If you want an insight into why Musk does things so contrary to accepted practice, you need to first understand how a venture capitalist thinks.
The goal of a Silicon Valley startup chief executive is to choose the most effective way to spend the money from the time it’s raised until the company runs out of cash, and has to raise a second round. Because the new investors are only interested in one thing, to paraphrase Cuba Gooding, ‘show me the results’.
Madison Avenue advertising may be creative and it may sound glamorous, but it rarely shows tangible results in a short period of time. Smart founders like Musk simply forego promotion in favor of hiring and product development. The cash constraint effect on a startup is what Samuel Johnson described when he said, “When a man knows he is to be hanged…it concentrates his mind wonderfully.”
No one in automotive history ever even remotely considered ‘marketing lite’ could be applied to the car business. The people in Detroit with huge advertising budgets don’t spend a lot of time wondering if it works. They like to fall back on the famous expression by Philadelphia retailer, John Wanamaker: “I know half of my advertising is wasted, I just don’t know which half.”
To Elon Musk the answer was obvious. Both halves are wasted.
Instead of advertising, Musk’s digital instincts led him to build a product that compelled customers to advertise for him, research for him, and spread the word contagiously, at no charge. He built the product, opened the stores, the customers came, and they posted. And they posted. And they posted. In taking the path less traveled by, he changed automotive and marketing history.
As a blogger wrote, Tesla does not spend millions of dollars in a traditional ad campaign. They let you and I discuss it, rave about it, hate on it, or rejoice in the spirit of going electric in a Tesla, be the catalyst to a viral and brilliant marketing campaign. At the end of the day, Tesla advertising is free.
The result was that by 2015, advertising spending at Tesla was zero. At the same time GM spent over $5 billion, a sum that represented more than half their annual profit, according to Mediakix. To make the contrast even more stark, Telsa’s market cap was higher than GM or Ford or any other American automobile company.
Musk knew the way consumers fell in love with brands was changing. Part of this is attributed to Google’s epiphany that “search” answers consumer questions more powerfully than a glossy image, and it had far reaching consequences. Suddenly, advertising seemed old fashioned and slow moving. This led him to realize he could shift resources away from Madison Avenue without disturbing the business model. Then he discovered what really moved the consumer. The techies call it ‘user experience’ or UX.
UX is more than the product. For Tesla, it includes putting stores in malls where people could shop for the cars as easily as if they were sunglasses. Sales people weren’t commissioned reps but customer service gurus who seemed not to care how many times you came to look at the vehicle. They made test driving easy. They made buying a car easy even if you live in Arizona or Texas where cars can only be sold through a dealership. These are factors in the experience that can no longer be separated from the product, and for Tesla, they are part of the marketing value.
Jeff Bezos, no stranger to contrarian thinking, articulated the transformation in marketing strategy. He underscored the shift in advertising budgets from traditional marketing to stealth marketing, and in some cases, no marketing, when he wrote, “The balance of power is shifting toward consumers and away from companies. The right way to respond to this if you are a company is to put the vast majority of your energy, attention, and dollars into building a great product and a smaller amount into shouting about it.”