Klarna delights in AI cutting 40% of its marketing spend
Plus: another weird week for ESG activism
Buy-now pay-later giant Klarna is doing well. Really well. They are especially proud of doing so well while ruthlessly cutting down their marketing spend.
So much so, that this week their Chief Marketing Officer, David Sandstrom, sat down for an in-depth interview with the Wall Street Journal:
The company announced Tuesday that it had cut sales and marketing spending by 11% in the first quarter of 2024 while increasing the number of campaigns and updating its collateral marketing materials more frequently. It attributed 37% of that reduction to AI, the equivalent of $10 million in annual savings. Klarna also said it had decreased by 25% its spending on external marketing suppliers for tasks such as social media, translation and production. (Highlights mine.)
The WSJ was very keen to learn how Klarna had achieved all this. The interview raised three important themes in how Klarna approached AI. The first of which is, they could barely contain their excitement when ChatGPT launched:
DAVID SANDSTROM: Looking back, this started in November 2022. I remember that weekend when ChatGPT was launched. The management team tried it out for the first time. And we came back on Monday and said, “Hey guys, have you tried this?” Everyone had and was like, “This is going to change the world.”.
The first weekend! Klarna's management team were clearly early adopters, but the real trick for technology is to make it to the deeper oceans of middle-of-the-road enterprises. OpenAI has been struggling here, and this week it announced a re-selling partnership with PWC to help it break through.
The second important theme was these big spending cuts on marketing. Earlier this month a new Gartner survey of 400 US CMOs showed marketing budgets as a share of revenue have fallen to a low of 7.7% in 2024, a stark drop from the pre-pandemic average of 11%.
So the WSJ wanted to know: If Klarna managed to cut a quarter of its agencies spend, what were those agencies doing before?
“DAVID SANDSTROM: Historically, the big choice for me has been between quantity and quality. I can either have loads of content, because I need personalized content, but then that content doesn’t come with any quality. Or I can have these huge brand things...but I end up with five assets. What we can do now is really extreme quality and extreme personalization at the same time.”
What he finds silly, he says, is the expectation that one just clicks a button to get the perfect result. Rather, it’s that fewer creative workers are getting more things done.
If anything, he believes the 37% figure is too low, and says AI drove an even bigger portion of the savings because of knock-on effects. For example, because of better targeting they were able to spend differently on media.
The third important theme was that, while agency costs declined, paid media did not. Sandstrom agreed - they still need media for distribution. By media I assume he means Meta or TikTok. Because if you're old, like me, media used to mean newspapers, and those keep getting snuffed.
This week’s latest casualty is London's Evening Standard newspaper. Once circulated daily, it will now be released weekly. Owned by former Russian intelligence officer Alexander Lebedev and his son since 2009, they initially boosted circulation by making it free, funded by ads instead of sales.
But between Wi-Fi on the tube and more people working from home since the pandemic, it's now barely above pre-ownership levels. Advertisers (like Klarna) choose to take their money elsewhere, and the Standard is trying to adapt.
Perhaps it's apt to have started with one global company doing exceedingly well, and end with one local company struggling. The knock-on effects of technology Sandstrom was talking about aren't just to company internals. They spread far and wide.
We have been training companies on AI, and using it ourselves for financial writing since 2020. We help companies with limited resources integrate AI to their actual workflows. Learn more!
Treasure Corner: The Factbook is here!
Boy, have I got a treat for you.
The Investment Company Institute, which is the main US trade association representing regulated funds, has released its annual factbook. I know, I know, it sounds like second prize is a trip to the dentist, but hear me out:
Data on its own is useless. Humans think in narratives, so there's always a gap between dry numbers and the stories they tell. Two things make ICI remarkable. First, it's just really good at telling stories with charts; and second, it just gives you all of it for free.
Big firms (like Bain, Preqin, or the Boston Consulting Group) will offer tasters, and sell the heavy-duty data for thousands of dollars. ICI, just puts it up on its website, doesn’t even gate it.
There's way too much in this report for a brief summary. There's even way too much in the cut-down version! Still, here are some fantastic nuggets on where the market is at:
Active ETFs are no joke. Where they're at in the US right now, is where index-equity ETFs were in 2015.
When we talk about economic superpowers, current wealth (i.e. GDP) typically gets a mention. What doesn’t get the same attention is future wealth. In 2023 the US economy represented 23% of global GDP. Meanwhile, the US had 49% of total net assets of worldwide regulated funds.
Finally, it's still a lot more common for US households to hold a significant amount in investments. On average, US households hold 12% of their wealth in cash, compared with 22% in regulated funds. In Europe, 32% is held in cash, and only 10% in funds. Fun anecdote:
When I read Julia Child’s biography, My Life in France, there’s a part where she describes budgeting on a meagre government salary, and how she would set aside money for different budget items (such as groceries and rent). Mutual funds was one of the items on the budget.
I remember it because how matter-of-factly she stated it. I was in my 20s, and it looked nothing like my own budgeting practices. The stats show how this manifests on a national scale.
Also Happening
Top feel-good story of the week goes to former Fidelity star manager Anthony Bolton becoming a patron for composers. Using his Boltini family trust, he is funding British composers through a new online platform called Music Patron, which already has 29 composers on board.
"Bolton said: ‘I had been thinking over the last few years: how can I support composers?... And if you look back at history, much of the great music of the past was supported by patronage."
Then again, lucky he's retired. Hays festival is saying goodbye to its patron of 20 years, Baillie Gifford. The campaign was led by Fossil Free Books, with celebrity backers like Charlotte Church and Nish Kumar. Like Amundi last week, Baillie G.'s do-gooding ended pretty badly. Despite having some of the lowest exposure to fossil fuels among its peers, Baillie Gifford has been targeted as a shameful accomplice. Also, the activists are demanding it divests out of all major tech stocks.
To signal just how much ESG matters, the Labour party fully endorses Shein's £50bn London listing, as does most everyone else. A spokesperson for the party said:
“Raising investment, productivity and growth is one of Labour’s missions for government.”.
Shein shifted its listing to London after hitting roadblocks in New York, due to US concerns over forced labour (a pretext for the growing tensions with China). It matters not at all that total emissions from textiles production amount to more than what’s emitted by all international flights and maritime ships combined. See Saturday Night Live explain.
Well, it mattered enough to CCLA Investment Management's Peter Hugh Smith, who is warning London must not become a listing venue of "last resort" for companies with "dubious human rights records". Peter, Chillax! Can you see any climate or human rights activists? We're good!