“How To Save Your Company From The #1 Small Business Advertising Strategy Killer”

Most of us are so involved daily in organizing, buying, selling, and managing people, it seldom dawns on us that one critical small business advertising strategy could save many headaches.

Simply using less disounting. Discount less and you increase gross margins, total sales, and net profit.

Here’s a way to do that.

Would you be surprised to learn holding your prices also helps keep your hard-won customers?

Many of us want a way to grow our business fast. We’re only human. So, that means we’re often tempted to employ discounts, coupons, and other short-term promotions to increase sales.

Coupons & discounts retard
your long-term growth

When you distribute coupons and discounts as your advertising strategy, it sometimes pumps up sales in the short-term, but have you thought how it affects long-term prospects for your business?

Ogilvy on Advertising (Vintage)David Ogilvy (dubbed the father of modern advertising) has much to say on the subject. His book, Ogilvy On Advertising, is a “must” for any entrepreneur’s core marketing library.

For fifty years, Ogilvy kept his eyes glued on research into every area of marketing. He came to some surprising conclusions. He used those conclusions to help his clients acquire billions of dollars in extra sales.

Ogilvy calls those manufacturers “bloody fools” that rely on coupons, discounts and promotional advertising to move product. He observed that manufacturers spend about 60 percent more on promotions than real advertising.

The year before he wrote his book, industry had distributed more than one billion coupons. Things are even worse now. Nowadays, about 2.5 billion per year paper the landscape.

Win by building the value
of your products

However, he contends that those who use their advertising strategy to build the value of products in customers’ minds win the market share war.

When managers discount, they may pump up sales in the short term. But, they almost invariably lag behind in the long-term battle.

Mr. Ogilvy cites Bev Murphy, a highly regarded research professional. (Later, she served as president of Campbell Soup Company.) Murphy said, “Sales are a function of product-value and advertising. Promotions cannot produce more than a temporary kink in the sales curve.”

He contends that manufacturers who focus on building a “sharply defined image” in their products will fare best among all the competitors. They win the largest share of the market.

The evidence backs it up

Other professionals reached the same conclusion. In the late ‘90s, another research organization surveyed products on supermarket shelves.

They discovered those manufacturers of branded products which spent any more than 40% of their advertising budgets on coupons and discount promotions tend to disappear from the shelves.

And it matters neither how big the brand, nor how long established!

Over 30 years, we at Maverick observed exactly the same result for local level retail and service businesses. Those who rely heavily on discounts and coupons as a small business advertising strategy, box themselves into a nearly irretrievable situation.

Just because the following examples are about food operations, don’t think, “It doesn’t apply to me.”

I use these examples because food operations feel the results of their advertising strategy much quicker than other types. You see their efforts play through within months.

But, the principles that work are the same for all businesses.

How one successful restaurant
chain nearly bit the dust

A large nationally known steak restaurant franchise (which you’d recognize if I named it) is one example.

Several years ago, this highly successful company began to see their franchisees fall into the red. One after another began to go belly up. Finally, at a business news conference, top management confessed they thought coupons were the culprits.

The company was among the first to adopt this small business advertising strategy for their franchisees: using coupons in volume. Initially, they reaped astounding success with minimum cost discounts.

Then, sales began to fall.

To counter the loss, the company offered deeper coupon price discounts, which ate into gross margins. Ultimately food costs, as a percent of sales, rose so high, with no corresponding sales increase, their operations began to dip into the red.

The first “trap” that awaits
you in discounts

At that time, the company discovered what I call Trap #1 in discounts. They could no longer attract enough customers without them.

If coupons work at all, many users (and we employ the term “user” almost synonymously with the drug world) will not return until you give them another.

In other words, the new customers you gain respond only to another round of coupons. Analysis reveals these people are non-profit to you.

And more volume never cures it.

Reminds me of a tale from my German heritage. Three guys were buying hay from the field for $1 a bale and selling them at the stockyards for $1 a bale. What a bummer. They were losing money and got together to palaver about it.

Finally, one said, “I got it! We’ll buy a bigger truck and get more volume!”

Right. I know many local retail or service businesses who think the same way . . . and lose just like the big boys.

Trap #2 may be worse

With a discount advertising strategy, you can fall into Trap #2 as well. That’s when management forgets that a desirable quality product will always be the foundational piling that underpins any business.

Here’s the trap.

The business that reaps big initial success with discounts has a tendency to neglect other important parts of its value package, including product quality and/or service. We get sloppy or cut needed quality and over-focus on short-term profit.

How one famous company
fell in the trap

My friend, Jim R, and former shareholder in a large pizza franchise operation, was there when it happened.

The company had grown to hundreds of locations. Management decided they needed a Madison Avenue advertising agency to shepherd their march to business heaven.

They invited the Madison Avenue agency boys to make presentations.

