3 Ways to Avoid Marketing-Budget Traps
Inefficient allocation of marketing funds can result in inaccurate targeting, revenue loss, reduced productivity and even business closure, but there are proven ways of sidestepping these pitfalls, even in the midst of budget cuts.
Ineffective marketing and poor Internet presence are among the top six reasons why 75% of new businesses fail to become successful in the long term, according to U.S. Bureau of Labor Statistics research. Meanwhile, in a survey of 1,000 marketers worldwide conducted by Rakuten Marketing, respondents estimated they waste an average of 26% of their budgets on wrong decisions about channels and strategies. A last stat to consider: over the course of the year, companies have become more tight fisted: Gartner’s The State of Marketing Budgets 2021 report (based in part on a survey of 430 chief marketing officers from large organizations across North America and Europe) revealed that marketing expenditures as a percentage of revenue fell nearly in half in 2021, from 11% to 6.4%.
To improve efficiency even within this cost-cutting environment, companies do not always need to conduct extensive research, give up established channels or restructure marketing departments. We at Refocus discovered three ways to reduce costs and stay marketing-effective.
1. Take time to find out why customers “hire” your product
Some entrepreneurs and marketers mistakenly believe that Facebook and Google are fabulous fairies that can help launch a product easily and quickly scale it to other countries. In fact, this is not the case. Marketing is a science that carefully studies the lives and needs of customers, and it’s not only about determining a target audience by place of residence, interests and financial situation.
Before launching an advertising campaign, it’s vital to engage in in-depth interviews. This will help save thousands or even millions of dollars on ineffective activities.
When my company launched our marketing course in another country, we thought we would have three target audience segments: senior marketers, junior marketers and entrepreneurs. In the end, we found that, though we spent money advertising to all three, only one needed the product.
After the first ad campaign, we determined that attracting a customer was five times more expensive than expected, and so started doing what any marketing team would suggest: A/B testing of landing pages, along with changed creatives and experiments with channels. After that effort, we only noted a 30% reduction in lead costs, were dissatisfied with those results, and decided to go further, including inviting clients to help. We took twelve people from each segment and started asking them questions using jobs-to-be-done (JTBD) methodology. The idea of the concept is that different users purchase the same product for various purposes — or as they say in JTBD terminology, a product is “hired”.
For example, let's consider an iPhone: The first buyer hires it to demonstrate status. The second needs its camera to take high-quality pictures, while the third just wants a portable gadget to stay connected with family. Everyone uses same product for their own purposes, and the same applies to any business, whether it's a banking app, restaurant or clothing store. JTBD methods help find out what needs people satisfy in paying for a particular product or service.
Jobs-to-be-done methodology surpassed all our expectations by revealing that two of three tested segments were not suitable for us. For instance, junior marketers had no problem with finding a job because large companies hunted them right after graduation. Senior marketers required specific product instruction advertising in local channels, typically applicable only to their country. Our goal, however, was to create an MVP, so we didn't really want to go into product customization. As a result, we had only one segment left: We focused on entrepreneurs, who needed to learn marketing during the pandemic in order to bring their businesses online. We created a new website based on this information and also decided to get feedback from a potential audience before launching traffic. In the end we collected more than 300 comments from users regarding colors, fonts and other structure, and took them all into account.
2. Find your price-conversion balance
Have you ever shied from launching a new product because you thought its price was too high? Or, conversely, maybe you felt uncomfortable selling your brainchild at a low price, but the target audience, in your opinion, was not ready to pay more? There is only one way to know either answer for sure: test the proposition. First, do market research in order to understand what customers are looking for and what competitors are offering, and at what cost. This will generate awareness of the variety of prices and products on offer, and where you fit in.
Second, ask what result you want to achieve. For example, when launching a new product, some entrepreneurs set a low price in order to build market share. Others prefer to inflate cost to attract customers who can afford to pay for an exclusive product.
Here's how we tested course prices at Refocus: At one of the locations, we sold our course for $400 and spent $150 on attracting each client, then improved the content and raised the price to $1,000, with $100 more spent per acquisition. We continued the experiment, and it turned out that the most optimal price was $3,000, of which we spent $1,000 on customer acquisition. This allowed us to have an optimal unit economy, along with the budget to scale up and constantly research.
3. Optimize sales managers’ work
Fast order processing is an important part of a quality service, and a tested way of increasing audience loyalty. If it takes too long to call a potential customer back, he or she might have a change of mind and/or choose a competitor’s product while waiting.
Our benchmarks for communication speed:
• Excellent: Customer receives call back within five to 15 minutes after applying
• Acceptable: Customer receives call back within 15 to 30 minutes
• Alarming: A call back within 30 to 60 minutes
• Bad: Call back in more than an hour
In our experience, the longer the waiting time, the higher the possibility that a lead will not convert into customer (more than an hour cut conversions in half). To reduce callback time, try to implement automation of order distribution: 40% of managers with the highest conversion should receive 60% of lead volume. You also can test a motivation system (managers who call back faster receive a bonus).
Don't overlook this significant part of the sales funnel. If the company is large, one manager can’t tap into all the conversations, so allocate resources to implement a quality control system in the sales department. Quality control experts listen to the conversations of sales managers throughout the day, then grade from 1 to 10 according to a number of criteria, including script use, identification of customer needs, product presentation and handling objections. If a manager makes mistakes and gets rejected, the customer is passed on to the team leads and other managers with the highest conversion, who call him back. In our experience, this approach helped to reclaim about 10% of abandoned transactions.
No matter the size of the company, optimizing budgets should be a constant goal of a marketing department, so follow best practices, including research-based decision-making, tests and experiments, flexible pricing and proven quality control methods.
Entrepreneur Leadership Network Contributor