Pretty much every small business needs to invest in marketing. But in this economy, when budgets are tight and spending is scrutinized, it’s often tempting to gut the marketing budget. After all, marketing spend is hard to track, and the return on investment vague and far off. Desperate times call for desperate measures, right?
Not so fast.
Before you take this potentially self-defeating step, you may want to perform a few experiments to see which marketing strategies work and which don’t. Why eliminate programs that make you money? And why keep the duds?
Now is a good time to put a little method into your marketing, says Wharton marketing professor and author Eric T. Bradlow.
“You have to be able to measure your ROI of marketing spend,” he says. “And for small businesses that has to be supplemented by understanding how quickly the return will occur. They have to understand the payback period. Ninety percent of small businesses go out of business in a year.”
Finding the best vehicle requires some testing, says Bradlow. “The best thing the internet and email, and now social networks allow you to do — unlike the old days when you’d mail out a campaign then wait for results — is rapid testing. “We’re not talking about weeks; we’re not even talking a week” for results that allow you to individualize your advertising and invest in offers that work best.
“If you go to places like Amazon,” says Bradlow “you’ll see they run millions of empirical tests a day in real time.” And any small business that uses the Internet to market its services can take advantage of the same analytical tools as Amazon.com.
But how do you decide what to test? According to Bradlow, that depends on your most important drivers. Below are some recommendations on how to assess this:
1. Identify three or four major factors that are most likely to drive sales. “You may need to talk to people,” Bradlow advises. “Ask your customers what drives them to you.” Low prices? Location? Your personnel?
2. With those factors in mind, make a list of all possible marketing tactics and determine which are most relevant to you. These could include changing price, offering free samples, and discounting. Note the three or four that are most relevant to your business. The answer could be a combination. “You may decide to drop price and increase ad spend,” says Bradlow.
3. Send out three or four sets of marketing emails, each with a different offer based on your most likely drivers. Keep everything else in the emails the same. That way you can test only the marketing tactics.
4. Measure the responses – sales, click-through rates, repeat business, etc. — to get an idea of which offers are effective. Then, tailor your future messages accordingly.
Making data-based decisions for a small business has to become a philosophy, says Bradlow. “There needs to be a decision that the company will not make decisions by the seat of its pants, but by data. It’s all about making data-based decisions,” says Bradlow, who is the co-author, with Keith Niedermeier and Patti Williams, of “Marketing for Financial Advisors” (McGraw Hill, 2009).