When Making a Profit can be Deadly to your Business

In your marketing, is it necessary to always make a profit? Or to at least have profitability as your goal?

We’re not talking about charities and organizations whose goal is not to make a profit. We’re also not talking about “awareness” campaigns or ones in which your goal is to get people to sign up for a mailing list or something like that. (Some of these things have questionable value to begin with for most small businesses.)

So in cases where you are advertising and your goal is for the ad to generate sales, is it always important to make a profit?

The answer is a big fat NO.

In fact, there are some cases where making a profit from an ad can be deadly to your business.

It all comes down to knowing your average customer.

So this is a strategy that will work only for established businesses. New businesses need sales before they die in infancy.

With an established business that already has some customer base and a sales history, it pays to analyze that sales history.

If you know that, say 12% of your first-time customers stick around to become long-term repeat customers and your typical long-term customer stays with you for three years and spends an average of $3,000 over that time, then you logically want to get as many such customers as possible. It isn’t necessary to make a profit on the very first sale because you will stand to profit on each subsequent sale over the next three years.

Do you want to lose money?

Ironically, there actually are times when it makes sense to lose a bit to attract a customer. Grocery stores do this all the time. Say they advertise coffee for some ridiculously cheap price. They might even be losing a few cents on each can of coffee they sell.

Sure, a few customers will come in, buy the cheap coffee and leave. But most will come in for the cheap coffee and end up doing their whole week’s shopping while they’re there. A few may even go on to become regular customers, having been lured away from a competitor.

Most of the time, however, smart marketers want to price their initial offer so that they just break even. The money brought in from sales should be just enough to pay for the cost of goods plus the cost of marketing.

It’s an educated guessing game but if you can do it, you introduce yourself to a lot of potential new customers at zero cost to you. Some of them will go on to become long-term customers. Now you’ve just made a bundle in long-term profits at no up-front cost.

And all those people who take you up on your introductory offer but then never come back?

Well if you’ve done it right, those people cost you nothing. You made no profit but also lost no money on the deal. You also learned a lot about what will generate response and sales. It’s a win all around.

Knowing and understanding this kind of stuff is where a marketing strategist comes in handy.

 

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Billions and Billions Served

Savvy marketers have known for decades about the power of social validation.

Photo credit: Ken Mayer

Any time you see or hear a line like “4 out of 5 doctors prefer…” or “10 million satisfied users can’t be wrong” you are being plied with social validation.

While going against the grain may be a good strategy for investing, when it comes to finding products and services to actually use, it often pays to follow the crowd.

When you pull into a restaurant parking lot and find that it’s empty, alarm bells should be going off. Either they are not serving yet, the food is terrible, the prices way too high or some other thing but if no one is eating there, you can be sure something is wrong.

With the explosion in smartphones, mobile communications and computer technology, crowdsourcing has taken off in a way that it never could before. Sites like Yelp enable users to post online reviews for all manner of products and/or services.

There are a bunch of terrific new apps coming out which take a slightly different twist on the concept. So let me list a few of my favorite crowd-enabled apps and websites.

1. Gas Buddy

This smartphone app, available for all smartphone platforms, will help you find the lowest gas prices within a 10 mile radius of your current location. Its millions of users are invited to report and update gas prices for any station they visit or pass. The app will tell you how recently prices for a given station were updated so you have some idea how accurate they are. You can also sort listings by distance or by price and even view stations on a map. This free app has saved me a bundle of money!

2. Waze

A GPS app that I’m absolutely in love with. It is available for iPhone, Android, Windows and Symbian. Beyond being merely a GPS with voice directions (by the way, the voice comes in your choice of both genders and over two dozen different languages!), Waze offers so much more. It alerts you when you are approaching traffic cameras, disabled vehicles, accidents, police speed traps, construction zones and so much more. It will even try to route you around these things whenever possible. Every Waze user is invited to submit reports of things that may affect driving conditions. Those reports are then sent to other nearby drivers who can corroborate or refute them.

You don’t even have to use Waze as a GPS. Simply turn it on when driving on familiar roads and leave it running in the background. It will not give you turn-by-turn directions (you don’t need them on familiar roads) but it will still warn you about road hazards ahead. This app saves me so much time and aggravation.

3. Indiegogo

This is really a website rather than an app. Its purpose is to enable small charitable fund drives, though there is no screening as for what constitutes a charitable cause. Users can request funds for anything they want from starting up a band to running a homeless shelter. You simply say how much money you want and what you intend to do with it. Others can decide for themselves whether or not they care to donate and how much to give. Users could give anything from a few cents to many thousands of dollars. It’s a great way to collect donations.

