You Are What You Signal

Now, answer a simple question: which ad campaign – in both production costs and placement costs – looks more expensive to you?

Perhaps unexpectedly, most consumers can accurately identify the campaign on the right as being more expensive.

How can consumers accurately identify which campaign is more expensive without any access to data?

Intuition.

Marketers are often surprised to learn that consumers can intuit whether advertising is cheap or expensive.

While this intuition seems surprising, it’s called “costly signaling” and it’s one of the only scientifically backed ideas in all of advertising.

Signaling theory originated in evolutionary biology and explains why lions roar loudly and why peacocks strut magnificently.

In short, lions roar and peacocks strut to signal their biological fitness to sexual partners. Signaling displays are “honest signals” – you can’t fake a load roar or colorful tail – that convince a potential sexual partner that your genes are worth passing on.

Now what does evolutionary biology and signaling theory have to do with advertising?

Well, two famous scientific papers in advertising – Advertising As Information by Philip Nelson and Is Advertising Rational by John Kay – explain how signaling works in advertising.

Philip Nelson explains:
“The fact that a product is heavily advertised –  regardless of its message –  is evidence to the consumer that the quality of the product is high.”

John Kay further explains:
"The advertiser has either persuaded lots or people to buy his product already, a good sign, or has persuaded someone to lend him lots of money to finance the campaign."

In other words, consumers take comfort from “heavily advertised” campaigns because they are a “good sign” that the company doing the advertising has skin in the game and will suffer if the product fails.

Another counterintuitive idea in Nelson’s explanation is that consumers judge product quality largely “regardless of [an advertisement’s] message.”

We often think that a persuasive or clever message makes the difference between success and failure in advertising, but according to Nelson, what matters is how much the advertising appears to cost.

That makes sense when you take another look at the Apple advertisement below, which includes no explicit message.

Now while this advertisements doesn't convey an explicit message, it obviously conveys an implicit message to the consumer. And that is: We believe so deeply in this product that we’ve purchased the most expensive advertising we can find to tell you about it.

As you can see, Apple – the world’s most valuable brand – practices costly signaling at a scale – and expense – that simply can’t be faked.

Now that we’ve covered the broader theory of costly signaling, let’s take a look at the digital advertising ecosystem.

Do digital marketers practice costly signaling as well?

The answer, unfortunately, is no.

Instead, in digital advertising, marketers care most about how “cheap [they] can [buy]” advertising.

The chief problem with buying cheap inventory is that marketers prioritize what they want – cheap advertising – over what consumers want – expensive advertising.

Advertisers wrongly believe they can buy audience without context, but that’s just not true. Context matters because consumers see context as a proxy for product quality.

But, of course, I work at LinkedIn, a company famous in the advertising industry for its costly CPMs and CPCs, so don’t take my word on costly signaling.

Instead, let’s look at a documented example from Chase, who was buying audience without regard for context.

As you can see, Chase cut 395,000 sites from its audience-only media plan and achieved the same results.

So, how can you apply costly signaling to your advertising?

1. Stay consumer-focused: buy media that re-assures your consumer
2. Remember context matters: media that re-assures your consumer carries a costly signal

In conclusion, you (and your brand) are what you signal.