Marketing communications are designed to inform potential customers and to motivate them to purchase your products or make use of your services. Each element of your communications strategy--promotions, advertising and public relations--must be aligned with and support a compelling positioning statement that is unique to your business.
In order for your business to succeed, you need to advertise and promote your products or services to the same buyers that your competitors are targeting. In those rare cases where your business is one-of-a-kind, you still need to tell target buyers that your business exists with some kind of advertising or promotional communication. Public relations (PR) activities are another way to promote the image or reputation of your product. PR is similar to promotion and advertising, but can be more indirect, since some or all of the publicity a company's products and services receive from public relations activities may not be controlled by the company.
Setting a marketing budget
Spending for promotion, advertising, and public relations (that is, "marketing support") varies substantially based upon the type of business. Industrial business-to-business operations may spend less than one percent of net sales, while companies marketing consumer packaged goods may spend 10 percent or more. Retail stores that advertise and promote spend four percent to six percent of net sales for marketing support, on average.
The amount of money spent on marketing support also varies based upon product life cycle. Consumer packaged goods companies may spend 50 percent of net sales for introductory marketing programs in the first year, subsequently lowering the percentage spent to a stable 8 percent to 10 percent within a few years.
Small businesses often estimate their sales revenue, cost-of-goods, overhead, and salaries, and estimated gross profit. Anything left is considered available funds for marketing support. A more rational approach is to estimate what your direct competitors spend in marketing support as a percentage of net sales and then try to at least match that amount.
While small businesses often have limited budget resources for advertising, it is helpful to benchmark what you are spending with national averages. Each year, Schoenfeld & Associates conduct a survey that gathers information regarding advertising spend by industry. This may help to give you a ballpark idea of the "norm" in your field.
The following table provides information on some of the more common business types. The website for Advertising Age provides information gathered by Schoenfeld & Associates for two hundred types of businesses. This information is free with registration on the website.As percent of net sales
|Type of Business||Percent|
|Auto repair, services, parking||4.8|
|Catalog, mail order||3.1|
|Cosmetics & toiletries||19.8|
|Lawn/garden & building supply retail||1.2|
|Real estate agents & managers||4.5|
|Toys (excluding dolls)||6.5|
|Toy, hobby and game shops||3.3|
If you are the new competitor in the marketplace, you will have to spend more aggressively to establish your market share objective. New business may come from expanding total product sales by attracting new users, as well as converting current users to your business from the competition.
If you are an established business, your percentage of total expenditures for promotion, advertising, and PR should at least equal your market share, to maintain it. This rational approach assumes that all spending has equal effects on category buyers, which it may not.
Planning effective marketing support programs
Whatever you're selling, you'll need to communicate about it with your target buyers. Most businesses find that they need all three components of marketing communications (promotion, advertising, and public relations), in some combination. But how do you narrow down the available choices and build a communications program that makes sense? Here's how:
- Determine who the target buyer is. Identification of exactly who the target buyer is, in demographic, lifestyle, and other descriptive terms, is necessary before the construction of practical promotion, advertising, and public relations (PR) programs.
- Determine what is meaningfully unique about your product. Many small businesses can describe what is meaningfully unique about their product or service. For other businesses, market research may be the only way to determine meaningful sources of uniqueness on product features and benefits. For our purposes, "meaningful" differences are defined as those business or brand attributes that buyers or end-users consider in making purchase decisions among different available choices. Customer perceptions control what is "meaningful."
- Construct a business positioning strategy statement. It is important to be consistent in all promotion, advertising, and PR programs, particularly with the scarce resources of most small businesses. A good business positioning strategy statement will address who the target buyer or end-user is, what the competitive environment is, and what the meaningful differences in the products or services are when compared to the competition. The statement might also include reasons why these meaningful differences are valuable and perhaps some idea of a business "personality" that will be created and fostered in all marketing programs.
- Determine the best message to communicate your product positioning to target buyers. The key to communicating product uniqueness and positioning is constructing a memorable unique selling proposition (USP) about product features and benefits that are meaningful to your target buyer. This USP may be a memorable "slogan" or ad message that correlates with the needs and wants of your target buyer. The ad message is a result of a carefully constructed positioning statement.
