I read a blog today on mistakes made in advertising and whilst I agreed with much of the contents since it drew on proven direct marketing principles, there was one statement I disagreed with strongly.
"Businesses that thrive during a recession double or triple their usual advertising budget"
It seems to me that potentially we have the classic cause and effect confusion and faulty logic suppositions.
Statement 1 - some business thrive during a recession
Statement 2 - some businesses that thrive double or triple advertising
Conclusion - therefore if you want to thrive in the recession, you must double or triple your advertising.
No, No, No
Don't fall into this trap and think that all advertising / marketing is a good and wise investment.
It's not.
So let me introduce you to a simple rule of thumb.
Marketing that makes you money is good but marketing that loses you money is bad. You do more of the good and stop the bad.
There is no need to overcomplicate marketing.
Use Direct Response Marketing If You Are A Small Business
The marketing and advertising techniques you learn by watching what the huge international companies do will lead you astray.
Much of it is very poor but they have money to burn. If you are lucky, it will help communicate the brand and create brand personality and associations but it won't have you rushing out to buy.
So you need to stop trying to promote your brand name and start thinking about giving prospective customers a strong enough reason to take action and contact you when they see your advert or other marketing communication.
And to do that you need to use direct response marketing so that you a) make sales and b) you can measure your results.
There is a huge body of work in direct response area from giants of marketing like Jay Abraham and Dan Kennedy to a wide variety of copywriters.
Adjusting Your Marketing For The Recession
Remember my simple rule of good and bad marketing?
If it makes you money, then you want to do it again.
If it costs you money (and isn't an early stage of a sequential marketing campaign) then you want you want to stop doing it.
[Note - a sequential campaign is designed to take a prospect who has never heard of you and turn a good proportion into buyers but it takes time to build up trust so the early stages of the sequence are unlikely on give you an immediate return on your money]
This basic rule applies as much in the recession as it does in good times unless you receive a perverse pleasure from wasting your money.
If you spend £1,000 on a marketing campaign and it brings you £5,000 back in profit, it doesn't matter whether the economy is booming or slumping, you run the campaign again.
What May Change In Difficult Times Is Your Definition Of Making Money
An essential point I emphasise is the importance on focusing on the lifetime value of a customer in terms of the total profit they bring to you over the relationship because many of my ideas are based around helping you to increase the relationship profit.
So I encourage you to think of your marketing along three time horizons:
- The profit on the first transaction
- The profit in the first year
- The lifetime relationship profit
So in good times, if you earn £10,000 over the life of the relationship, it doesn't matter that it costs you £1,000 to create that customer. You still get a huge return.
But in bad times things are less certain and you have fewer resources you can risk investing in your customers.
So if it costs you £1,000 to win a customer and the profit on the first transaction is only £200, then it doesn't look so clever. This is especially the case if your average profit stream from a customer is heavily weighted to later years so average first year profits are still less than the £1,000 acquisition cost.
Every new customer costs you money which you don't get back for more than a year and the old saying "cash is king" is never truer than in a recession. In the short term every customer you win means you have less cash in the bank.
So in the long term you may be "making money" but in the short term you are not.
Adapting Your Marketing Campaigns To The Recession
- Stop all image or brand advertising. If you can't show that it is making you money, it almost certainly isn't.
- Calculate your acquisition cost per customer for each of your marketing methods. Look at leads created, leads converted and the cost of converting as well as attracting the prospective customers.
- Calculate your average profit for first transactions, first year and lifetime relationships.
- Decide your own acceptable marketing payback period. Is it first transaction only or expected profits over the first three months or longer? It depends on how much you need to generate immediate cash.
- Compare your marketing results with your marketing payback and reduce/stop marketing that does not meet your criteria and do more marketing where your payback is bettered.
- Continually improve your marketing by controlled testing - better headlines, stronger offers, more compelling copy and bullet point benefits and all the other proven techniques - and measuring the results against your control. Make the changes one at a time and don't stop using a marketing method that works.
How Will Paybacks Change During The Recession?
The recession creates a period of change so the old rules of thumb no longer apply.
Depending on what you sell, customers may be much less willing to buy. Look at the problems the car industry is having at the moment with car sales down by around 35% in the UK.
Competitors actions will change. If some stop marketing to save money then you can expect your activities to have more success but if your competitors triple their marketing (because that's what businesses who thrive in the recession do), then it will be more difficult depending on the effectiveness of their marketing.
If prices are being driven down and the product is turning into a commodity, then margins will be squeezed and payback periods will extend and especially if usage is down as well.
Conclusion: The Market Will Tell You
There is no hard and fast rule about whether you should increase or decrease your marketing in a recession.
Marketing that gives you the right payback or better needs to be continued.
Marketing that doesn't pay its way needs to be stopped immediately.
