So why do the best in marketing get such little recognition? Perhaps it’s the effects of a “Lemon Market.”
2001 Nobel Prize winner George Akerlof is famous for his insights on Lemon Markets and his pioneering economic work using Asymmetrical Information Theory. The simplest definition of a Lemon Market is any market with high-quality and low-quality products or services where buyers have limited information about that quality. According to Akerlof, such markets become highly inefficient, favoring low-quality sellers and allowing low-quality products to dominate the market. And, consequently, market perceptions.
Does this apply to marketing? It is true that buyer information about the quality of marketing agencies and practices is often limited — or of limited value. Rankings can be misleading as bigger is not always better. Web site bios, client lists, and so on may be inflated. Reputations are important but may signify past success and networking prowess rather than a current ability to meet a specific client’s needs. RFPs can create distorted pictures — and reward firms that spend more time fighting RFP battles than they do serving their clients. Similarly, even the grail of ROI metrics can be tainted, either because data is manipulated or because metrics are chosen more to deliver positive data than to measure the data that is most valuable. Another challenge: the sheer number of agencies competing for each buyer’s attention can create an overload of surface-level information that leaves less time and energy for deeper due diligence. At companies where marketing has not traditionally been valued, there is also the question of whether existing staff have sufficient expertise to get the most out of the information they review.
If such information gaps have indeed made marketing a Lemon Market, Akerlof’s theories show that low-quality marketing agencies will be overvalued while the best marketing agencies will be undervalued — in part because buyers tend to perceive the “right value” for services as somewhere between a market’s low and high prices. Buyers will pay slightly more than the lowest price in hopes of avoiding an inferior “lemon” agency, but fear of getting a “lemon” agency makes them unlikely to risk paying the higher prices that an excellent agency merits.
Given this situation, it becomes easy for subpar agencies to drive excellent agencies out of the market — or at least pull everyone toward mediocrity. As an illustration, let’s say buyers perceive the “right value” of marketing services to be around $120 an hour. That’s great for subpar Agency A, which minimizes its cost of business by relying on inexperienced, low-paid personnel, using the cheapest rather than most qualified subcontractors and suppliers, settling for low quality, jettisoning customer service instead of hiring additional staff, avoiding expenses like professional training and equipment upgrades that would benefit clients, and so on. In short, Agency A is quite content to charge $120-an-hour while providing $50-an-hour work and hoping that underinformed buyers won’t know the difference. Unfortunately, Agency B’s commitment to excellence is a competitive disadvantage in this market. Hiring the most experienced strategists and talented creatives, partnering with proven but more expensive vendors, maintaining enough staff to ensure personal service, having strong quality control measures — in these and many other areas, excellence simply costs more. But the “lemon” market can make it very difficult to recover such costs. This can have a spiral effect on overall market quality — excellence is not viable, so slightly elevated mediocrity becomes the new excellence. The subpar thrive and increasingly define market expectations.
It would be oversimplified to declare that this is the state of marketing and that’s why there are so many marketing-bashers and apologists. The more pertinent point is this: underinformed markets are not good for buyers or for sellers striving for best practices and high standards. Information — and understanding information — is crucial if marketing is to avoid the pitfalls of Lemon Markets. Such information should make gradations in the quality spectrum more visible, giving buyers greater confidence that they’re getting what they pay for, while allowing sellers to make value a deeper part of what they offer and the price they charge.
At Kolbrener, we encourage clients and prospects to base decisions on the best information available, and make an effort to distribute such information ourselves. There is a difference between great marketing and bad marketing (and mediocre marketing), but one must often look beneath the surface to know the difference. Further, we believe that both agency and prospect must be well-informed to determine if they are the right fit for each other.
As part of Kolbrener’s summer intern program, we asked each of our three interns to write an article on marketing. They were encouraged to consult with senior staff to sharpen their insights and polish their prose, with the incentive that the best essay would be published on our Web site. We were so impressed with their work, and the relevance of their topics for our readers, that we decided to publish all three. Is Marketing a “Lemon” Market? was written by Justin Victor, a senior at Allegheny College majoring in Creative Writing and Economics who ranks in the top 6% of his class and is also an NCAC All-Conference football player.
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