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The Measuring Stick: Customer Lifetime Value

Most of us know, generally, how many customers we serve over the course of a year. But have you ever stopped to think about the value of each one?

Customer Lifetime Value (CLV)

This is a way of measuring how much your customers are worth to your business over the time they buy your products and services. A well-run CLV program can help you identify which customers are worth your greatest attention – and can help you make the most of your marketing dollars.

Here’s how it’s done:

Average Annual Spend X Length of Relationship = CLV

If a customer typically spends $1000 a year / Customer stays 5 Years = $5000 CLV

Knowing this can help you justify marketing dollars over the long term. So often a business only examines the success of a campaign over the initial weeks that it ran, ignoring long-term benefits.

Tracking this the CLV helps you decide how to readjust your advertising so it can work better. For instance with regards to one of the events I market, which is a high-end conference, I know that through surveys it often takes an attendee two years to decide to sign-up. This means the advertising we ran last month may not pay-off for another 23 months. Understanding this concept will help you spend your money more wisely, and produce better results.

Of course you won’t know this unless you decide to start measuring your marketing efforts…

Slogans are short phrases that explain the main purpose of your product, service or brand.

New research shows that by clarifying your bands slogan, keeping it simple – and consistent, that it can significantly impact revenue.

This makes total sense, if you had no idea what Walmart was, you might think, as Paris Hilton famous stated “What do they sell there walls?” As it turns out though, thanks mostly to the millions of dollars they spend on advertising each month; almost everyone on the planet knows Walmart does not sell walls. What they do sell is just about everything else at a very low price. Their slogan is:

“SAVE MONEY. LIVE BETTER.”

A new study from the Journal of Consumer Research revealed a fascinating aspect to consumer behavior with regards to slogans, especially the ones that reinforced the image of the brand.

“The experiment divided subjects into two groups. Half were exposed to brand names associated with saving money, like Walmart, Dollar General, Sears, Ross, etc. The other half were exposed to the slogans for those retailers, like Sears’ current motto, “The Good Life at a Great Price. Guaranteed.” When asked to visualize a shopping trip and describe how much money would be spent, the brand-exposed group spent an average of $94 vs. the slogan group, who spent just about twice as much: $184.”

SO THAT’S IRONIC

The study found that exposing consumers to a “savings” message caused them to spend more than when they saw a message that reinforced a good lifestyle along with brand itself. So as a consumer I spend more at places promising me more in savings, who knew? I guess you don’t really save much, when you spend double. The study concluded that:

“Companies may be trying to attract customers with slogans associated with saving money, but in fact, this strategy may make consumers spend more money than they would if they had not been exposed to the slogans.”

I like this study for a few reasons:

1. It’s easy to understand.
2. It shows that simple is way better than a complicated slogan such as these:

“Dieting doesn’t work, Weight Watchers does.”
Wait a minute, isn’t a diet a way to lose weight by eating different than usual? Since when is Weight Watchers not a diet? I’m confused.

“It’s waaaay better than fast food, it’s Wendys.”
Wendy’s isn’t fast food, and Madonna is a great actress.

“Our Passion is food. Our secret is people”
Created by Moxie’s Classic Grill, sounds like something Hannibal Lecter might dream up.

3. They measured. Simple idea to test and BAM! doubled profits. we’ll all take that!

As a marketing person, one can’t escape the reality that the reason we study the details is so that our products and services reach their full potential.

This is essentially the answer to our question of “Why?”

If, in all our analytical glory, we miss the fact that our numbers mean nothing and they haven’t been used to improve the bottom line – then we’ve failed.

What’s the use of collecting all the data if we forget why we do it? Just to be showy? Prove how talented we are at gathering figures and information?

I recently read an interesting article about FBI Director Bob Mueller in TIME Magazine. He has made over an agency that’d gotten sloppy and lazy in how it was thinking and acting – “Mueller remade the bureau in his image, pushed out the old guard and hired more than half its present cohort. Mueller inherited 56 field offices, each a distant fiefdom run by a special agent in charge. Old-school Special Agents measured progress by arrests.”

