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Now is the time to increase your marketing spend

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Thursday September 22, 2011 at 9:30am

With reduced economic growth meaning potentially less buying activity from existing customers now is certainly not the time to cut marketing investment, indeed it is probably time to increase marketing spend in order to replace potentially falling sales.

However, for many, effective marketing can be elusive unless you go back to first principles. Proper marketing will enable you to identify your target customer, enable you to provide services that the customers want and enable you to retain those customers.

Understanding the Market in Which You Operate

When making decisions about increased expenditure it is helpful to step back and try to understand where you are and where you want to go. Fortunately there is a huge body of academic work that can provide useful starting points. Porter’s 5 forces model will help you to understand the intensity of competition within your marketplace. Three of the forces are concerned with external factors being the ability of new competitors to enter your market, the threat of substitute products and the overall competitive rivalry between firms in your industry. The other two look at the bargaining power of your customers and suppliers.

For many SME companies their competitive advantage lies in the resources available to the firm and how they apply those resources when delivering service to customers. It is generally better to target parts of the market where the resources available to your firm are superior to those of competitors as you immediately have a head start on the competition. Superior resources are often found in skills, knowledge and ability of employees and access to intellectual property that others do not have.

Such analysis is important when deciding where to spend marketing money. For most this process takes place intuitively based on experience and gut feel. However it certainly won’t do any harm to stop and take a more structured approach to marketing spend. Another important part of this thinking is to identify the right kind of customer.

Identify the target customer

For most companies, having customer acceptance criteria that takes on anyone with a pulse is simply not a viable business model. Because retail works in this way does not make it right for most SME businesses, especially those in the service sector. For many the limiting resource is time and whilst you are spending time dealing with the wrong type of customer you are foregoing the opportunity to deal with someone more appropriate to your product offering. Remember the 80:20 rule? The strategy is to identify which customers you can provide the best service to at your price point and then target just those customers. In this way you will establish particular skills for dealing with that sector or type of customer thus building barriers for others to enter your marketplace.

The problem with not having a structured approach to marketing

Assuming you agree with me, that now is the time to be spending money on marketing, this begs the question, how much and in what areas. Without a plan the money will either not be spent or it will be spent on the wrong things and so wasted.

If you don’t think about your marketing it is very easy to take on any customer that beats a path to your door without taking any control over who you sell to. Without a clear understanding of your competitive advantage and successfully articulating this to customers you will simply compete on price.

No SME company can compete on price over the long term; you will ultimately go out of business. You have to compete on superior service at a price the customer is willing to pay. If this message is acted upon you will need to know what your competitive advantage is as far as your customers are concerned. What are the resources available to your firm (like employees and specialist knowledge) that your competitors do not have? How strong is your brand as far as your customers are concerned? How is your industry structured in terms of competition, barriers to entry etc.?

So now is the best time to start thinking about what you need to do to target the right kind of new customers and provide services to existing customers to ensure they keep buying from you rather than someone else.

Andy Parker
Chartered Accountant and Business Advisor

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