This is no time to cut your ad spend
By Gordon Hecht, Contributor
Inflation is an equal opportunity problem. It affects everyone. Your shoppers, suppliers, employees and people in the business next door all feel it.
While money management is always a critical factor in your business’ success, it’s more important to make sure that every dollar you spend is providing maximum value.
There’s not a lot you can cut back on. You must have fuel to run your delivery and service fleet and you have to offer competitive wages and hours to keep good employees. You need insurance and must pay the tax collector. And you while you may be able to bump up the temp on the A/C a bit, you still need to have lights and water.
Just like the recession of 2008 (and 2001, 1991 and 1979), you may decide that it’s time to cut back on your advertising investment. After all, conventional wisdom indicates that people aren’t shopping, and if they are, it’s for low-price, low-margin merchandise.
During each of those high inflation periods, many businesses cut back on advertising and marketing costs. They were more solvent in the short run, but in the long run, they lost market share, sales, employees and eventually did not survive. In almost every market, the three top promoters survived and expanded their market share:
1979: Kmart, Walmart and Target grow. Woolco begins shutting stores.
1991: Ford, GM and Chrysler survive the recession. American Motors does not.
2001: JCPenney, Sears and Dayton Hudson survive. Montgomery Ward disappears.
The winners all promoted their name, value and merchandise. The losers kept that information a secret.
“Sure, it’s good advice, but advertising is expensive, and I can’t afford it.”
Back in the last century, advertising was expensive — and wasteful. You’d buy a newspaper, radio or TV ad and, depending on your market, 100,000 to 1 million consumers would see it. Problem was, 95% of them had no intention of buying your product, at least not for the next few months. And between rounds of martinis ad execs would chortle, “Half of all advertising money is wasted; we just don’t know which half.”
In 2022, advertising to your potential buyers has never cost less. Today you can focus on your exact target audience and reach them before and during the buying-decision period, all for an amazingly low cost. For the weekly price of a couple of movie tickets, you can direct your message to 2,500 to 3,500 potential buyers within five miles of your store, just by boosting posts on Facebook.
For the monthly price of a big-screen TV (and a good one at that), you can align with a digital marketing company — AVB Marketing comes to mind — that will make sure people shopping online see your store, its website and your advertising message. And for about the same amount, you can be a major advertiser on streaming services, delivering your message directly to the neighborhoods where your shoppers live.
You see, it’s not how many people see your ad, it’s how many potential and active buyers see it.
“Should I spend big bucks to promote low-price merchandise?”
The answer is a firm yes and no.
The largest group of people buying right now are people with money. It was true during the last three economic slowdowns and it’s true now. Manufacturers are seeing an uptick in demand for premium goods and that should continue for the balance of this year. Retailers who promote big-ticket items packaged with incentives or no-cost financing will continue to enjoy larger average sales tickets.
It’s also a great time to make a value statement. Last year I declared the death of the $299 mattress. It’s probably time to swallow a 30 margin on a starter bed and use it to drive traffic to your store. You won’t make a lot of dough at $299, but you gotta have a “be” before you have a “be-back.” What’s more, adding in a few extra door swings and a couple more written sales will boost the morale of the sales staff and remind them that they still know how to sell.
“Last time I promoted a low-price mattress we didn’t sell any!”
Yes, that sort of thing happens. Don’t confuse advertising with selling. The job of advertising is to drive shoppers to your store and website. The job of the sales team is to convert shoppers to buyers.
Advertising effectiveness needs to be measured. Start with ad cost per guest, as you need to know how much it costs to bring in each shopper. You calculate that by dividing your total ad budget by your store traffic count. (You are counting “ups,” aren’t you?) Next is ad cost per sale, calculated by dividing ad cost by the number of sales orders written. Lastly, measure your advertising’s return on investment (ROI) by dividing ad cost by total dollars sold during the promotion.
And don’t judge ad effectiveness by a specific merchandise item; rather, look at the total sales that the ad campaign brought in.
“How can I guarantee that my investment will pay off?”
You already know the answer. Retailing is a gamble and there are few guarantees, but you can improve your chances for success. Be sure to thoroughly rehearse the ad with your sales team. That means knowing where each item is on the sales floor; the inventory and order time; your step-up and step-down merchandise; and the accessories needed to enhance product enjoyment.
You can also reduce your investment by utilizing any dealer co-op funds that are available to you. It may take a few minutes to submit bills and ads, but those few minutes can pay off big!
Ladies and gentlemen, please fasten your seatbelts. There are some rough roads ahead and the best way to get through them is by putting the pedal to the metal. Full speed ahead!
Gordon Hecht is a business growth and development consultant to the retail home furnishings industry and a regular contributor to YourSource News. You can reach him at Gordon.Hecht@aol.com.