So what does this have to do with marketing?

The FBI used to measure success by how many arrests it had made. To a non-law enforcement expert, such as me, this seems logical. But Director Mueller didn’t read the numbers the same way, he dug deeper challenging those agents who were arresting petty thief’s to stop padding their numbers and to do work that made a real difference to the community as a whole. Arresting car-jackers wasn’t nearly as important as thwarting terrorist attacks for instance.

“How are you measuring positive community impact?” Mueller would ask.

What a great question. Getting bad guys off the streets is good, but for the amount of time and resources it was taking to fight crime and then to see little return on this investment frustrated Mueller. He was basically asking what was the ROI on those arrests for the community? That’s what mattered most.

If you forget why you are collecting the data, I encourage you to get back to asking the question – “Why?” and figure out what matters most. In the long run this will help you and your company succeed.

Can You Trust Your Gut? The Measuring Stick: Return on Ad Spend

If you have ever asked the following question, “How much is my advertising making me?” Then this is the metric for you! According to a study from Seybold, almost 70% of companies can’t measure ROI.

Imagine not being able to tell if your investments were paying off, you would probably very quickly replace your money advisor with someone who could give you accurate updates. Well your advertising should be handled the same way.
Return on Ad Spend (ROAS) This is a Marketing ROI which measures how much revenue was generated for each $1.00 spent. It’s calculated this way:

Revenue – Ad Spend
—————————- = ROAS
Ad Spend

$1000.00 – $100.00
—————————- = $9 ROAS
$100.00

or

$1000.00 – $500.00
—————————- = $1 ROAS
$500.00

Companies need to exercise utmost caution while spending money on advertising. It could help you scale up your sales or it could be a mere waste of money. Either way, one needs to keep a tab on the money spent on ads.

In addition to advertising heavily when the economy is soft, what else does one need to do?

Well outside of admitting that you could use a kick you in the pants every now and then, here are 5 things to think about:

Stop Whining
Never take your eye off the ball (your customers). Value them, and make sure they know it. Right now, someone in your field is having an awesome year. Why is it not you?

Get Back to Work
A bad market is a great excuse to be lazy. Don’t get caught in the ‘nobody’s buying mentality’. Focus on the core values of your company and share these frequently with customers, and prospects, through your advertising messages.

Sharpen The Axe
The toughest times always have carried with them the greatest opportunities. It can be difficult to see opportunities while you’re being bombarded with so much negativity everywhere. Never fail to negotiate for a better price from where you are buying media space. Use the phrase, “That’s not good enough.” This has worked for me so often that I never ever accept the first proposal. I barely even look at it.

Be Innovative
Deep discounts are not the answer they can’t be counted on when times are tough to shoulder the whole load. Your advertising messages should be crafted in a more creative manner. Remember, it is the bad and mediocre who quit in tough times. That leaves only the good and the best to compete for space in a shrinking market.

Don’t Give Up
One of the first things to happen in a tough market is that the bad and mediocre players just give up. Don’t let your business relationships wonder if you are next. Work on building better relationships with your customers. Learn their birthdays, kids names and even favorite teams, etc. – I personally like doing business with my friends, they probably do as well.

A negative economy can be a crisis situation for many businesses, but it was President Kennedy who reminded the nation

“When written in Chinese the word crisis is composed of two characters. One represents danger while the other represents opportunity.” It means opportunity for those who are prepared to take advantage and danger for those who aren’t.

The more visible you are, the more confidant your customers and prospects become. The more they are reminded of your legitimacy and staying power, the more they’ll be inclined to believe you’ll be there for them tomorrow.

Remember too that during any period of economic downturn your best customers become someone else’s best prospects. When you stop inviting them to do business with you, a more aggressive competitor may become much more attractive.

In a bad economy, there are many opportunities to expose your business to new customers that aren’t always possible in a good economy.

For instance, during down economic times you can get better deals on advertising. I was responsible for purchasing some billboards in Kansas City for a project in 2009. What I discovered was that for half the price of the previous year I got double the boards!

