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The 'Cobra Effect' in Advertising

By: Dwayne W. Waite Jr.

The interesting thing about advertising is that it employs many different schools of thought, from art and sociology to business and psychology. We believe that an economist could be just as successful in AdLand as a writer, or a creative just as wanted as a business analyst.

When it comes to consumer behavior and why people do the things they do, we see wonderful symmetry with the fields of economics and advertising. One could say that as economics is the study of "choice under scarcity" and advertising is the means of displaying the choices and highlighting the scarcity.

Today the highlight is the "cobra effect." It was covered recently by the Freakonomics writers. Essentially, the cobra effect happens when a party engages in an action with noble intentions to solve a problem, but due to that action, the problem actually gets worse. Why is that? The economists call it the law of unintended consequences. It happens because the incentives drawn up by the controlling party do not take into account all the possible decisions the reactive party can make. Like game theory, the second party chooses a strategy that provides them the best outcome in relation to the first move. It is a fascinating piece of insight.

Is there such a cobra effect in advertising? We think so.

Let's talk about the land of specialists.

AdLand saw that the business and consumer landscape was becoming fragmented. To provide an answer to that problem and stay relevant, agencies began to stop being generalists and devote time and energy to becoming specialists. With specialists, agencies thought, businesses would jump at the chance to work with and pay decently those shops dedicated to a certain craft of advertising.

And businesses did.

But businesses got smart. With so many specialists, businesses could use multiple agencies, bring down prices, and squeeze AdLand for the widest roster of services at the lowest possible cost. And agencies, after becoming specialists, are now scrounging around trying to find ways to keep a positive revenue stream and stay relevant. What first looked like an opportunity turned into a plight for talent and relevancy.

This is just an example of the cobra effect in advertising. We believe that there are several more unintended consequences that have arisen due to noble intentions of making AdLand more competitive.

What examples do you have? In your advertising experiences, have you witnessed the law of unintended consequences?

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About the Author

Dwayne W. Waite Jr. is partner and principal at JDW: The Charlotte Agency, a marketing and advertising shop in Charlotte, NC. He enjoys consumer behavior, economics, and football.

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