Marketing for Operators

by CRP Partner Gene Baldwin
as published in Franchise Times

Advertising and marketing are difficult subjects for most multi-unit operators. The reason for this, in my opinion, is that the costs and return on investment from those expenditures cannot be managed or measured in the same way as other expenses on the income statement. Here are some examples. A good operator can build a new store, spend a defined amount and, if the location is reasonable, generate a somewhat predictable return on investment. A new product can be introduced and, if there has been adequate testing, mix and gross margin can also be predicted with some accuracy. Cost of sales and hourly labor costs are generally micromanaged and even the smallest variance is cause for great concern. For example, most operators will spend lots of time and energy trying to save 0.1% of sales in packaging costs or agonize over how to reduce hourly labor by 2-4 hours per week.

On the other hand, when a marketing plan is presented, the message usually goes something like this: we need to run several flights of media this quarter to support our marketing plan and the costs will be $25K for production, the radio and television flights themselves will cost $75K each, the billboard near the store will cost $3K per month, during the weeks where we are not running broadcast media,  we must pay for a free standing insert in the local newspaper that will cost $15K and finally the in-store POP (point of purchase) materials to support the promotion will cost $10K. The last straw comes when the marketing department tells the operator that he must spend this same amount each quarter to achieve the desired results. When the operator asks about the financial return he should expect from this huge investment, the answers are very vague and noncommittal.

You can see where the operator in our little story would be ready for a stiff drink after that meeting. I know about all those feelings. Let me share a few principles I think are important in marketing and advertising.

• Know the customer you are trying to reach and target your marketing dollars toward that customer. There are several good companies who will provide quality demographic information on your target customer. To spend money in this way is clearly an additional investment, but one that will pay off in the long run. If you do not want to spend the money on research, at least perform a zip code study. This study will allow you gather basic information on where your customer lives or where they are coming from to visit your location. Just have the cashier record the zip code and frequency of visit for each customer for a one week period.  Demographic information will be invaluable to your media buyer.
• Be consistent with your media plan. It is my experience that an operator cannot just run one or two flights of television or radio each year and expect a good result. It takes many months to get your message across to the consumer. One of the goals of advertising is to establish a brand name for your business. Brands are only built over a long period of time. The good news is that once the brand is built, it can be hard to kill. If brands were easy to kill, Denny’s and Burger King would have died a long time ago.
• Operations must be at a high level during heavy promotion periods. The corollary to this principal is to not engage in heavy promotions when operations are not at their peak level of performance. Spending lots of advertising money to bring in new customers can be a real negative if operations are not acceptable and that new customer has a bad experience in your store.
• Lead with a value message. I find that promoting popular products with high perceived value is most effective. This media plan encourages your loyal customers to come more frequently and gives new customers a financial incentive to try you for the first time or return if they have had a bad experience in the past. Be sure store personnel are trained to “upsell” customers to prevent sales and margin erosion.

Overall, I view marketing costs the same way I view my country club membership. I love to play golf but there is no way to cost-justify my membership (especially the expensive membership I have). It’s the same with advertising and marketing. I enjoy better sales and customer counts that come from proper marketing and advertising even though there is no way to totally cost-justify the expenditure.

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