Jim described ensuing events this way: “The day we entertained their presentations, you wouldn’t believe the scene at our local airport. The big ad agency jets from New York and Chicago lined up in a long row on the tarmac.

“One after another, their spectacular audio/video presentations just blew us away. Not one cost less than $100,000.

“By the time the marketing gurus had finished spouting all their smoke and hot air we were convinced we no longer needed a good product. All we had to do was advertise it. Then, the marketing geniuses smiled and flew away to their latest-fashion, oak-paneled offices to await our decision.

“We were so impressed we promptly started taking the extra pepperoni slices off our pizzas,” Jim muttered from under a raised eyebrow.

In the following two years, this “icon of American business” came perilously close to losing it all.

Their pizzas got thinner and thinner.

Competitors saw the hole and piled on more cheese and pepperoni.

Fortunately, company management finally realized their error and reversed course. Still, it took some years to re-entice the public and overcome this “shot in their own foot”.

Unfortunately, during their time of travail they also resorted to heavy coupon use. They eventually realized this error sucked profits like a high-powered vacuum. But, once started, they were stuck with the little devils and are still forced to use them to this day.

How this local business
learned and prospered

Another manager related his tale this way.

Thirty-five years ago when hamburgers were fifteen cents apiece, Wayne and his father owned a little hamburger restaurant that performed marginally. They slaved away but it didn’t grow and they knew they’d be unable to make a living for both men’s families.

In casting around for a small business advertising strategy, they hit upon this idea: Every Monday they would offer 10 hamburgers for a $1.

“Sales were fantastic,” chortled Wayne. “Every Monday, business poured in so fast customers were lined up and hanging off the chandeliers!”

“We had found the ultimate secret to both wealth and fame.”

Their windfall continued through the end of the year. However, to their chagrin, when they analyzed the books they came to an amazing conclusion.

They had 20% more gross sales volume, but net income remained the same (and a fair profit is the name of the game, isn’t it?)

“Dad and I were stymied,” said Wayne. What to do?

“Finally, we decided to grab our belts and stop the 10 for a $1 hamburgers.”

“We calculated how many extra dollars we were churning through the operation in discounted food costs and devoted that same amount to ‘value building’ advertising.”

The turnaround

Wayne continued, “It was only then that the business began to grow.”

By value building advertising, Wayne means they focused hard on their taste and quality and began to sing its praises in their ads. Price moved to a minor place in their advertising strategy.

The result? Wayne’s father left us more than 25 years ago, but he bequeathed a family legacy of a chain of five very successful restaurants. They are considered landmarks in their city.

So what’s the solution
for you?

Yes, you can do a little discounting. But, for the long term health of your business (assuming you manage your resources well), the only truly effective small business advertising strategy lies in

  1. improving and maintaining your quality of product.

    Once you achieve the quality . . .

  2. embark on a heavy dose of advertising that educates and builds the value of your product in customers’ minds. Tell the folks about it.

Maverick holds a number of such successes in our files from all over the nation – both independents and franchises. It works in nearly every instance.

If you’re concerned about your own advertising strategy, I recommend several sources to check.

Get your hands on a copy of my new book, Maverick Marketing, when you click here. You’ll find helpful ideas about discounting plus many more strategies and thought-starters specifically for small business like yours.

Positioning: The Battle for Your MindI recommend several books by Jack Trout. He and Al Ries wrote Positioning: The Battle for Your Mind back in the 80’s. Just click on the picture to go see it.

The New Positioning: The Latest on the World\'s #1 Business StrategyThen Jack wrote The New Positioning as a sequel. This book adds even more know-how.

Marketing WarfareAnother excellent book is Marketing Warfare by the same men. Again, click on the picture to see the book.

The Power Of Simplicity: A Management Guide to Cutting Through the Nonsense and Doing Things RightFinally, perhaps one of Trout’s best is a recent book, The Power of Simplicity. Jack spells out how simplicity of both thinking and operation lead to profitable, sustainable companies. This book dispenses special help to entrepreneurs.

I want to warn you. So much of success in your business and advertising is just common sense and a refusal to cut corners.

Before embarking on a new ploy, ask yourself these two questions.

  1. Is this the right thing to do? (If you’re in the restaurant business ask, “Would I really want to feed this stuff to my own family?”)

  2. Will this be good for both my customer and me?

If you get a “no,” to either one, expect trouble down the road.

We address many important questions on this website and continually add more material. If you’d like to explore more helpful articles for maverick managers, click Table of Contents here.

Do you belong to a trade association or have a company with several locations?

You and your managers can learn a whole proven system that eliminates guesswork and increases your success odds mightily. Click here for the Maverick Executive Advertising Seminar. You’ll learn all about it and get a free Speaker’s Kit to show to your group.

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I wish you well.

Warm regards,

Rod Rademacher
CEO
Maverick Strategy
4148 S.W. Emland Drive, Suite 7
Topeka, Kansas 66606
785-783-7756 or
Email us here.

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