Every time NASA sends
up another space probe, I wonder why.
Each time the space
shuttle is launched from Cape Canaveral, I ask myself what benefits we
are getting from this extreme amount of energy and effort and money that
is being spent.
I wonder if we took
the same amount of energy and effort and money and put it into providing
food for those who need it around the world ... or eliminating all human
conflicts that cause pain and misery ... wouldn't we be a lot better off?
Then I remember some
of the original thinkers. Aristotle. Mme. Marie Curie. Thomas Edison.
George Washington Carver. Jules Verne. Leonardo de Vinci. Isaac Newton.
These people thought
ahead. They were ahead of their time. And because of them, all of us enjoy
some things we wouldn't otherwise have.
Maybe now it is time
for some original thinking about Marketing Budgets.
Not too long ago I
saw a cartoon which showed the outside of a movie theater. The name of
the movie was "The Budget". The caption underneath said "I
don't know ... I think it's a horror film".
horrible. I don't know anybody who really likes them. Even the financial
people who have to work with them really don't like them. They may enjoy
the process of budgeting ... but working with budgets is just plain not
fun. They are so limited!
The down side of
have been put in place to control costs. However good this intention,
frequently it produces negative results.
Why? Because the
budgets are put together before all the facts are known. And certainly
before the results are known.
Budgets are built
on assumptions ... and assumptions in marketing never produce the same
results twice. Similar -- but not the same.
So we're building
a budget based on history and some assumptions about the future. For marketing,
this isn't the way to do it. For marketing, budgets should be built on
Based on results
Marketing should produce
income. Profitable, bottom line income. It is the only expense designed
to produce profitable results.
There are two basic
ways to tell your story:
The purpose of
advertising is to inform. To educate. To create awareness. To create
an image. To position. To urge action.
The purpose of
marketing -- sometimes called merchandising -- sometimes called sales
promotion -- sometimes called direct marketing -- is to get a response.
A result. A bottom-line action. A purchase. To generate cash flow. To
make a sale.
It makes perfectly
good sense to allocate a specific and fixed amount of money for advertising.
It may be based on a percentage of sales for last year or on the projected
amount for this year. This makes sense because you can not specifically
measure what happens dollar for dollar on sales with advertising.
It works for advertising
This is not bad. Why?
Because without education, without awareness, without image, without positioning,
a product will not sell as well as when their audience has been educated.
When there is an image and awareness level. When people do understand
what the product will bring to them. They do understand the benefits over
the features. They understand what they can gain.
Advertising and marketing
should work as a complimentary team. And advertising can be very successful
working on a fixed and exact budget.
... but not for marketing!
Marketing works better
on a flexible budget! Why? Because a fixed budget for marketing will limit
your ability to gain some very profitable results. If you have a fixed,
specific, detailed budget for marketing and don't allow any flexibility
... what happens when you are successful? You run out of budgeted money!
The idea for this
article came as a result of my two previous database retail articles published
by DIRECT MARKETING. What I learned in my research about databases
for restaurants was really very simple. It can be summarized this way:
If you spend advertising
money to drive prospects into your restaurant to become customers, and
then do nothing to build upon that, all you will do is advertise again
and again, over and over.
On the other side,
when you use advertising to drive prospects into your restaurant to become
customers, and then use marketing to maintain them, to hold their hand,
to reach out and touch, to build a relationship, you will enjoy a higher
level of profit.
Easy theory, hard
This is where the
budgeting gets difficult. It is easy to budget for the advertising part
... it happens every day all around the world.
It is much more difficult
to budget for marketing ... because you really don't know what's going
to happen until it happens.
Let's give an example
from the restaurant trade. You have been advertising for a period of time.
You are building a database of those people who have responded to your
advertising. You are establishing a marketing program to invite those
customers back to become better customers with you.
You probably have
a birthday program, possibly an anniversary program, and a frequent diner
program so your guests earn rewards by frequenting your restaurant.
For the purposes
of this example let's assume you have 7 restaurants. Approximately 1500
people have registered in each of your 7 restaurants each month.
If you plan to mail
to these people a birthday card during the month of their birthday, an
anniversary card during the month of their anniversary ... at least one
promotion each quarter, here is an example of what might happen over just
a 3 month period:
7 Restaurants in this group
1500 New customer registrations each month at each restaurant
10,500 Total registrations per month for all 7 restaurants
33% Average redemption from offers made (a statistic from history)
$24.25 Average sale per redemption (a statistic from history)
Expected Results for 1 Quarter of Direct Mail Promotions
to this known database of customers
31,500 Mailed offers (3 X 10,500)
10,395 Guest visits/Redemptions (33% X 31,500)
$252,078. Revenue generated ($24.25 X 10,395 visits)
$62,370 Gift meals from offer ($6 X 10,395 for this group)
$19,750. Mailing and service charges for all 7 restaurants
$82,120. Total expenses
$169,959. Net Sales after Direct Expenses
$ 59,485. Net contribution to profits at 35% (Restaurant industry figure)
How many businesses
enjoy profits at this level? Certainly not very many!
marketing does just that!
Break the fixed budget
Why would you want
to have a fixed budget with opportunities of this sort?
The real question
is how much advertising would it take to earn almost $60,000. in net contribution?
I don't know. And the real answer is nobody knows!
marketing we do know!
Clearly a program
of this sort, where a database of customers is massaged to encourage additional
visits is exceptionally measurable and profitable.
So, can you budget
for this type of a program and put a limit on it? Absolutely not! Why?
Because it makes so much sense to invest in marketing programs that produce
on-going measurable results. Measurable results which are clearly profitable
to the bottom-line. Such as inviting and re-inviting your customers back
again and again and again.
There are additional
benefits to database marketing, too. These are in some cases invisible
... because you don't really know they happen. They're very much like
advertising. In other words, what I'm saying, is that marketing can also
and is also an advertising tool. What are some of these other benefits:
- Your brand name
is enhanced. People know who you are because you continue to remind
them of who you are.
- Your name awareness
level goes up in the minds of your customers.
- You begin to build
increased loyalty ... because you remember your customers with a personalized
offer and message on a regular and on-going bases.
- Frequency increases
because loyalty is built because your brand name and awareness levels
are increased and because you continue to Ask For The Business.
- The database of
your customers can be used for a number of different promotions throughout
Why, with all these
benefits, and some bottom-line results, would you want to have a fixed
Budgeting for profits
simply means you're not locking yourself into a number. Instead you're
locking yourself into a concept. And as your customer base grows and the
opportunities to communicate with them grow with it, flexibility in your
marketing budget will allow you to enjoy some more take home pay.
is really as simple as that.