Marketing is basically the process of getting a person to recognize and consider your product. It’s easy to get caught up in the details of marketing and focus on questions like:
“Should I do direct mail or e-mail?”
“Facebook is hot; do I need to do Facebook? How about LinkedIn?”
“Everybody watches TV; should I do cable TV?”
But these complicated questions have more to do with the media used to deliver a message. The goal of this series is to make media decisions more simple by first recognizing the fundamental laws that should drive those decisions. This note is about making those decisions clear and simple. I’ve come up with 7 Immutable Laws of Marketing. They are immutable because they are so obvious, they can’t really be argued or changed. Here they are:
1. People won’t buy what they don’t know.
2. People forget.
3. People like to shop.
4. People want a deal.
5. People want quality.
6. People warm up to a familiar face.
7. People are creatures of habit.
#1 People won’t buy what they don’t know. This is the #1 basic law of marketing. In fact, it is so obvious that it is usually overlooked. But if people don’t know you exist, they won’t go into your store, they won’t go onto your website, and they won’t call you and they won’t buy from you. Think for a moment about any business in your community that you just discovered in the last month. I just discovered a dentist just 4 blocks from where I live. I just noticed a drum store, and I hope my 11 year old doesn’t find it. I passed a store that just sells tea that my wife says has been there for years.
So you can see my point. There are many businesses in your local community that you don’t know exist. These are businesses that have not considered law #1. These businesses have made the assumption that most people in their community know who they are. In reality, only their immediate current customers know them. And the people that may know about them, the non-customers, don’t really know the inside of the business and what they really offer. The same is true for an Internet-based business, a manufacturer, a home builder, a lawyer, anyone.
Once you understand Law #1, the next step is very clear: identify your potential customers, and how best to let them know you exist. For the dentist, your potential customers are just about every household in your immediate community. Do the research to figure out the most cost effective way to get your message into each of those households. I think that its postcards, but it could also be the local community newspaper. If you’re an Internet retailer, your potential customers are probably anyone surfing the web looking for your particular product. The most cost effective way to reach them is probably search term optimization or pay-per-click advertising. Some retailers will continue to use their store front presence or rely on word-of-mouth for their marketing. Those businesses should remember that not all people in the community drive by their location and that word-of-mouth works slowly, and only if you continue to offer something conversation worthy.
#2 People Forget. About every 3rd Christmas I buy my wife jewelry. I go to the same guy every time. He works out of a small loft space in a warehouse with no storefront. The only way I can remember how to get his contact information is that I know that he is the brother of my mother-in-law’s best friend. So I have to call my mother-in-law to get his name. I’m sure you get my point. People Forget. They not only forget where they might have bought an item last, they also forget that they might need to get a haircut, get their teeth cleaned, workout, clean their gutters, wash their windows, service their car, or book their summer vacation.
There is one basic rule-of-thumb in the direct marketing world that is helpful: RFM or Recentcy, Frequency and Monetary Value. It says that recentcy, frequency and monetary value are the 3 leading drivers of response – in that order. So, if you do a mailing to your current customers, the ones that had most recently purchased from you are the ones that will most likely respond to your offer. Frequency is second, so the customers that purchase more often will be the second most likely to respond. Monetary value is last, so the customers that had made one big purchase a long time ago are least likely to respond. People forget. If you don’t make an immediate and ongoing effort to stay in front of your customers, then you run the risk of losing them forever.
Of course you can’t mail to your customer, or e-mail, unless you keep a database of customers. For some businesses like dentists, home improvement businesses or e-tailers it’s easy. They always need to have a customer’s contact information to complete a purchase. Also, many of the cash register or point of sale systems are set up to not only keep track of customer purchases, but also segment your database for marketing purposes. They can export a list for a first-time “Thank You” mailing, or a “We Miss You” mailing to those who haven’t purchased in a while, or “Happy Birthday” mailings if you have that information also. These marketing or “retention” programs should increase you customer retention by 10% to 20%. So if you’re loosing 100 customers per year, you should be able to save 10 to 20 of those customers though marketing alone. If you’re my jeweler, that could mean an increase in revenue of $15,000 to $30,000.