- Determine promotion and advertising options and costs in terms of available budget. There is never enough money to do everything desirable to build the business. Often a promotional budget reality check for a small business means a choice between a little promotion, advertising, or PR, but not all three at the same time.
Marketing support rests on your positioning strategy statement
A small business positioning strategy statement can be as simple as a one-page document that will act as a guideline to measure the consistency of all marketing programs.
A carefully crafted business positioning strategy can be used as a guideline for judging the appropriateness of all marketing programs, especially for promotion, advertising, and PR events. It will ensure that your business image is consistent to your target buyers/end users and help to build an enduring, memorable (and hopefully unique) message to sell your business products.
The following list can be used to help you organize the information needed to create a workable business positioning strategy:
- What products or services do you offer?
- Who are your target buyers or end-users?
- Where will products or services be delivered or performed?
- Who are your direct competitors?
- What unique attributes of the products or services that you offer distinguish your business from those of your competitors?
- Are prices set by reference to what your competitors are doing and, if so, are they higher, lower or the same? What are your business's "personality traits?"
Creative promotions can boost your customer base
Promotion programs provide direct purchase incentives in contrast to most advertising, which provides reasons to buy your product instead of the competing brand. Once you have determined both your business positioning strategy and the size of the promotional budget, specific promotional activities can be selected.
Some types of promotions can be expensive, complicated, difficult to execute, time-consuming, and difficult to administer legally. Many small businesses are local or regional, so some types of promotional activities will be too expensive or inappropriate for the type of goods and services offered. The most important thing is to come up with a promotion that is unique and that sends the right message about your business.
Typical promotional activities include:
- games and contests
- premiums and gifts
- coupons and rebates
- product or service demonstrations
It is critical to monitor the effectiveness of your promotions. If they don't generate results, they aren't worth the time or money you'll spend.
Example: Your gourmet coffee shop ordinarily sells 500 pounds of coffee in an average week. You decide to try a promotion using a coupon, good for 20 percent off the price of coffee purchased during a particular week.
If coffee sales increase enough so that the additional sales make up for the lower profit margin, coupons might be a good approach. But if you only sell the same 500 or so pounds to your regular customers, then all the coupons are doing is reducing your profit without providing a reasonable benefit.
Games and contests can boost customer engagement with your business
Larger companies frequently run games and contests on a nationwide scale. People look under bottle caps, collect game pieces, or submit entries in an effort to win prizes. Most small businesses probably don't need (and can't afford) this type of promotion. However, games and contests can be conducted on a smaller scale.
For example, many restaurants ask customers to leave a business card in a bowl. Drawings are held periodically and winners are awarded a free meal or a different prize. The restaurant owners, not incidentally, get valuable information in exchange for those prizes. The list of people who submit cards can be used to solicit parties, meetings, etc. If your business is in an area with a lot of foot traffic, putting a game or contest in the window can draw additional customers into your store. It can be something as simple as the old jelly beans in the jar contest.
If possible, use the contest to do double duty: in addition to getting the contestant's name and address, ask for information you need to better market your products or services. Be careful to analyze the results, though. If none of the people drawn in by the contest become customers, you're wasting time and money. Your promotions must be designed to get people to buy from you; the market research you can conduct is just a secondary benefit.
Whatever games you devise, play fair with your customers. Don't charge them to enter, and be sure to state how and when the winners will be selected, say that the offer is void outside of a certain area and after a certain date, and that any taxes are the responsibility of the winner. And be sure to check out the local laws with your attorney before you start any contest, game, or drawing.
Premiums and coupons can be effective promotions
Premiums and gifts, sometimes called "ad specialties," have been around a long time. This is the old "prize in the popcorn box" approach. A little something extra at no extra charge. The modern version of this free gift idea is aimed at name awareness: magnets, calendars, luggage tags, T-shirts, pens, pencils, or coffee mugs that carry your name, logo, and perhaps phone number or Internet address. Anything that lasts and will be used by your prospective buyer can be effective. You may give these tokens out directly or have a buyer send in the proverbial "box top" and receive the valuable merchandise ... with your name all over it.
