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Entrepreneurs' Primer on Marketing,
Advertising, and
Selling
By: Terry Collison,
Blue Rock Capital
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Marketing
isn't advertising. Selling
isn't the same as marketing. And advertising isn't selling. But
no matter what your company does, it needs them all – at least in one form
or another. |
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Based on observing and working with lots of companies,
this is easier said than done.
Most companies – and, indeed, most
entrepreneurs
– readily recognize that effective
marketing,
advertising, and
selling are critical to the success of a
venture. Yet once this importance is acknowledged, there appears to be
little parallelism in the way these three critical functions are actually
implemented.
In fact, there appears to be great divergence in the way
these three critical functions are even defined. The differences are
not explained simply by different companies (with different objectives)
coming up with appropriately different
strategies.
In many instances, young companies seem confused or just plain inaccurate
(this means "wrong") in the way they understand these three critical
functions. This mini-paper is intended to provide a few quick insights
about the linkages between marketing, advertising, and selling.
Advertising ABCs
"Our company would really love to do more advertising but we don't have any
money." Too many companies say this because they allow themselves to
get into the situation where it is the truth. |
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To put it in
perspective, imagine an
advanced technology company saying "We'd really love
to offer products for sale but we don't have any money." The company
would simply not be viewed as credible. No matter how small or how
new, companies that are worthy of commercial success in the marketplace are
expected to have some level of advertising built into their normal operating
framework.
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Here are the three most basic
realities of advertising:
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① Each industry and
product group has evolved a well established ratio between annual
advertising expenditures and targeted annual sales. If a company
wishes to sell $1 million of product next year, then, to be at parity with
competitors in its own product class and market, the company must have an
advertising budget that is equal to some knowable percentage of its annual
sales target. The ratios for a wide variety of product classes are
published annually by various advertising-focused journals.
②
When a
new product is being introduced into a given market, it is
normal
for a company to spend more than the ratio that is typical in that
product class (i.e., instead of an advertising budget that is equal
to X% of targeted sales revenue, the product introduction may
require a launch budget of 1.2 x X%).
③
If
a company is not already an established player in a given market
(i.e., if it has no "brand
equity"), it is often necessary to spend a multiple
on top of the special product introduction ratio in order to
gain visibility and market credibility (i.e., instead of spending
1.2 x X% of targeted first-year sales revenue on advertising, a
new company with a new product
may have to allocate an amount equal to 1.5 x X% of its targeted
first-year sales). This is a specific instance in which
advertising is
marketing.
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To make matters somewhat more problematical for young companies, the money
that must be allocated to advertising must all be spent "up front," i.e.,
prior
to the realization of sales. (Hey, I didn't invent these tough
realities; I just promised to report them to you.) The concept of
"promotional cash flow" is shown
here.
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Winning
Customers
Create Customers
Venture Marketer
Virtuoso Marketing |
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Advertising is the process of
communicating information to
your targeted customers.
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Advertising cannot be ignored (or deferred until cash flow magically picks
up because the company sees the virtues of its product as "virtually self
evident").
Want some other ideas about advertising?
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