#3 People Like to Shop. Like Rule #2, this rule applies to current customers. Though I always go back to the same jeweler because I like his work and I still know his sister, there are other purchase categories I like to shop. I’m an avid bicycler and I shop at least 4 of the local bike shops and two online shops. I’m usually looking for a neat new gadget, new clothing, repair or a great deal on a new bike or accessory. Erik’s bike is the only one who mails me regularly and I look forward to their fall warehouse sale. Personally, I think Tom, who owns Boehm’s Bike, thinks I’m his loyal customer and I don’t dissuade him of that. But the reality is I love to shop around for bike stuff and I spend my bike money in 6 or more different places. I’m not as loyal as he thinks.
There’s a little known marketing theory called the Polygamy Theory. It says that your best customer is also your competitor’s best customer. A customer that has high spending in a specific category (like biking) tends to shop that category more and spread their spending around. Just to confuse things, there is another theory, called the 80/20 rule that is applicable. The 80/20 rule says that 80% of your profits come from 20% of your customers. It’s certainly true in my printing and mailing business and I’ve found it to be true in most businesses. Now combine those 2 theories. It’s very possible that your most profitable customers, the ones that are driving 80% of what you take home in your pocket, might leave you at any moment because they have relationships with the guy down the street.
This is why some businesses create points or “loyalty” programs. We know what they are and know that they can work. They can also be a pain to manage. My personal feeling on the matter is that, overall, customers want a relationship, they want to be acknowledged, and they want to feel that they are getting a reasonably good deal. Loyalty programs may work well with a certain business and with a certain type of customer that likes points. But overall you should be able to reach the same goal, getting a current customer to spend more, through communication and customer service. Through direct mail you can send personalize cards from specific sales people, you can send “surprise and delight” gift such as a Starbucks gift certificate, popcorn or an invitation to a special preferred customer event. With a loyalty program or simple acknowledgment program you should be able to increase spending from current high value customers by 10% to 15%.
#4 People Want a Deal. If I think back to my last purchase decisions, I was always looking for the deal. When I bought a flat screen TV for the kitchen, I first looked in the newspaper circulars for a deal. When I had my deck stained, I got 3 quotes. When we purchased our last new car, I was responding to a year-end sale. And in my business, I am speaking daily with customers about discounts and deals. And in most cases, I try to give the customer the “win” that they are looking for. But, I can honestly say, it’s no fun. As a businessman I have targeted profit margin, and what I feel are reasonable and competitive pricing. Isn’t that good enough?
It’s a tricky question. I have tried in past businesses to feel out the relationship between price and volume. I have tried lowering prices, sometimes below cost, to see if I can drive up volume. My experience is the relationship is very elastic; lowering price does not result in a huge increase in volume. There is another marketing rule-of-thumb that says that a 10% price reduction on a product with a 30% profit margin requires a 50% volume increase to make up for the lost profit (ok, read that again). “Price Leader” is not a winning strategy for most of us.
The key point is that people want a “win” and they want the perception of value. Providing an offer does that. It subconsciously tells people that you’re cost competitive and a “good deal” regardless of weather you are or not. Providing an offer also gives people the kick-in-the-butt or sense of urgency needed to make a purchase decision now. The deal should always have an expiration date when the deal is not good. But then, of course, another deal is provided. Stop making deals and the antenna goes up, “Are their prices reasonable? How come they never have a deal?”
