large advertising budget)
    - Complement your purchase of the item you are buying
    by, e.g., making it more prestigious to own (like your explanation (d) for luxury goods)

    For a survey, see Bagwell, Kyle. "The economic analysis of advertising." Handbook of industrial organization 3 (2007): 1701-1844.

    ReplyDelete
    Replies
    1. Since u mentioned a book about it, what do u think about advertising for charity?
      Is it acceptable for charity organizations to make commercial ads?and to what limit?Is there a scientific thresholds for it?
      I know this is kind of drifting from the main point of the blog, but it really makes me think how much of the charity money is spend on ads not on the donated cause?and whether donors would agree if they knew the real numbers?
      Thanks

      Delete
  6. I haven't been back to the states recently, but every time I do, I'm horrified at the shoddiness/cheapness of US TV ads. OK, I'm spoiled: I live in Japan where the ads are flipping gorgeous. As a wannabe landscape photographer, my jaw drops regularly. But there is great dizziness here as well. You all know Japanese sake, but you may not know shochu (check out the (English) wiki page). Shochu is essentially a (somewhat lower proof) rotgut vodka; it's a very Japanese thing, and until recently a rather funky end of Japanese society Japanese thing. One of the top shochu distillers has incessent adds that show English countryside scenery with castles and sheep, kewl music, and someone intoning the name of the brand. With drop-dead gorgeous cinematography. But completely crazy in that no one in England has any idea that there's such a thing as shochu. Go figure. (The one native informant I asked about the ad claims to have never noticed its incongrinuity. Go figure, again.)

    An important aspect of advertising is brand maintenance. A customer who has purchased a product is reasonably aware of its plusses and minusses, but reminding said customer that the brand is cool, or good in some other way (pushes technology, whatever) has value in maintaining repeat sales.

    ReplyDelete
  7. A celebrity helps with brand/product awareness because people are more likely to pay attention to the ad in the first place.

    ReplyDelete