4. Quirky

A website that facilitates crowd-enabled inventing. Someone comes up with an idea for a new product and others can vote for it, thus endorsing it as a good idea, or even contribute refinements and improvements. Once an invention has been sufficiently refined and is deemed popular enough to be a likely commercial success, funders will help the inventor(s) bring it to market. Many extremely clever inventions that were developed in the Quirky community are also offered for sale on  Quirky’s website.

There are many other examples of ways in which technology is enabling the collective wisdom, observations and experiences of the larger community to improve the lives of all. Share your favorites below so everyone can benefit!

6 Things You Probably Do Wrong With Mobile

Note: If you haven’t read the chapter from our book about Smartphones, you really should. This article builds on the information in that chapter.

It’s amazing how many companies get mobile wrong. Even very large, otherwise sophisticated companies.

For instance, I have an app from one of the largest banks in the world. About half the functionality is well designed and useful while the other half is simply awful. It’s so bad that I’m constantly tempted to just get rid of the app altogether.

There are a handful of things that companies regularly get wrong when designing mobile apps:

Photo courtesy of Cori Redfdord

1. Too Much Information

 TMI isn’t just about knowing that your mom was a party girl in her day. It’s vitally important to really consider how your mobile app will be used in the real world. Users will try to use it while walking down the street. Despite the stupidity of it (and laws against it), some will try to use it while driving. Even barring these, users are reading off a small screen.

In the name of all that is holy, you need to pare down the information you present to only that which is absolutely vital. If you hope to also keep it interesting and readable, you really need to hire a copywriter who excels in writing that is highly accessible, simple and interesting.

2. Too Many Steps

Hand-in-hand with too much information, many companies try to cram in far too much functionality. In the process, they create far too many steps to get any one thing done. People don’t want to climb the stairs. They want you to build them an escalator. Or better yet, a private elevator with a butler and someone to massage their feet and feed them grapes during their ride to the top.

How many is too many? Six steps may not seem like a lot, but it’s unquestionably too many in the world of apps. In fact, four is about the limit and you’d do far better sticking to three or less.

That’s why it’s so important to carefully plan what you want your app to do and get design input from both a copywriter and a designer. Or ideally, save yourself some money and hire someone who does both.

3. Hard to Navigate

Photo credit: J. Ronald Lee

If your app requires a user manual of any kind — even if they’re as simple as the assembly instructions for Ikea furniture — it is far too complex.

The most inexperienced user should be able to pick it up and make it do something useful with zero instruction. In fact, taken to its extreme, get a user who doesn’t speak or read English and see if he can navigate your app.

One of the things that frustrate me about several of the apps I use is that they send me “push” notifications. Even as a savvy computer user, I cannot figure out how to turn these off or change the settings for them. I’ve been backwards and forwards through these apps and they are simply a mystery.

It isn’t that you can’t adjust the settings, it’s that the adjustments are all so cumbersome and non-intuitive that I can’t figure them out.

4. Not Compelling

Even if your product or service interests me, if your app adds nothing to my life then why should I use it?

If all your app does is rehash and present information that’s easily obtainable from other sources, what is its purpose?

Don’t try to sell applesauce to an apple grower!

Even insurance companies, an industry known for being boring, make popular apps by adding utility to them. They let users keep policy information, offer checklists of things to do in an accident, give reminders… all sorts of helpful functions.

5. Resource Hog

Loads of video, huge pictures (remember, cell phone screens are small), the need to constantly be connected, large file or database sizes… all add to the “weight” of an app. You want your app to be a dainty preschool teacher, not a sumo wrestler.

Imagine an app that offers medical advice. I’m out hiking in the mountains and fall, suffering an injury. When I check the app for advice on treating my injuries I find that I must be online to get any useful information. Being in the mountains I have no signal. The app is useless to me.

The principle holds for almost any kind of app. If being connected to the internet is mandatory, you’ve just reduced the utility of the app considerably. If it takes up a lot of space on my phone, or if it runs slowly because it requires so much memory or other resources then I will hate it and will tell everyone I know how terrible it is.

6. Poor User Interface

Photo credit: Shawn Rossi

Look at your fingertip. Notice how large it is, relative to the size of your cell phone screen. If you make menu items too small or too close together, I will forever be clicking the wrong things.

Remember the game Operation? Now try playing that while holding the operating table in one hand and while walking down the hallway. If the guy’s nose lights up your whole company just lost the game.

Likewise if you include elements that are not resizable. I will grow frustrated.

Force me to conform to some predetermined path rather than just let me get to the information or functionality I want and I will definitely uninstall your app.

The Wrap-up

Remember, your app is like an employee. It represents your company. You wouldn’t tolerate an employee bad-mouthing the company to your customers. So don’t let your app do the same thing.

If you make a great app, word will spread and people will use it. Make a terrible app and be prepared to pay a terrible price.

While an average app may not generate the social media equivalent of hate mail or bad press, you won’t be doing yourself or your company any favors.

