It’s time for competitive marketing

Mad @ Mgmt addresses the concerns of middle-market companies, including banking, family and succession issues, turnarounds and performance improvement, and economic life in general. Walter Simson is founder and principal of Ventor Consulting, a firm dedicated to middle market companies.

I am getting the feeling that economic conditions are improving. One client is on allocation on manufactured goods – the demand is outstripping supply. Another is about to hire five people, in sales and accounting.

Of course, another is worried that revenues are varying from month to month in seemingly unforeseeable ways. This client is in a highly cyclical industry – meaning that when the economy is faltering, so does the revenue line.

I have an idea for all of these companies: put more effort into sales and marketing. It makes sense when the economy is growing slowly, because greater effort will lead to greater results.

It also makes sense when the economy is growing briskly, because more potential customers will be looking for goods and services. You need your message to get through when people are looking for your help.

In general, I find most middle-market companies under-market themselves. They become expert in the features of their companies’ products, but not enough in the benefits to others.

Here is an exercise that I employ in many of my client companies. It can only help you, whether the economy is slowing or speeding. And it consists of three questions:

1) Are you spending money on marketing? How much, and on what?

2) What are the benefits to the company of the categories of dollars spent? For example, are you getting new customers or increasing sales to old customers by spending the dollars?

3) If you could spend only based on the data from number 2, which marketing channel would you use?

My experience is that most companies have a hard time answering the first question. This is nothing short of a sin, because since when do we advocate uncontrolled business spending in any category?

It follows, then, that most companies have a very hard time answering the second question, because if you don’t know the extent of your investment, how can you measure its effectiveness?

And of course, only elite companies can answer question three.

You may be confused. Why is an executive interested in turnarounds talking about marketing?

The answer is that in my world, turnarounds are not financial decisions about what you cut, they are operating decisions about what you improve. So if you can improve your marketing effort, by all means do it. And for goodness sake, don’t start any new efforts. Use the data inside your four walls to decide what is best for you.

Here is a fictional example: A furniture distributor has three main sales and marketing efforts: newspaper ads, direct marketing, and an annual show. The company president hates the show and newspaper, so she added the direct marketing effort.

But she is not measuring the increase in sales associated with each effort. She is not even measuring the number of new customers coming in each year. How will we take that first step?

If the newspaper ads cost $100 to place and offer a discount, we can measure their effectiveness by measuring the discounts taken immediately after the ad runs.

Direct marketing is all about measuring ad cost, response rates, and sell-through. Let’s hope the president has been measuring this channel.

Salespeople attend the shows and their commission statements account for sales, including the name of the customer, sales amount, and commission. Use these figures to determine the effectiveness of the shows.

In this fictional example we have answered the first two questions. Now comes the interesting part: if you could only spend on one marketing channel, which would you choose? The answer is that you would choose the one that brings the most profit. If the newspaper brings in customers for a 25% gross margin product after offering a 20% discount, that is not likely to be the winner. If direct mail brings in small and steady new customer relationships, that could be the winner. And if trade shows bring in a comparable number of sales, but at higher cost, you have your answer. Direct marketing is your preferred channel.

In this example, it is rational to increase the spending on direct marketing at the expense of the other channels. Your own company data have shown you what works for you, and you should grow faster for having done the study.

But a warning: many times salespeople object to this measuring effort being applied to trade shows. The argument frequently is that not showing up at a trade venue means you will be the subject of industry gossip. This warning is undoubtedly true. Gossip is one of the currencies of trade shows. But if your company is growing faster by choosing an alternate marketing mechanism, the gossip will be about your new, dramatic, and unexpected success.

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