Retail Merchandiser

Every once in a while, I hear a CEO quote the old saw about advertising: “I know half of our ads are working. The problem is I don’t know which half.” There’s absolutely no reason and no excuse for having advertising that doesn’t work. Unfortunately, most advertising doesn’t work. And the reason is pretty simple: people aren’t clear on what advertising is supposed to accomplish.

Is it supposed to make more people aware of the brand? Win awards for creativity? Increase sales? Increase profits? In my experience as an executive and consultant, I’ve come to the conclusion that the three goals of advertising are to:

 

1. Give your core customers a reason to keep buying from you
2. Give your must-have customers a reason to start buying from you
3. Increase the company’s sales and profits

Just a reminder about the definitions of core and must-have customers. Core customers are a company’s most loyal customers, the ones who love the services or products sold by your company and are willing to pay a fair price. Must-have customers are people who could become core customers, but they currently do business with the competition.

Measuring effectiveness
There are only three measures of advertising effectiveness. Each of these three factors can (and must) be measured accurately. Unfortunately, too many CEOs, marketing managers, and ad execs don’t believe that, and they don’t even try.

• Did my core customers increase their spending with my company after seeing my advertising?
• Did any must-have customers start doing business with us after seeing the advertising?
• Did the ads generate a net profit?

Remember the Energizer Bunny, the Claymation Raisins, and the Taco Bell Chihuahua? These are three examples of advertising that almost everyone remembers but weren’t successful at increasing brand awareness or generating profits.

Energizer used the bunny in more than 50 ads and spent tens of millions of dollars making him a recognizable advertising icon. Unfortunately for Energizer, 40% of consumers believed that the bunny was the mascot for Duracell.

The California Raisin Advisory Board’s Claymation raisins were a hit from the first time they belted out “I heard it through the grapevine.” People loved them, talked about them, and even bought raisin dolls for their kids and themselves—but they didn’t buy raisins. Four years into the campaign, sales were lower than they had been before the ads started.

Taco Bell introduced the Chihuahua in 1997, and in 1998, sales were up 3%. Like the Energizer bunny and the singing raisins, everyone knew the Chihuahua. But by 1999, Taco Bell’s same-store sales were down 6%. Eventually, the company retired the Chihuahua to the doghouse.

There are all sorts of ways to reach people. But even if you had the budget to do what it takes to reach everyone in the country (or your neighborhood, county, state, or even the world), it would be a huge mistake to try. You might be able to get your ad into 90% of US households, there’s no guarantee that anyone would pay any attention to it.

To deliver your message, you need to put down your shotgun and pick up a rifle. The shotgun approach to advertising is to blast the same message out to everyone everywhere and hope people buy what you’re selling. The rifle approach involves very carefully targeting your core and must-have customer with a message that’s relevant and meaningful to them.
    
Measure plus over normal
Whether you advertise on the Internet, television or radio; run ads in newspapers or magazines; or send out direct mail flyers or catalogs, you can measure the effectiveness of your campaigns. Over the course of two decades of analyzing advertising effectiveness, I’ve seen a number of tracking systems with very sophisticated algorithms that attempt to account for every eventuality. But I’ve yet to see one that works well, or that a company has used for more than a few months.

For years, I’ve used a system called Plus Over Normal. It works like this: every ad is benchmarked against the normal business trend line. The lift from the ad in sales dollars, units, gross margin dollars, or new customers can then be evaluated.

A word of warning: it’s essential that you track sales and margins. Using the Plus Over Normal model, I’ve discovered it’s quite possible to increase or maintain sales levels while actually decreasing profits. For example, items can be put on sale, but if unit sales stay flat, margins drop by whatever the price reduction was times the number of units sold.

You might think this type of performance is unusual. The unfortunate fact is that based on a number of analyses my company has completed, negative results based on faulty advertising are more the norm than the exception.

I suggest that you use a variety of ways to evaluate your advertising. Here are a few methods that work extremely well:

• Code each ad. Have you ever seen commercials that tell you to call the 800 number and ask for “Operator 123,” or mail-in coupons that are addressed to Department 456? Those are internal codes that let the advertiser know which of its ads are generating what response
• Do single-item ads. After establishing the baseline for a particular product, run an ad for it and don’t do any other promotion.
• Stop advertising. If you’re running a campaign and don’t have a baseline, the only way to establish one is to stop all advertising in all or some of your markets and see what happens to your numbers. Several of my clients have done this and have been horrified to find that their sales didn’t change at all. And when you factor in the cost of the ads, they were better off not running them at all.

If your advertising isn’t working, find out why. The most effective way to determine why advertising doesn’t work is to ask your core and must-have customers. You’ll want to pose questions like these:

• Have you seen or heard any advertising for (the name of your business category) in the past 30 days?
• Where did you see or hear the advertising?
• Who was the advertising for?
• Did the advertising cause you to seek more information or actually purchase the product?
• Did you purchase any additional products?

The bottom line is that you can discover which half of your advertising is working. Then you can replicate the successes, which means you’ll get your money’s worth from your advertising dollars. When you communicate effectively with your must-have customers, you will increase your company’s sales and profits.

Robert Gordman is president of The Gordman Group (www.gordmangroup.com). He is the author of The $uper $weet $pot: Building Sustained Profitable Growth and The Must-Have Customer: 7 Steps to Winning the Customer You Haven’t Got, named one of the 10 books you should have read in 2006 by Ad Age. His clients have included senior management of Fortune 500 companies, including Berkshire-Hathaway Retail, IBM PC Company US, Weight Watchers, and Whirlpool.