For better or worse, there's already a wide variety of "standard" promotional items. Be aware of what's out there and be sure that your premium or gift is different and better. If at all possible, be sure there is a logical connection between the premium or gift and your business. Free mugs that entitle the purchasers to reduced-cost coffee are a good example of this.
The key question, as it is for any promotional activity, is whether the cost of the premiums or gifts will be recovered through increased business. If all your customers dutifully wear their T-shirts with your logo, will you gain new customers? Monitoring results can be as easy as asking new customers how they heard about your business. If 99 percent don't mention the T-shirts, you can be relatively confident that the premiums aren't doing what you hoped.
Coupons and rebates are common promotional tools
Many small businesses use coupons as part of their promotional programs. The more common ones entitle the bearer to some benefit, such as a price reduction on a particular product or service. Others reward frequent customers for their loyalty. For example, a coffee shop may give each of its customers a card that is punched when a pound of coffee is purchased. When the card is completely punched (perhaps after 10 or 12 pounds), the customer gets a free pound. Be sure that your pricing supports the cost of this type of promotion.
Don't forget that only a small percentage of coupons are actually used. Newspaper coupon redemption rates in the grocery, drug, and mass merchandise industry average between 1 percent and 5 percent. Redemption rates for other coupon delivery methods (e.g., mail, magazine, newspaper four-color inserts) vary widely, but still amount to less than 10 percent for most products.
Coupons attached to the product itself are the ones that are most likely to be used, with redemption rates of 20 to 50 percent. However, these coupons tend to be redeemed by existing customers, so if your intent in distributing coupons is to get new customers, find another way to get them to your targeted audience. One good thing about coupons is that it's easy to monitor the results: you'll see every one that comes in.
A coupon should be good for at least 10 percent off the retail price of the product to attract buyers' attention and increase sales, with a 25 percent discount off retail considered more effective for mass market disposable consumer goods.
Tip: Coupons come in many forms, but the one thing they should have in common is an expiration date! If you forget this, you may come to regret it.
Advertising Age magazine keeps up with these trends and a host of other topics which may be of interest to you as you think about advertising and promoting your business. If your local library doesn't have a copy, subscription information is available online. In addition, by registering with this site, you get free access to a wide variety of helpful information.
A rebate is similar to a coupon, except that it is not honored at the time and point of purchase. Instead, the customer must complete and submit the rebate form, generally by mail. Rebates on automobiles are not, in fact, true rebates in this sense of the term. If you had to send a proof of purchase form to the auto manufacturer to get the $600 "rebate," that would be a true rebate.
Overcome resistance with product demonstrations
For a small business, a demonstration is often the most effective and cost-efficient selling tool. Although demonstrations are often more expensive per sampled target buyer when compared to advertising costs per target reached, they are many times more effective than single advertising ad exposures in any media. According to recent studies, 79 percent of shoppers who sampled a product, bought the product when they felt they needed it.
Demonstrations should be conducted at point-of-purchase whenever possible. It is estimated that over 85 percent of all grocery purchases are not planned in advance. Buyers purchase many items on impulse because of a product or service demonstration. Go to your local supermarket at noon on a Saturday and observe (and enjoy) the moveable feast the product demonstrators offer.
A promotion demonstration often takes the form of a free product sample or free trial service. Demonstration personnel also act as a mini-sales force in explaining product features and benefits and providing personal consumption and use testimony. A small business is well-served to arrange as many promotion demonstrations and sampling opportunities as affordable on a continuous basis to build business. Demonstrations are particularly valuable as an effective (and often, low-cost) way to introduce new products and new services.
Also, demonstrations of products and services are the foundation for potentially free, word-of-mouth advertising, the most effective form of advertising known.
Tip: Product demonstration opportunities come in many forms including open houses (to show off your new facilities), trade shows, local fairs, taste tests, test drives, and seminars. The popularity of seminars is growing, as they are effective in enabling service providers such as financial planners, physicians, and dealers in art and antique items to target and educate their potential customers.
While you will generally want to reach your target audience when you conduct seminars, you can also use them to build your business's community image. For example, a good place to try out your seminar might be at a senior center. Every community has one and they are often looking for program presenters. You don't want to put on a blatant commercial — just an informative, generic talk will win friends and influence people. The residents of the center may not be your target audience, but if you favorably impress them, others in the community will hear about it.