#5 People Want Quality. One definition of quality is simply a lack of defects. People want things that are well made and lack defects. It seems like an easy enough concept until you get into the “perception of quality.” The reality is, quality is usually perceived, not experienced. With a Mercedes, people perceived the quality of the German engineering, but do they really experience a lack of defects? No, Check JD Powers, a Toyota Camry and others have higher ratings and less defects. There was a Caltech study in 2008 that showed the relationship between price and the perception of quality in wine. The study showed that regardless of actual quality, the perception of quality was always higher with a higher price tag. The “subject” always thought the $90 bottle tasted better.
People will always want both quality and price. They want the best that they get for the cheapest price. But the catch22 is that if you lower you price or discount your product too much, people will automatically perceive a lack of quality. So, what to do? First, unless you are selling a total commodity like corn syrup or dirt, always emphasis and talk about the features and benefits of your product or service. Even if you’re selling a stripped down product, like a blender with only one speed, at the lowest imaginable price, always talk about the benefits, “Takes the Guess Work out of blending…” Next, you will need to make the brand positioning decisions that decide your place in the continuum of price and quality. On one end of the continuum, you lead with low pricing sacrificing quality perceptions. On the other end of the continuum you lead with quality and a higher price and never discount your core product. Chances are you will be somewhere in between. You have a blender that is well made with 5 speeds. You’re price is reasonable, not too cheap and not too expensive, and you’re loath to discount it any further. But you outsell your competitors with great promotions and deals. You offer a cookbook with each purchase. You have a how-to DVD hosted by a top chef. You do anything to create excitement and keep the customer’s mind off of the dreaded “price.”
#6 People warm up to a familiar face. We would like to believe that we are analytic thinkers and make good rational decisions. But I think we all know that there is a subconscious element to our thinking that muddies the waters. There is a study that was done by a British Psychologist, Dr. Richard Weisman, that showed the relationship between message frequency and disposition. What he found was that the more a person was exposed to a brand, the more that person had a favorable impression toward that brand. It’s why we like Coke; we see it every day. People warm up to a familiar face.
In rule #1 we showed the obvious, people won’t buy what they don’t know. In this rule, we take that one step further, the more a person is aware of your brand or product, the more inclined that person is to purchase your product. So frequency becomes crucial. You need to be in front of your prospects frequently so that they are not only continually aware of you product, but also begin to feel favorably toward your product. And consistency is crucial. Your message needs to be consistent so that the marketing impressions build and create greater awareness. Another rule of thumb in marketing: when you’re tired and bored with your advertisement, your prospect is just starting to become aware of it.
#7 People Are Creatures of Habit. I watch the news every day at 6pm. I listen to the same 2 radio channels during my drive to work. I watch American Idol religiously (ok, I admit it). I read the newspaper every morning. I read my mail every day when I come home after work. I read Newsweek and Sailing Magazine. If a company wants to get my attention, they’d better reach me at those times with the media I’m tuned into. I don’t change that much. I don’t watch Dancing with Stars, I don’t read Time, I don’t listen to Talk Radio. I’m a creature of habit just like everyone else.
Based on Rule #6, you know that you need to provide a frequent and consistent message to your targeted customers. Rule #7 says that people are creatures of habit and are tuned into the same media channels on a habitual basis. So it would make sense that you should choose a media channel for your advertising and stick with it so that you build impressions and awareness over time. I think many businesses try radio for a week, cable TV for a month, a newspaper ad, a postcard mailing, with the expectation that they can see the immediate response and immediately measure their marketing return on investment. It takes time and multiple impressions to get to the desired return on investment for most media channels. That said, just make sure that the media channel(s) that you choose is an affordable way to get at the audience that you want to target and that that channel is hitting the same people each time. Beware of a cable TV purchase that runs your ads across many programs; you’ll never get the frequency needed to maintain awareness and favorable impressions.
The goal is to ultimately find a few marketing systems that work. A marketing system is where you have the right targeted customers, the right media channel, a consistent and frequent message, and the right pricing and offer. You get a consistent source of leads that turn into customers, or a consistent source of incremental business from current customers. And the marketing system provides an adequate return on investment.