Advertising Basics for Business 3

Reprinted with permission from Janet Attard* Copyright 2004. All rights reserved.
     
What do I need to know about my customers to choose the right advertising media?

You need to know as much as you possibly can about customers' buying habits and interests. How old are they? Where do they live? Where do they shop? Where do they look for your type of product or service? Do they normally buy what you sell through the mail? What kind of publication are they likely to look in when they want information about what you sell? A phone book? A special interest or trade magazine? The ads in the Sunday newspaper or the weekly shopper?

How many responses do magazine ads get?

Advertising in the kind of magazines you see on the newsstands generates far fewer responses than most people imagine. Although response rates vary greatly, experienced marketers often find that a well-written ad placed in carefully chosen publications will get a response of about one-tenth of 1 percent of the media's audience—or less.

If the ad or the publication isn't right for the audience or what is being sold, the response rate can dip much lower. One entrepreneur placed an ad for a $39 item in a magazine that had a circulation of 600,000. The ad asked people to send for more information, rather than to place an order. He got only 72 inquiries, and although he immediately responded to each inquiry by mailing out a package of literature, only 3 out of the 72 people who responded to the ad actually bought his product. Needless to say, he didn't repeat his ad.

Why do businesses advertise if the response rate is so low?

Advertising is a numbers game. Some businesses can make a profit on a low response rate. Suppose, for instance, you spend $2,600 to purchase a full-page ad in a publication that reaches 250,000 people who are likely prospects for what you sell. You are charging $19.95 for your product and get 250 orders (a response rate of one-tenth of 1 percent, or .001), totaling $4,987.50 in sales ($19.95 × 250). Each product costs you $5.80, a price that includes manufacturing, packaging, and shipping costs. Thus, filling the orders would cost you $1,450 (250 × $5.80).

Your total costs would be: $2,600 + $1,450 = $4,050
Your cost per customer would be: $4,050 ÷ 250 = $16.20
Your profit would be: $4,987.50 - 4,050.00 = $937.50

While $937 isn't going to make you unbelievably wealthy, if the ad brings in approximately the same number of responses every month, that one product would give you a profit of more than $ 11,000 over the course of a year.
Furthermore, people who use mail order to sell goods rarely have just one product. They have a line of products and use their ads partly to "buy" the customer, since every person who responds to one ad is a likely customer for other products a company sells. Most companies find that they make most of their profits by making repeat sales to their existing customers. Once they start to accumulate a lot of names, they also make money by renting their customer lists to noncompeting companies.

You must be able to afford to experiment, however. If either your ad or the publication is off target, you may get few or no responses to the ad.

Should I experiment with classified ads in magazines to save money?

Many businesses use classified ads in magazines to get new customers since the cost of these ads is much less than the cost of display (big) ads. But usually they use classified ads as a way to get inquiries, rather than a way to sell products directly. Since classified ads are too small to carry much information, people usually won't buy anything priced at much more than about $5 directly from such an ad.

Another drawback is that a classified ad may get fewer inquiries than a display ad, and your total cost per order is going to be higher because you have to send sales literature (or make a sales call) to follow up on the inquiries.

If the ad costs you $125 and you get 75 inquiries and send out a package of sales literature that costs you $1.00 each (including postage), your cost per inquiry will be $200 ($125 + $75). If four people who get your follow-up mailing actually buy your $19.95 product, you will take in only $79.80 ($19.95 × 4). If the manufacturing of each product costs $5.80, your cost of filling those orders will be $23.20 ($5.80 × 4). Your total cost for getting the ad, responding to inquiries, and filling orders will have been $223.20, or $55.80 per customer. Thus, you would have lost $143.40 on that one ad. If, however, you sold each of those four customers another $100 in merchandise over the next year, you would—in the long run—make money as a result of running the original ad.

Does advertising in newspapers work the same way?

Newspaper advertising is harder to target than ads in magazines since newspapers are sold to a much more varied audience than are most magazines. In addition, newspapers generally aren't kept around as long as magazines, though people occasionally do clip ads from newspapers and save them for several months.

You can target potential customers through a particular newspaper or weekly shopper by choosing certain distribution areas. Weekly shoppers, and even some large dailies, will sell advertising by region, charging varying fees depending on the number of people in each region and the total number of regions in which you want your ad to circulate. Weekly newspapers sometimes are put out by a publishing company that allows you to buy advertising more or less the same way—you pay one rate for one publication, another if you add a second weekly, and so on.

In choosing newspapers in which to advertise, think about the demographics of the distribution area. If you are selling in-ground swimming pool maintenance services, most of your customers are likely to be affluent, so you would want to be sure to advertise in publications distributed to affluent areas. Not all products sell well from newspaper ads. An ad for point-of-sale software might do well in a magazine aimed at retailers, but the same retailers might not see or respond to that ad in your local newspaper.  

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