Signalling quality on Instagram ads

I have mentioned multiple times here before that I love Instagram advertising. I love that whatever Instagram learns from my likes (and not likes) on the platform, and through the various pixels that Facebook leaves all over the interwebs, gets used in showing me highly relevant advertising.

Rather, ever since I started using Instagram, I loved the advertising for its visual quality (that made it hard to distinguish if it was an advertisement or native content), and as things have gotten more relevant over time, I’ve started clicking through. And as I’ve started clicking occasionally, the advertising has become more relevant.

I’m sure some silicon valley marketer has some imagery about flywheels. I’m reminded of that hamster spinning this wheel when I’d gone to this animal farm near Bangalore last year.

In any case, I read this article about “the hard thing about easy things“. The basic theory, if I understand it right, is that by commoditising all the tools of production when it comes to direct to consumer selling, the business of direct to consumer selling has gotten that much harder.

The article goes on to say that unless the brand has a competitive advantage in manufacturing (or sourcing by any other means), it is pretty much impossible to make money off direct to consumer products – you struggle to repel the attack of the clones, and you have to spend increasing amounts of money on online marketing (through Google and Facebook).

While this makes sense (or not?) from an investment and entrepreneurship perspective, it got me wondering – as a consumer, how can I distinguish the quality direct to consumer products from those that have somehow simply managed to get into my feed?

Some advertising is like a peacock’s tail – it doesn’t signal any direct value about the brand being advertised. However, it signals that if the brand can afford to spend such huge amounts of money on this form of advertising, it ought to be a brand with sufficient spare cash flow that it is a good brand.

For example, when Vivo got title sponsorship of the IPL, it not only created awareness (which possibly existed thanks to its retail stores and advertising on Amazon) but also signalled that it is a “good brand” since it had bought prime advertising real estate.

Similarly, when a brand advertises on the SuperBowl, the actual dollars per eyeball may not make sense. However, when you add in the signalling value of having been there on SuperBowl (“if a brand can afford to advertise on SuperbOwl, it ought to be a good brand”), it starts making sense.

This works with a lot of mass media advertising. Front page of Times of India is premium because of peacock’s tail. Advertising in the IPL for the same reason. Perhaps similar with hoardings on the way out of airports. And booking prime time slots on popular television shows.

The problem with online advertising is that it is so targeted (and algorithmic) that this signalling effect goes away. Your instagram feed is like the Times of India where every page is similar to every other page.

From that perspective, it is hard to determine whether an advertisement represents a quality product when it appears on your Instagram timeline.

I bought Vahdam tea after someone recommended it to me on Twitter. I bought Paul and Mike’s chocolates after a friend wrote her appreciation for it on Instagram. When I started buying Blue Tokai coffee, I needed good coffee powder and was in the mood for exploration, but was helped by multiple friends and acquaintances vouching for it .

Marketing solely using digital means runs into this problem of not having the signalling effect. And that means you need to invest in “social” also, however you can imagine that to be. Then again, people have started seeing through “influencers”, like how they started seeing through “endorsements” a generation ago.

Raghuram Rajan replies to my Pragati article

At least I like to believe that! A couple of weeks back I’d published this article in Pragati (published by the Takshashila Institution, where I work part time as Resident Quant) slamming recent decisions by the Reserve Bank of India to make two factor authentication compulsory and to limit the number of free ATM withdrawals from non-home banks.

My criticism for both these decisions was that they were designed to take money out of the banking system, which would result in a reduction of money supply, and subsequent increase in borrowing costs, thus slowing down India’s economic recovery. I had some other criticisms, too, such as it being none of the RBI’s business to mandate what was essentially a pricing decision between the RBI and the customer, and the perverse incentives the rule created for banks seeking to set up new ATMs.

Could it be that the above regulations are a move by the RBI to curtail money supply without necessarily doing the politically tricky task of raising interest rates?

If it is (and it is a very remote possibility), we should commend the RBI for what will then amount to be a sneaky decision. If not, it must be mentioned that though noble in thought, the two decisions are completely bereft of economic and financial reasoning.

I had written.

So an article published an hour back in Mint quotes Rajan on these two policies, where he defends them. On the two factor authentication issue, he is surprisingly defensive, offering nothing more than a statement that banks and companies need to follow the rules and not try to circumvent them in the name of innovation. Rajan then added that he is looking into permitting transactions up to  a certain limit that don’t need two factor authentication – something I had pointed out in my Pragati piece.

On the ATM issue, I (and other news organisations who I got my news from) seem to have got my information wrong. Apparently currently regulation exists that five ATM transactions per month from non-home banks are supposed to be free, and that is being cut down to three. Rajan clarifies (as reported in Mint today) that the new regulation only allows banks to charge customers beyond the first three transactions in a month, and they are not obliged to do so. He talked about the perverse incentives that the earlier regime (where banks were obliged to permit a number of free ATM transactions from non home banks) created.

My apologies for not reading the regulations correctly (of course a part of the blame has to go to the newspapers that reported it thus! 🙂 ). I admit I should have checked from multiple sources on that one.

Coming to the point of the post, why do I think that Rajan is responding to my Pragati piece? You might argue that it might simply be a case of correlation-causation – that it might be coincidental that Rajan has spoken about two issues that I had highlighted in that post. However, there are two reasons as to why I believe that Rajan was responding to my post.

The first has to do with the combination of subjects. While the two regulations (ATM withdrawals and two factor authentication ) were widely reported in the media, I haven’t seen any piece apart from mine which addresses these two issues together (I must admit my perusal of Indian media has dropped nowadays given my Twitter and Facebook sabbatical). Given that Rajan has chosen to address these two issues today, it is likely that he is responding to my piece.

The second reason has to do with the timing. The Takshashila Institution sends out a weekly “dispatch” which is a summary of commentary written by its fellows and employees and associates. This is an emailer which contains links to these articles along with short snippets, and a number of fairly influential people (within the government and outside) are on the list of recipients. The latest edition of the Takshashila dispatch went out this morning, and it has a link to my Pragati piece. Now, while Rajan is not on the mailing list (to the best of my knowledge), it is likely that an influencer on the list with access to him brought it up today (it could even be the Mint journalist who has reported the story – that would still count as Rajan, albeit indirectly, responding to my piece). This reaffirms my belief that he was responding to my piece in his comments today!

You might think I’m deluded. So be it!