Advertising – is it true I can’t afford to do it?

John Hildebrand

As a business owner you will be pounded and harassed by everyone and their brother who has the “next big advertising thing” to sell you. It is always amazing and they are typically sold by inexperienced sales people who are only thinking about their own commission. That said – businesses have to advertise to survive. If you don’t ask your customers to buy from you someone else will and they will buy from them.

            History Lesson: Many of you lived in Grand Junction on 9/11. If you think back you may remember an interesting thing that happened. Kmart nearly died (they have not really recovered) and WalMart and Target boomed. Something interesting happened behind the scenes. All three corporations had meetings following 9/11 and all three came to the same prediction. The US economy was going to shrink (mostly based on fear) and everybody in business would be fighting over a smaller pie. The companies reacted in two different ways.

            Kmart believed that they could save millions of dollars by not spending millions of on their newspaper and TV ads. If you have ever priced large full-color newspaper inserts and high-cycle TV campaigns, you know the cost is staggering. They believed that “everyone in America knows where we are and what a blue light special is.” They were right that everyone knows where they are, but will they stop and shop? They stopped all newspaper and TV ads and “hunkered down” to survive the coming downturn. Their decision amounted this: “We are willing to have a smaller piece of a smaller pie.”

             WalMart and Target made a different decision in separate board rooms. They both decided they wanted a larger piece of the impending smaller pie. Both entities decided to increase their advertising budget by about 10% in a down market.

            I remember seeing a suddenly very empty Kmart parking lot and a busier-than-ever WalMart parking lot. Kmart looked like they had closed.

            So the short story is that when times are tough, you must continue to advertise and do so strongly. If you don’t, someone else will take your customers from you. As you read this think about the really big corporations like McDonald’s, and ask yourself if your business is as well-known as McD’s? Well, ours is not. The other question is does McDonald’s have pretty smart folks working the advertising numbers on their end? I think the easy answer is yes. Companies like McDonald’s continue to advertise hard in a wide variety of media and spends millions of dollars doing so. The question is why? The answer is ROI – it makes more than it costs.

            ROI, or Return on Investment. There is a principle in the advertising world called “Mirror of the Market.” It is pretty straightforward and it is valuable to understand. “Media in any given market will be a “reflection” of how consumers find businesses and give them money.” Basically, if you are making money advertising in a given media, you will continue to do so. This “Mirror” is really easy to look at and discover what smart, successful folks are doing. If you look at a particular piece of media and see consistent advertising from a particular type of business there, you can bet they are making money doing so. If you try advertising a particular media and it does not work, you will stop spending money. Pretty simple. So track your customers, new and old, as they make buying decisions. Track how much you are spending and how much a new client is worth and what their lifetime spending might be.

Two Basic Types of Advertising

             Eyes Out  This is most advertising. It means the business is looking for customers. This would include newspaper, TV, radio, coupons etc. Eyes Out is any kind of advertising to try to find new customers. It is a “broadcast or shotgun” approach. Show it to everybody and hope someone buys. It works for lots of businesses. Just check your ROI – do the math. Open a newspaper and you will see this in action – the consistent advertisers are making money.

             Eyes In  This is a more limited form of advertising as far as media selection. This is the customer using a tool to find you. The most common forms are internet and Yellow Pages. They are “key word driven.” The customer decides she wants a particular pair of shoes, goes to the media, and calls to see if they have it. Customers use these tools when they are “active buyers.” You need this type too. For some types of business it is their primary form. Just open a phone book and look for the headings with full-page ads.

            So, if your business is feeling the squeeze, don’t back off – figure out what works for you and get after it. If you don’t someone else will. I know this is all a long way from “Payroll” but we act as business consultants for our clients and this is a topic that comes up a lot. Let us know if we can help you with your business solutions.