Saturday, September 18, 2010

Lessons I think I learned from advertising

Advertising might not be as important as it used to be in the past (at least that’s what I personally think, I will explain later), but advertising still has a place in a company’s business strategy. In this article, however, I will be talking more of the things I learned about advertisements from an entrepreneurial and financial standpoint.

Return on investment is still no.1

Some advertisements pay off more than others depending on the platform used to deliver the ad, the attractiveness of the ad, and who the ad is targeted to. I won’t be talking about ad attractiveness in this article, as I wouldn’t know what I’m talking about.

I will, however, say that depending on whom your target audience is, the platform used to deliver the ad can influence the effectiveness of the ad, and if possible, focusing your advertising campaign on what Adrian Slywotzky calls the share determining segment in his book “The Art of Profitability” can result in increased market share not only in the share determining segment, but the entire market for your product. An example of a share determining segment given in “The Art of Profitability” are medical specialists, that the prescriptions medical specialists write have an influence on the prescriptions general practitioners write.

In the end, companies advertise their products to ultimately get more profits, and companies (from small businesses to multinational corporations) have to think about advertising effectiveness in terms of the returns they can get on their advertising dollars.

Create value for customers

If memory serves me right (my memory can be faulty at times), the CEO of Amazon, Jeff Bezos once said in an interview with Charlie Rose that companies should focus less on advertising their product and focus more on creating a great product or service. I totally agree with this, and that’s why I said earlier in the article that I don’t think advertising is as important as it used to be.

Advertising might get you short-term revenue increases, but it’s the value that you create for your customers that determine the number of people you convert to loyal customers, which in turn determines the long-term profitability of your company. By satisfying your customers with a good quality product or service, you also set your company up for the best form of advertisement: word of mouth advertisement.

True, we might need some advertisement to build our brand, but things like great customer service, delivering on our promises, and quality products goes a much longer way to building a great brand for the long-term.

Adapt to change
About 99.99999% of the world’s population have a Facebook account (maybe I’m exaggerating a little), and companies will be wise to find effective ways to advertise their products on Facebook. I remember reading somewhere in one of the editions of Fortune magazine about an organic farmer advertising its products in the form of virtual produce in Farmville, a game on Facebook.

I’m not saying that every business owner have to use Facebook as an advertising platform; I’m just highlighting the need for companies to effectively adapt to change, whether it’s advertising, customer tastes, or etc. By ignoring change we might lose out on opportunities to grow, experience a long-term decline in our businesses, and give our competitors the opportunity to take market share away from us.

Hiring people with complementary skills

I don’t know how to produce an attractive ad, nor do I know stuff about a lot of things. But that’s ok. We might need to understand the business we intend to get into, but we don’t need to know every single business function to start and run a business, we just need to hire good people that have skills that are complementary to ours. We should focus on the things we are great at, and delegate the stuff that we’re not so good at to trustworthy people that can do those things well, as that’s how we unlock the most important assets in our business, human capital.

Have a long-term approach

Another golden nugget from Adrian Slywotzky’s The Art of Profitability, is that companies that continue advertising without cutting back during economic downturns are in a position, when the economy gets better, to increase revenues and profits at a faster pace than their rivals that cut back on their advertising. This highlights the importance of taking a long-term approach to any business activity.

If you have anything you would like to share, please feel free to comment. Thank you for reading, and may you always sustain good returns on your portfolio. Take care.