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Tuesday, 11 October 2016

Member Blog: Missed opportunity – A cautionary tale

By David Wright, BSA Marketing
It is a common feature of some SME businesses that they focus almost exclusively on the short term when planning marketing – often confusing marketing and brand communication with lead generation and sales development.
When it comes down to it, if you are only going to focus on either marketing/communication or lead generation/sales then it really should be the latter. A business can survive without dedicated, focused marketing but sales and profitable revenue generation is a must!
Marketing is a catalyst.
A business with an effective marketing process will better understand its customers and markets who will, in turn, have a better understanding of the company, it’s proposition and the value benefit it can deliver.
In short effective marketing makes lead generation and sales easier.
However, if you fall into the trap of thinking you are marketing when actually you are selling can be dangerous and lead to missed opportunity – potentially with terminal results.

A Case Study

Some time ago, a friend of mine set up an e-commerce retail business. The business was initially an expansion of a hobby where he stored goods in his garage and visited craft fairs as a sales outlet.
The business was low turnover but with virtually no overheads. It was profitable. He then took the business online and the growth (albeit modest) continued.
As those of you who run retail businesses will be only too aware, it can be relatively easy to grow turnover but with inventory costs taking up the majority of the revenue, delivering sustainable profit can be more challenging. It is easy to let overhead creep up and eat into margin.
This is what happened in this case. As the business turnover grew online, the garage wasn’t big enough so they moved into a small warehouse unit – with rent and rates! This step-change in overhead needed a quick boost in turnover and Google Adwords was an obvious choice – and it worked!
Pay-per-click had an almost immediate impact generating turnover to meet the increased overhead. Revenues soared through £100,000 and on towards £300,000 – all was looking positive. Adwords became the key to growth.

Misdirected Focus

Rapid growth brought its own issues with more and more stock to manage and customer orders to fulfil. The process of maximising orders through Pay-per-click meant the management got sucked into dealing with the short term.
The problems that were looming over the horizon were just not on the radar.

Reality Sets In

Retail e-commerce is a cash positive business model. Customers pay up front while suppliers are paid on credit terms of 30 days – or more.
While turnover is growing, this puts short term cash in the bank which can hide a critical factor. There is no profit!
As the initial burst of growth started to level off, reality set in. Turnover was still strong but cashflow suffered. The business started to run out of cash. What was going on?
Products were being sold at good margin and staff and premises costs were under control. The issue was Adwords.
Company focus was on driving turnover through Adwords which meant that the majority of orders received by the company incurred additional cost of the Adwords fees. The margin was going to Google!
However, there was a critical factor that was being ignored.

Missed Opportunity

Clearly a business that isn’t making a profit isn’t sustainable but as the turnover rose, a potentially valuable asset was being created.
Driving sales through Adwords meant that most orders were from new customers. By the time the reality was setting in, there was a database of around 18000 live, paying customers – and nothing was being done with it!
Open any marketing primer and you will read that it is easier to get sales from an existing customer who knows you than someone who doesn’t. In our case here, this huge opportunity was being almost completely ignored.
If there had been a consistent process of communication and relationship building (i.e. Marketing) with these existing customers using lower cost media such as e-mail and social media, profitable repeat business could have been developed where the margin stayed with the company.
The problem was that marketing is a medium to long term process and by the time they realised, it was too late.
A potentially strong and effective business closed down.
I believe a lack of longer term marketing planning was a significant factor in this demise.

The Moral of the Story

Any business that only plans and operates in the short term will only ever have short term certainty.
While short term security is clearly critical, it is only by taking time to also plan and act for the medium and longer term that a business can grow stronger and through this growing strength, make success ever more sustainable.
This might be easy to say but the fact is that longer term marketing planning is easy to forget or ignore.
BSA’s focus is working with our clients to make sure that marketing doesn’t get forgotten and that plans are agreed, and, most important, implemented.
We strive to make sure your marketing works for you.
Is your marketing working? If not, give us a call.

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