Stop sniggering at the back there.
The title of this week’s Marcom Pro Round-Up has nothing to do with Viagra-related spam e-mails.
The endowment effect was an expression coined by American economist Richard Thaler to describe our tendency to set a higher selling price on what we own (are endowed with) than what we would pay for the identical item if we did not own it. In Peter Bernstein’s excellent book Against the Gods: The Remarkable Story Risk, there are numerous insightful examples of this effect in action (not to mention a host of other intriguing principles such as Prospect Theory and backwardation).
As Bernstein points out, the endowment effect arising from the nationality of the issuing company is a powerful influence on share valuations. Even though international diversification of investment portfolios has increased in recent years, Americans still hold mostly shares of American companies and Japanese investors hold mostly shares of Japanese companies, And yet, the US stock market is equal to only 35pc and the Japanese to only 30pc of the world market.
In a similar way, is marketing suffering from its own endowment effect? Are we still so heavily invested in the sunk costs of our traditional skills and tactics that we are failing to match our marketing investment with the reality of the world today?
According to Mary Meeker, the answer is yes.
If you look at only slide presentation online today, make it this one.
And in particular, look at slide 25. Look at the disparity between print media consumption and marketing spend. Proof positive of marketing’s endowment effect?
(This post first appeared here).