Advertising Futility
A client called me from a medium-size Canadian town of about 120,000. The client is in charge of marketing for a jewelry store. One of about five competing stores within the geographic area of dominant influence of this town.
The boss had entered into an agreement to do some television advertising and they said they wanted to do an ad aimed at increasing their wedding ring business. The client’s question to me… should I do 30 or 60-second spots?
How would you answer that question? What other questions might you ask?
More background? The original proposal from the TV station was to spend $3,600.00 on 72, 30-second spots. We had already discussed the creative and I had recommended one-minute commercials because research indicates that longer spots generally out-pull shorter ones. There is a caveat, however. The spots need to be direct response in nature. In other words, an offer has to be made with a directive to respond.
Fact is, the client’s creative had a soft offer, which put the commercial in limbo. Not really direct response, but not pure image advertising either. So again, what would you do?
Let’s do something almost no advertiser ever does. Let’s forget the reach and frequency issue and get right to the hard-core numbers. Let’s ask if this is actually worth doing at all. Here’s what we can assume…
1. If there is a population of 120,000, there are no more than 40,000 households (assuming just three live bodies per household).
2. Since a wedding engagement typically involves two individuals from two separate households, we’re out to reach just 20,000 potential buyers.
3. Market research indicates that .008% of a given population gets married each year. You would take that number from the overall populaton, not households, so there are just 960 potential weddings per year in this market, or 80 per month.
Wow! A little different look at the numbers, isn’t it. Would you spend $3,600.00 to reach just 80 prospects? That comes out to $45.00 per potential buyer. Doesn’t sound quite as good as the $30.00 per thousand reach that the ad rep probably told our guy, is it?
Still, I’m not saying it would be a bad buy, but we’re not finished yet.
Of those 80 potential buyers, how many of them are likely to be watching TV right when my client’s ad runs? If the station has an audience share of 30 in the programming he buys for his spots – an incredibly high number, incidentally – 30% of those 80, or 24, can be expected to be watching. Now we’re up to $150.00 a prospect, just to reach them with the TV ads.
Now, how many of those 24 are ready to act? How many have loyalties to another store? How many have the budget or would qualify for financing, for our guy’s inventory? How many did the ad actually appeal to?
And we’re still not finished. What are the sales skills of our store’s sales staff? Once these few prospects straggle in, you still have to convert them from prospect to customer. If we assume that our questions in the last paragraph eliminate another 12 of our 24 prospects, we’ll get 12 respondents to the ad walking through the door. If the staff typically converts one out of three to a sale, they’ll close four sales, at an advertising cost per sale of $1,200.00 per sale, before sales commissions.
Margins are better in the jewelry business than in most retail operations, but you still have to recover the costs of marketing, inventory and overhead. So you really need an average sale of about $3,600.00, on each of these four sales to make the program pay for itself.
Of course, if the spots bring in more people and more sales are generated, the store can run this program either with more profits or with lower margins, and still justify the expenditure.
Three points from this exercise we’ve been through together…
First, some versions of the numbers – the odds – we’ve been discussing apply to your business as well, regardless of the media in which you advertise.
Second, are you considering these things as you make your marketing decisions? If you’re not, you’re nuts.
Third, the odds of advertising success are considerably less than getting a hit in a baseball game. On the surface, the odds look terrible. Yet advertising works. Advertising – yes, mass-market advertising – can and does work in building businesses. But you must realize your odds of profitably acquiring new customers, clients or patients using traditional advertising are slim indeed. Almost all businesses acquire new customers at a loss. It works, though, because as new customers come in, they also come back, without the benefit or requirement that they see ads first.
The lesson to be learned is that you must have systems in place to maximize the transaction from every new-client purchase, and do whatever it takes to get that new client to come back and buy again, as soon as possible and as often as possible. (In the case of the jeweler, he must not only sell the happy couple her wedding set, they’ve also got to sell the groom’s ring, and perhaps special items as gifts for the entire wedding party. That may be accomplished during the first visit. It may take several solicitations prior to the wedding and several afterward.)
Advertising is a messy, unpredictable, almost futile endeavor, which is, absolutely necessary. But you can increase your odds of success, by calculating your numbers in advance and making sure your ads do everything possible to get your audience to take specific action in response.
And, there are alternative methods of advertising, which can allow you to dramatically increase your chances for success, lower your costs, and postpone incurring those costs until after the new business is acquired. But that’s a topic for another post!
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Comments
As always Jim, your info here is right on target…especially as it applies to jewelers. Great post!
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