Let’s face it. No small business is unique.
- What makes a small business stand out
- How to craft an advertising campaign
- How to measure the effectiveness of an ad campaign
Profitable small businesses are those that can charge relatively high prices for products that are cheap to obtain or to make. The key is to make our potential customers want to give our business their money instead of going across the street and using it at another business that sells the same thing that we do. Convenience and location will only get us so far. Effective marketing will get potential customers in the door or to our website to spend their hard-earned money with us instead of our competitors.
To get potential customers to know we exist and what services we provide, we must have an effective advertising campaign. In order to wage a quality advertising campaign, we need to do five things:
- Identify our business’s unique selling proposition.
- Target a specific niche of our market that you want our campaign to speak to.
- Develop a message that makes our target customer say, “Wow, this is for me!”
- Deploy our message where it will reach the target customer.
- Measure the effectiveness of each ad campaign and iterate.
Identifying our business’s unique selling proposition requires some introspection. How do we stand out from the crowd? Especially in a business where we are selling a commodity like coffee, we must position yourself in a way that’s different from the others in our area. What is it that the customers that we want in our store desire?
Let’s imagine that we’re running a coffee shop. We are near a university and many of our customers are students. In order to be unique while selling a product that anyone could get at a gas station, we need to sell something other than the coffee itself. With that in mind, our shop will have a comfortable sitting area with interesting looking tables. We will serve lattes with elaborate foam art. The interior design of the shop will be one that lends itself to being an Instagram backdrop for photos taken in our shop.
By taking these steps, we are no longer selling coffee. We are selling the experience of coming to our shop. Coffee is the price of entry for the people that come in looking for this experience. Because it is the experience that we are selling, we can charge more than a gas station can for a relatively similar cup of coffee.
Two things that we should never base our uniqueness on: price and quality.
Competing on price will drive margins down to (or below) zero. Unless we have the financing firepower to undercut our competitors while losing money for years, this is a losing strategy. Price competitions are best left to the massive corporations like Wal-Mart and Costco.
Competing on quality suffers from a different problem. A customer is unable to judge quality until after they’ve made their purchase. So while quality is important, it is primarily a driver of customer retention. Every business is going to say, “Our product is the best.” It’s our goal to stand out. Claims of high quality are not going to get this done.
Small local businesses do not have the cash needed to saturate the airwaves with an advertising campaign. Our resources require that we are more targeted and efficient. Even if a product holds a wide appeal like coffee or toys, each advertising campaign needs to be laser-focused on a small, identifiable group of people within the larger market. Focusing on a small group makes it more likely that you maximize the bang you receive for each buck spent on advertising.
For our coffee shop example, we need to choose a small segment of coffee drinkers that we think we can drive into our aesthetically pleasing shop. We cannot hope to excite all coffee drinkers with one generic ad. Let’s focus on young adult coffee-drinkers that also desire the status that comes with an active Instagram profile.
Once we’ve identified our target and thought about what this group is after, it is time to craft the message that we want to deliver. Effective advertising uses short, direct phrases that cut directly to the chase. They often use powerful, emotional language and words like “love”, “hate”, or “money”. People don’t like to read, so keep it brief and informative. Don’t be wishy washy.
We know from research that people are more interested in avoiding pain than they are in seeking pleasure. If we can demonstrate how our business solves a pain point in a potential customer’s life or in a purchase, this can be a very effective advertising message. This can be as simple as free delivery of a mattress (how many of us are capable of driving away from the store with our newly purchased mattress and getting it in our house?). Solve a customer’s problems and they will be willing to pay us more than rock-bottom prices for our products.
Bad marketing focuses on the product being sold or the business that is selling it. “We sell these toys!” or “Our cafe sells coffee of the highest quality.” These are weak and focus inwardly on the vendor.
An effective message is directed at the customer and demonstrates how our product will solve a problem for them. “Forgot about that birthday party? Pick up your last-minute gift today!” Here we’re focused on a small subset (busy parents of young children giving toys as gifts) of our market (toy buyers). We identify a problem they have. In this case, that is the lack of time or mental space to prepare a gift purchase in advance. And we demonstrate how we solve that problem, offering toys for curbside pickup at a store location if you order online.
We need our message to be so specific to our audience that the intended customer sees it and thinks, “Wow, this is speaking directly to me. I need this exact thing.” That moment is when you’ve struck gold with an advertising campaign.
Equipped with a well-written message directed at a specific small niche of your total market, we now concern ourselves with what medium to use to deliver this message directly to your potential customers. A perfect advertising campaign will fail if no one sees the message. There are tons of places to put advertisements:
- Radio commercial
- TV commercial
- Social media
- Direct email
- Web Browser
- Telephone marketing
The list goes on forever.
We need to ask ourselves, “Where is this group of potential customers that we are after going to be most likely to see our message?”. It is also important that the customer is able to quickly act on it so that we’re not relying on them to remember our message days later after it has faded from memory.
Going back to our coffee shop example, Instagram may feel like the best place to advertise to a college-aged adult that cares about how they are viewed by their followers. Properly gaming the algorithm to get an Instagram ad in front of the intended audience can be tricky for a small business that doesn’t have the marketing firepower that a large corporation has. It is more practical to use Instagram’s search feature to find the type of high-status user at a college in your local area that we want to attract to our cafe and offer them either cash or some sort of benefit at the cafe to post an organic ad directly to their Instagram page.
A toy store that is focused on busy parents without the time to plan ahead to get birthday gifts will require the use of a different medium. In a large city where public transportation is used frequently, an effective place might be a poster at the subway stations in your area. In a smaller town, we might put a sign up outside a heavily trafficked area in our town like outside of a grocery store. Remember, these are busy parents running errands and taking care of their children. We have to go to where they are and where they will be able to see our message.
You might think that our advertising campaign is over once we’ve purchased the ad space and crafted our ad targeted at a specific corner of our market. If we stop here, however, we will never know the value that the ad contributed to our business. We won’t know if we should run the same ad again later, if there is something that can be tweaked to make it better, or if we need to place the ad in a new location to get more traffic. We need to measure the effectiveness of our ads by tracking the amount of advertising dollars spent to gain a single customer (Customer Acquisition Cost or CAC) and the amount of value that the average customer will generate for our business (Lifetime Value or LTV).
Lifetime value is the present value of all of the profits that a customer will generate. It is easier to measure in a recurring revenue business where you are receiving monthly payments for an ongoing service. It is a little bit harder to estimate for a retail store like our coffee shop or our toy store. Conservatively, we will estimate that the LTV of a new customer is just the average receipt of a first time customer. Any value beyond that first receipt will just be bonus for our business.
Customer acquisition cost is the total cost of the advertising campaign divided by the number of new customers gained from the campaign. This is the main number that we are focusing on when we are deploying our advertising campaign. If we can get CAC below LTV, then we have a winning campaign. Drawing this to its logical conclusion, when CAC is lower than LTV, we are spending less money to acquire each new customer than we are making from the profit our business makes from each customer. The wider the gap, the more money our advertising campaigns are making us.
Forget about setting a budget for advertising. As long as we are making more profit than we are spending to acquire a customer, we should keep doing it as often as possible.
The important thing is that we continue tinkering with our advertising campaign. It can be a word change in the message or a change of the medium or a change of the target audience. Keep tinkering until you find these winning campaigns where you are spending a little money to make a lot of money and your business will grow exponentially.
Thank you so much for reading. Most of these ideas are from the book, The 1-Page Marketing Plan, by Allan Dib. I highly recommend this book for small business owners.