The Recession-Proof Business: Chapter 6

How to Channel Customer Demand

The key to channeling market demand to drive sales of your products and services is to master the skill of marketing and, in particular, a specific form of marketing called direct response marketing.

Ninety percent of the marketing and advertising you see constitutes “image advertising” – not direct response advertising. Typically, these newspaper ads, Internet websites, Yellow Pages ads, direct mail pieces, and other image ads simply look like glorified business cards.

There are numerous problems with this kind of image advertising, including 1) it’s not compelling to your prospective customer; 2) it doesn’t work very well, especially if your marketing budget is less than $10 million a year; and 3) you can’t track whether the image ad worked or not, so you can’t improve it to make more money.

If you’ve had some success in your business, it is likely that you already have some idea of how to sell your products or services when you meet prospects face to face. Your prospects will have all kinds of questions with regard to how you can help them, what you charge, and why they should choose you over a competitor. Instinctively, you’ve become good at answering these basic questions in face-to-face selling situations.

Marketing is really just salesmanship multiplied across multiple media. You simply take your already successful sales message (that you deliver in person) and put it on your website, in direct mail, in newspaper ads, etc. While this is a bit of an oversimplification, it’s not too much of one.

Image advertising is designed to build awareness and get your name out there. What it doesn’t do is persuasively convince prospects to do business with you. Image ads do not sell. That’s why they don’t work.

As business owners, we don’t pay our bills with awareness, we pay them with cash. And to generate cash, we must become good at selling our products and services in person, on the phone, and in our ads.

You might be wondering why so many companies use image advertising if it doesn’t work. Unfortunately, I don’t know the answer to this complex question either. Personally, I think Madison Avenue, where most of the world’s largest advertising firms reside, is a confused place. If you’re an advertising person on Madison Avenue, the most prestigious accomplishment you can achieve as an “ad man” is to win a Clio Award. Every year, Clio Awards are won by teams that make the most creative TV ads.

I find that criteria ridiculous. The only advertising person winning awards should be the person creating ads that make the most money, period.

Also, the incentives in the advertising industry are absolutely nuts. Most advertising agencies charge a 15 percent commission based on what they spend in advertising on your behalf.

Think about that for a moment.

If you have a teenager, would you give him your credit card and tell him that his allowance this week will be 15 percent of whatever he buys for you on your credit card?

What’s the incentive? The incentive is to spend as much of your money as possible. The more of your money advertisers waste, the more money they make. That’s just wrong.

Three features of direct response marketing that make it an ideal marketing method:

1.     Direct response marketing “sells” and asks prospects to take action to do business with you (without any guesswork on their part or silent hope on your part that your prospects will figure out for themselves why they should do business with you).

2.     All direct response marketing makes an “offer” to the prospect (either to buy, to call for more information, to make an appointment, or to visit your place of business).

3.     Because all direct response marketing includes an offer, you can track its effectiveness (and continue doing the marketing that works, and stop doing the marketing that doesn’t work).

It’s this financial accountability characteristic that makes direct response marketing an attractive marketing tool in a recession. Because direct response ads can be tracked (unlike image advertising), it turns marketing from an expense to an investment. Done right, direct response marketing is financially quite predictable. You invest $X to make $Y. While it takes a little while to figure out what X and Y are, once you figure it out, repeating the process is straightforward.

Think of it this way. If all of your advertising consists of image advertising, you can’t tell if it works or not. Therefore, marketing is treated as an expense because it actually is just an expense. If you’re a smart business owner, you want to minimize expenses, and your inclination is to reduce the amount of money you waste on (image) advertising.

But, if you are able to track the financial return on investment for every single direct response ad you run, your advertising money is suddenly accountable and becomes an investment. For example, by tracking your results, you will know for a fact that a postcard, website, or advertisement you created generated five dollars in sales for every one dollar you invested in it. It doesn’t take a genius to realize that if you can invest one dollar and make five dollars, you ought to do more of it.

That’s what direct response marketing enables you to do. It allows you to clearly see where your money is going and what it’s making for you.

Let me put it another way.

When you spend money on image advertising, it’s like having a sales force that’s paid on a straight salary and nobody is tracking what each person sells. You have no idea who is selling the most or who is selling the least. You have no idea which salesperson you should be sending your best prospects to and which salesperson you should probably get rid of. That’s the world of image advertising.

When you use direct response marketing, every advertising piece – every ad, every direct mail piece, every web page, every email, every fax, every phone call – is accountable. Every marketing piece is like having a salesperson paid on commission. You know precisely who’s making you money and who’s not.

Most business owners intuitively understand this when it comes to managing salespeople, but unfortunately they do not apply this same “common sense” to their marketing. Instead, they underinvest in marketing because until now they’ve been flying blind when it comes to knowing how their marketing is performing.

In the next chapter, I’ll reveal the magic words, or marketing message, you need to deliver to prospects to win them over as new customers. Getting the marketing message right is particularly important in a recession.

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