Back to the Basics of Marketing

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When you look at smaller privately-held businesses that have stopped growing, or worse, are experiencing declining revenues, you will often find they suffer from a variety of marketing-related problems. No one of these problems may seem that significant by itself, but when combined with others they can spell eventual doom for the business.

Every single one of these business owners and managers would benefit from taking what here at the Sam M. Walton College of Business is called a 300-level “Introduction to Marketing” course and really paying close attention to the concepts it covers.

Here are some of the common pitfalls these business owners and managers could avoid:

1. Marketing is seen as an overhead cost versus an investment in the business. One of the first things company managers tend to do when profits are strained is to cut costs. All overhead related expenses are the first ones scrutinized and the first-place cuts are going to be made.

When marketing expenditures are viewed as an overhead cost versus an “off balance sheet” investment (just like putting money in your 401k plan good times or bad), they are subject to being reduced. And the truth is this may in fact increase short term profitability. But the cost of this will be evidenced in mid- and longer-term revenues and profitability which will eventually reflect the reduced marketing investments.

Even well-established 50-year-old consumer product makers with tremendous sales momentum understand that they have to consistently spend money on marketing and promotional expenditures in order to sustain high sales. So why do smaller, less established companies think they can get away with underfunding marketing and promotional expenses? I think the owners don’t understand how critical these expenditures are.

2. Marketing is viewed as the responsibility of a single department instead of something that is woven throughout the entire organization. Just as a discipline such as Human Resources Management can’t be solely responsible for all HR functions in a firm, those in charge of marketing and anyone who works them cannot be responsible for all marketing decisions and actions.

Top management sets the marketing budget. Top management ultimately decides what products and services the firm provides – and so on.

The “marketing concept” teaches us that marketing requires use of a “systems approach,” and the business is a system where all elements interact with each other and potential customers to determine ultimate marketing effectiveness. Marketing needs to be involved in everything and be part of the consideration for any decision being made.

3. There’s a general lack of differentiation in the firm versus its competitors. A lack of differentiation may work in a growth market where demand exceeds supply.

But once supply catches up with demand or exceeds it, an individual business has to be different from its competitors if it wants to carve out its own niche that other businesses can’t easily take away. A good example of this is having your unique products no one else sells.

It’s one reason Zweig Group only sold books that we published versus books published by others. A customer couldn’t buy our products from anyone else. If they wanted what we had, we were the only source for it.

Another example is the local Mexican restaurant business. There are many which have nearly identical offerings. One stands alone as unique – La Hacienda – by making its own tortillas on site. That in itself is the reason my family likes going there – and will pay prices 10% to 20% higher for our meals than other similar restaurants of their type. They have something unique.

4. Primary target customers are being forgotten in an attempt to bring in new customers. So many businesses lose their way by forgetting who their primary customers are and what they want.

They introduce offerings to bring in less affluent customers and alienate their primary customers. Or, conversely, they may try to upgrade their customer base and lose the customers they built their business on.

While not a small business, Walmart went down this path 14 to 15 years ago when they hired New York and West Coast-based designers to renovate and upgrade their women’s clothing offerings. In short, they wanted to be more like Target. But in the process, their regular Walmart customers couldn’t find the kinds of clothing they always bought there.

So being the smart businesspeople that they are, they went back to their original strategy of selling low-cost basics.

5. Individual product or service offering mixes are not being adjusted based on either contribution margin or their impact on helping sell other products or services. Every business needs to know what they make money selling and what they don’t make money selling.

And if there are certain products or services that don’t make money, does selling them help sell other stuff that does make money? If so, based on further study, maybe they should stay.

If not, they should go and the firm should focus on selling more profitable lines. It is critical to have good accounting and tracking systems that keep management informed and to have management that will make timely, intelligent decisions based on the information they are getting.

But the bottom line is a product and service mix is a marketing consideration that needs continuous re-evaluation. Turnaround expert and small business investor, Marcus Lemonis, frequently looks at this in the businesses he invests in and works in, often achieving some dramatically improved results.

6. Changing or adding new distribution channels is not ever considered. An example of this may be a small business that relies on selling products to certain retailers in large quantities at wholesale prices.

They could make widgets for $3.40 each that retail for $10, but they sell them to retailers in quantity for $3.50 a piece. If I this same company was able to figure out how to sell their widgets online directly to the final consumer at $10 each and cut out the retailer, they would make 66 times the margin on each sale.

This is just one example. The bottom line is it may be worth it for small businesses to work on creating alternative channels of distribution where margins are higher.

7. Companies rely too much on discounting as the primary method for stimulating sales. Discounting is a slippery slope that can lead you into a ditch that is hard to climb out of. Once customers get used to an individual business’s constant discounting, they will expect it all of the time.

This can destroy the margins that are fundamental to business survival. A good example of this happening was when local entrepreneur, Jay Howard, sold the I.O. Metro furniture stores he started years earlier to a private equity firm. They quickly adopted a strategy of continuous discounting to stimulate sales.

Of course, this led to them not being able to make sufficient margin on their sales and eventually they went out of business. This strategy can work if you start with inflated prices the way mattress dealers often do. But if you don’t start out with inflated prices it can kill the business.

These seven things are just some of the marketing basics that owners of privately-held companies need to understand, yet so many just don’t get it. Really understanding marketing and using that knowledge every day is essential to growth and continued success.