In this post, we are going to take a look at the economics of marketing, what you should spend on your marketing and promotion, and what you need to expect in return.
What is effective exchange? How much is effective exchange? How do you know you are getting effective exchange?
In today’s social media market, creating ads and hoping that paying for those ads aren’t costing an entire year’s revenue is a daunting task. It is so easy to just throw an ad up on Facebook these days. But done incorrectly, and you end up wasting a lot of money. In his series about effective marketing, Mr. Hubbard stated:
“Marketing is the activity of creating want which can be supplied and it enters into economics the moment that one acquires exchange for it. This is where it subdivides between marketing and economics. One has to market, so as to obtain an exchange, when one markets commercially.
“Therefore, any technology or activity which can create want to the degree of obtaining an exchange for it, for any service or commodity, is marketing.
“The second you start supplying goods, you’re into the field of business management, accounting and all the activities of industry.”
Marketing is an investment. After all, you’re putting your valuable money into something that may be unpredictable or risky, especially if you don’t know how to measure the success of your campaigns in the first place.
To avoid this vicious circle, let’s establish a few stable facts first.
The purpose of marketing is to create a demand for your products. By promotion, advertisements, internet banners or whatnot, you’re letting the market place in your area know that you’re there and you have something valuable or desirable to offer.
So far, so good.
Now, you may think that “creating want” for your product or service will be difficult. You may think that your product has to be special, or something that nobody else has, or something unique that people have never seen before.
Well, actually, this has nothing to do with whether you’re going to be successful in your marketing or not.
Example: The water industry is selling the most available commodity on Earth: water. They sell it for anywhere between $1 to 4$ per bottle. Water, which is freely available from taps and fountains has become an economic building blockbuster and a billion-dollar industry. That is marketing at work.
Bottled water is three times as expensive as crude oil. This is the result of intensive marketing which, among others, caused consumers to lose faith in the faucet. In fact, more than a quarter of bottled water is just processed tap water, including top-selling Aquafina and Coca-Cola’s Dasani. When Pepsi announced that it would clearly label its Aquafina water as from a “public water source,” it no doubt shocked everyone who believed that bottles with labels depicting mountains or glaciers delivered a superior product.
This shows that, with intensive marketing and a large marketing budget, you could sell anything to anyone, even the Brooklyn Bridge if you had to.
Another marketing success story. Nothing was more ordinary in homes than a cup of coffee, until Starbucks came along and made it a “cool” commodity and a billion-dollar industry. The core of Starbucks’s success was, what is called in marketing terms, the “cool-factor.” Coffee at home with mother isn’t cool – let’s face it. A quick cup from the office coffee machine isn’t cool – it isn’t tasty either… But walking around with a Starbucks cup is cool – according to the consumer.
The first Starbucks opened in Seattle, Washington, on March 30, 1971 by two coffee-loving teachers and a writer friend. Soon, normal coffee was transferred into “tall lattes,” “grande triple-shot pikes,” or “venti cappuccinos.” The premises themselves were made to look like English or Dutch coffee houses, the price of a cup was raised to $3 to $4, and off they went into the marketing stratosphere.
So it’s really not necessarily the product that determines your marketing success. Then, what is?
You may have heard of “ROI” – return on investment. It’s the difference between Marketing Costs and Marketing Returns.
With all other things you put your money into, marketing is an investment. And with any investment, you expect something valuable in return. In other words, the sole reason why you do any marketing at all is to earn a profit. Blunt, but that’s a fact.
If you were to invest in oil, gold, annuities or stocks, you would likely have someone to manage your account, track your investments and monitor the market to make sure your investments are paying off.
The same holds true for marketing and that brings us to rule #1:
Always measure and track your marketing investments in terms of cost and return. Someone in your company should be assigned to do this.
How do you calculate your cost and return?
In part 5 of this series, we will go over marketing ROI.