Hiring an expert to help you design and create your app is a small investment that will yield big benefits.

 

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Is it money well spent?

Let’s take a look at two examples of non-traditional advertising.

Both of these are real-life examples that I have personally seen in the area where I live. They are for different companies in completely different industries but that won’t matter for our purposes.

The first is a company that does heating and air conditioning service. They are large and well-known in our area.

The company has hired an airplane to fly around towing a large banner. The banner has the company’s logo and a short list of the three major services they offer.

That’s it.

No phone numbers, no email, no website, no address. No contact information of any kind. Just the logo and the short list of services.

The plane is sometimes up for hours at a time. Sue and I have seen it at least three times.

We both wonder if the owner of the company isn’t also the owner of the plane. And if he isn’t personally flying around getting some “free” advertising for his company since he’s up there flying anyway. That’s the only way this sort of advertising makes sense. Otherwise, it seems that the company is wasting an awful lot of money.

After all, who’s going to look up, see the banner and think “Hey I need to get my heater serviced. I think I’ll call those guys. Oh it’s okay that there’s no number, I’ll go out of my way to look it up. After all, they were so clever to have hired that airplane to buzz around towing that banner all day long.”

Yeah. It’s never going to happen.

The second example I have is for a very well-known insurance company. They are a nationally recognized brand. The states in our area all have some variation on a “highway service patrol”.

They are called by different names but it’s basically a fleet of trucks owned and operated by the state Department of Transportation. The trucks carry gasoline, water, an air compressor, jumper cables and some tools for doing minor roadside repairs. When they find a motorist broken down by the side of the road, they stop and try to help.

In a couple of states, these vehicles are “sponsored” by this large insurance company. The company’s logo is displayed prominently on the trucks.

So prominently, in fact, that many motorists probably assume that the company owns and operates the trucks and that the trucks serve only policyholders for that company. It isn’t so but if you believe it is and are concerned about breaking down, it’s the sort of thing that might make you give added consideration to that company when deciding who to insure with.

So we have an HVAC service company being touted by a flying banner and an auto insurance company sponsoring highway repair vehicles.

There’s no apparent correlation between the first company and the type of advertising they are doing while a logical correlation exists between the second company and its advertising.

Must there be a correlation between the advertising you do and the product or service your company offers? Actually yes. You want your advertising efforts to reinforce the core offering of your company. In effect, the relationship between ad and service becomes a part of the advertising message itself.

Anything less is not money well spent.

Selling what you want to buy

Photo credit: Kevin Dooley

Orbitz is taking some flack for presenting higher priced options to some users, based on what type of computer they are using.

Being completely fair to Orbitz, the prices themselves are no different. Only the way in which they’re presented.

To use simple numbers, let’s say that Orbitz has 20 hotel rooms that meet your search criteria. It also knows from prior experience that users of one computer system typically prefer to book “better” rooms than users of another system.

So Orbitz checks which system you have and changes the order in which those 20 rooms are shown based on that.

All the rooms are the same and the prices are the same no matter which system you’re using. The only difference is the order.

Users of one system will see nicer (read: more expensive) rooms nearer the tops of their lists while users of another will see more economical rooms nearer the top.

All users, regardless of system, are free to change the order of the list once it’s presented.

There is a huge outcry over this.

Why?

Mostly it’s a knee-jerk reaction.

Some people didn’t even realize it was possible for a website to know what kind of computer system you’re using. They find out and then fear some kind of Orwellian 1984 world in which Big Brother is watching their every move.

Others may fear that they’re being bilked for more money than another consumer who is shopping for the exact same thing.

Not true.

To use an analogy, grocery stores place more popular or profitable cookies at eye level. Higher priced or “premium” cookies tend to be nearer the end of the aisle. In fact, not just any end but the end closest to the checkout lanes. Store brand and off-brand cookies are down near the floor.

We’ve all seen this and many even know it’s a deliberate arrangement, yet no one questions it.

The reasons are more complex than most people realize.

Certain people place a higher value on their time than on their money. At least up to a reasonable point. Having to maneuver halfway up a crowded aisle, fighting their way around other shoppers, and navigating 150 different cookie options is a big hassle. How much might they save? Forty-three cents? That’s not worth the time and stress so they’ll grab the more expensive cookies from near the end of the aisle.

(These cookies are near the checkout end for the very same reason; the people most likely to choose them are also most likely to avoid the back of the store altogether. They just want to get in and out as quickly as possible.)

I don’t see how what Orbitz is doing is really any different.

If, demographically speaking, people just like me show a much higher propensity for ordering something in red, why would you show me lots of blue ones? If you already know I’m a size medium, why show me clothes that you only have in stock in XXL?

In the future, nearly all shopping experiences will be custom tailored to the shopper. Especially online. Smart sellers are doing this already and so should you.

 

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