Don’t be afraid to address the bad economy in your advertising either. Travelocity aired a simple commercial to announce its Silver Lining Sale. In the first three seconds, you see the words, “We know times are tight.”

Wal-Mart is running an effective ad campaign. The commercials don’t say, “Hey, come on out. We’ve got electronics, clothes, sporting goods, prescriptions and more at a low cost.” Instead, the ads focus on very specific items and how much you’ll save over a year by purchasing these items directly from Wal-Mart.

The world’s largest retailer, according to Advertising.com, posted its best sales performance in nine months, with a 5.1-percent sales gain in February 2009 as a result.

Which character will your company be? Danger or Opportunity?

When a business continues to advertise, throughout tough times, consumers see this as a sign of commitment to doing business.

And your competition most likely will cut back advertising.

It is critical to advertise in the current economic climate, to maintain long-term positive consumer perception of your brand.

Research shows companies that advertise during a recession reap the rewards long after the recession is over.

Slowing down or eliminating your advertising efforts may seem like it’s saving you money now but it will cost you more in the long run.

In a  study of U.S. recessions from 1980-1985. Out of the 600 business-to-business companies analyzed, the ones who continued to advertise during the 1981-1982 recession hit a 256-percent growth by 1985 over their competitors that eliminated or decreased spending.

American Business Press analyzed 143 companies during the economic downturn back in 1974 and 1975. Companies that advertised in those years saw the highest growth in sales and net income during the recession and the two years that followed.

It’s important to advertise during down economic times, to maintain a positive consumer perception of your brand.

Research shows companies that advertise during a recession reap the rewards long after the recession is over.

Nothing can build your business like downtimes!

“He who stops advertising to try to save money, could just as easily stop his clock to try to save time.” – Anonymous

This is such an important topic to me, advertising in down times, that I plan on addressing it many times, in many ways over the next three or four posts.

Many businesses have asked me what they should do? How much they should cut back? What should the message or offer be? On and on they seem confused about how to handle advertising in such difficult economic times.

I will keep my answer short: don’t stop, even increase your advertising.

According to Ad-ology Research nearly half of U.S. adults believe that a lack of advertising during a recession means that a business is probably experiencing difficulties and struggling. Needless to say this obviously does not inspire confidence in your products or services.

Insulting our intelligence

“I am well educated, smart and sophisticated. Much smarter than you.” – at east that what it seems like advertisers these days are trying to tell me with their ads.

Advertisers need to remember that in America today many schools teach critical thinking skills. We learn to question everything, to be skeptical because it develops our cognitive skills. So knowing this, advertisers need to realize – if you are talking down to customers they won’t react well.

Here’s one example of a TV commercial that just comes out and insults our intelligence from start to finish, even with a catchy jingle and humorous lyrics: the Free Credit Report.com spot. They say they’re “free” – it’s in their name, sing about being “free” and yet at the very end they quickly state, “offer applies with enrollment…” and in order to enroll you must use your debit/credit card. So I guess it’s not free.

FreeCreditReport.com you treat me like I am an idiot, so I choose to ignore you, forever.

Another example is Honda’s Cog TV spot, thought to be to complicated for the US market, it was never released here. Judge for yourself if this concept seems far too difficult to grasp?

We are all experts about the products we market and sell (or should be), but let’s be careful about assuming to little about our customers.

Yo, you paying attention?

Are you aware of the things you need to be focused on day to day? Or do you find yourself pulled from one project to another with barely a minute for reflection? Taking your eye off the ball?

Well you can’t lose sight of the goals, and I do hope you have some (personal and professional). In the fast pace world of advertising where customers are fickle and the rules of success change daily we need to remain locked in on the goal – always. If the goal is sell/promote X then we can’t allow our selves to get pulled into meetings for Y, and caught up in discussion around Z, it’s the quickest way to fail.  The list is long of companies who got distracted: Sony Walkman, GM, Lehaman Brothers, ENRON and even Tiger Woods.

How tuned in are you? watch this brief video, you may be surprised at the results.

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