The Other Success Indicator

May 15, 2006  •  Post A Comment

By Adam Armbruster

Special to TelevisionWeek

“Increase my sales immediately!” is the cry we all hear often from advertisers.

Is it that a sales increase is the only, or even the preferred, method to measure an advertising campaign? Is there no other way to create financial success for a television advertiser?

Of course there is.

It’s profit increases.

How many companies constantly search out the next sales increase, only to report a poor financial “net margin” performance 12 months later?

Perhaps it’s time to discuss some of the basic points about how to market a business for an increase in profit as the success metric and not just for a sales increase.

In our experience, most clients are already generating adequate sales volume based on their overall investment. But what we most often see in these cases is that their expenses are simply too high in relation to their sales volume.

This can be a symptom of a broken advertising plan, and if that turns out to be the case, it’s important to fix the advertising plan before we can expect to generate a significant return over the previous year.

We’re also assuming here that the company leadership is interested in the profitability of the company and is not compensated based simply on sales increases. Since most companies in America are privately held, profitability is of paramount concern in most cases.

That being said, if a company is most interested in making money, then profitability should be a priority target over sales increases, since sales increases also bring with them increased expense.

The best way to start this analysis is to examine the clients’ industry profitability averages. Most trade industry magazines or organizations publish this type of information. Another way to get accurate information is to poll several other noncompetitive clients in the same field. You will soon begin to see some predictable averages of industry profitability.

Next, compare your clients’ profitability average with that of his top five competitors in the selected market. This data is often available through vendors or financial partners. It’s a simple step that may reveal a substantial opportunity for profit gain.

Choose the Right Media

For example, if your client is the lowest in profitability of the five, then it’s going to be relatively simple to generate a profit increase with a better-designed advertising plan. In contrast, if your client is first in profitability, another success metric should be applied. Usually, this involves market share increase.

So to begin, how does your media choice affect your profitability?

One of the great advantages of broadcast television is its very low cost-per-thousand-viewers delivery of audience. Simply bringing a retailer into television advertising can generate an immediate increase in business profitability because you already succeeded in bringing more prospects to the door at a lower cost per prospect.

But we need to go deeper into a marketing plan design to target a profit increase.

Merchandise selection is a key component to be discussed in the design of an advertising plan. Some clients may try to convince you to feature their slow-selling products in their TV commercial as a way of clearing it off the shelves. Try to convince the client that it is in his or her best interests to instead feature widely popular merchandise, since this will be the traffic driver for the entire campaign. It makes no sense to put the slowest-moving product in front of tens of thousands of viewers, since they will now judge your client’s business based on this impression of merchandise.

Pricing and product has a lot to do with the success of the campaign as well. Note: Some high-end advertisers will want to avoid advertising lower prices out of concern they will generate an unqualified consumer. Most often this concern is unwarranted, since today American consumers will cross-shop three to five different retailers within a product category. This is especially true in fashion-oriented products like furniture, apparel, homes and home improvement. A high-end advertiser that refuses to demonstrate its affordability to a mass client base is limiting its profitability, since many of these will be first-time customers that can be generated at a much lower CPM.

Last, the television program selection is the final step in building a profitable television marketing plan. Choosing programs based on audience psychographic composition, household income levels, lifestyle and brand orientation and finally the cost per thousand of the television show are all equally important.

You may find just as much profit success using an early morning news show as you will with substantial prime-time programming. Of course, all of these decisions are taken on a case-by-case basis. There is no such thing as a standard television marketing plan.

Helping a client achieve a profit increase has a dramatic effect, since it can take a substantial sales increase to generate a small increase in profitability. That said, it makes sense to view this proposition in reverse mode, with target of profitability increase first. Only after the net profitability of the company has improved does it make sense to go after a significant sales increase.

My view of business is this: First help the business examine its operating systems much more closely, since the sales increase will put stress on such systems quickly.

I hate to admit it, but I’ve seen businesses insist that they target major store traffic increases only to get them and then suffer the consequences of poor preparation. Case in point: One business generated a 50 percent traffic increase and saw sales decline 2 percent because it was not able to help customers coming into the store quickly enough and the overcrowded store was avoided by high-end shoppers.

So the next time your client insists on a major traffic increase, consider a profit discussion first. It may be the best recommendation you could make.

Adam Armbruster is a partner in the retail and broadcasting consulting firm Eckstein, Summers, Armbruster and Co., located in Red Bank, N.J.