Direct Response vs. Institutional Marketing – Which is your small business trying?

Marketing in a basic sense is broken down into 2 main categories: Institutional Marketing and Direct Response Marketing.

What I am personally fanatical about tracking is the results to direct response marketing. By that I simply mean that if I send out a post card, create a website, or insert a piece in a newspaper, I want to know exactly how much revenue those marketing pieces generated for me. As a small business (i.e. you don’t have $100 million dollar ad budgets) this is the ONLY type of marketing you should be focused on.

Major corporations, however, invest in very sophisticated very expensive institutional marketing programs. By that I simply mean that hundreds of millions of dollars have been spent to create a recognizable name, character, and/or slogan. More importantly, that advertising has created a position in people’s minds ideally relating the name, character, or slogan to their brand unlike any of their competitors are able to do. Once you have that position you never want to give it up because changing an already established position can create confusion in the prospects mind and it gives room for a competitor to take over that position. Along these precise lines, I recommend a great book written by Al Ries and Jack Trout called Positioning: The Battle for Your Mind. Ries and Trout give example after example of businesses like Volkswagen, Chevrolet, Michelob, Miller, Avis and others who did and did not understand their positioning and how that affected their long-term profits. Some have messed it up horribly.

Camel cigarettes had deep enough pockets and understood the power of institutional marketing, branding, and positioning so well that more 5 year-olds in the previous generation could identify Joe Camel than Mickey Mouse. Obviously 5 year-olds can’t buy cigarettes so why do they want 5 year-olds to know Joe Camel? Because in a decade when teenagers start getting exposed to smoking by peers, whether they consciously understand it or not, Joe Camel has made a position in their mind that’s not easily forgotten. If you have a small business, you can’t possibly afford to do this. You need to pay your bills and make payroll this week, you don’t have a decade to build a position.

There are, however, 2 main “small-business” exceptions to the rule that small-businesses shouldn’t engage in institutional marketing. Both of these industries can successfully invest in a combination of institutional and direct-response marketing.

1. Banks – In your lifetime, you are more likely to get divorced than change banks. For some reason, banks have customer retention rates somewhere in the high 90% range. My mother told me that when she moved across the country, married my father, and they started a family, the ladies at the bank were some of the first people who she would show her babies too. That sounds rather strange to me, but it makes sense. Any good marketing is about developing relationships and any bank worth it’s salt is going to train their tellers to do just that. If their good at it, it’s just natural that their customers would know all about their “favorite teller” and vice-versa. After all, it’s a very intimate relationship as that teller knows quite a bit about you that your best friends and family will never know. So how can banks invest in institutional marketing? I would suggest in the same way that Joe Camel did. Target children. If you know that you’ll have a 90% plus retention rate, it’s a race to see who can get that first checking account setup for the first job, right? Well what if you deposited $5 in an account for each middle school or high school student who came to the bank with an A on their report card? It may take a decade or longer before that pays off, but you’re almost guaranteed to keep that child as a customer as they need a car loan, house loan, student loans etc. etc. etc. At least you’re more likely to get those accounts from that child than you are to attend their 50 year anniversary.
2. Franchises – Obviously this is one of the benefits of a great franchise. Yes, of course, their are franchises that are downright terrible and the name isn’t worth a whole lot. However their are others that have been established for so long and have invested so much money in marketing over decades that their name is extremely valuable. This week I was speaking with a colleague who owns a franchise that’s one of the top 300 most recognizable names in marketing and has no competitor recognition in the top 1000 names. Their tag line has been known and marketed for decades. The business is a Culligan water dealership and the tag line is obviously “Hey Culligan Man.” Prior to his current business, he owned an independent pizza joint. In addition to loathing the late hours required at a pizza shop, he said it’s nearly impossible to make money when you’re competing with the big name pizza places like Pizza Hut, Papa Johns, and Domino’s. Even when you have a great product, which he did. All 3 of those pizza franchises have the resources to invest in both institutional and direct-response marketing. Each month without fail, I will get a postcard with the latest specials from each of those 3 pizza franchises. Why? They want me to cut out a coupon and take action right now to buy their pizza. Obviously they also invest a lot in commercials, websites, radio ads, sponsorships and other items that don’t generate a “direct-response” for them, however, it does help them create a position in their prospect’s mind so that when she starts thinking of pizza, they pop into her head.

So if you have a small business, what should you do? The answers is very simple, invest all of your marketing budget in direct-response advertising. If you decided to go the route of being an independent franchisee, you’ll obviously benefit from the institutional marketing your franchisor does on your behalf. However if you have any control over your own marketing dollars, you better make sure that every dollar that you spend in marketing is coming back with friends. In other words, with the use of micro-sites, web analytics, coupons, call-tracking phone numbers, and plain-old asking people (though you do always have to be skeptical of their answers) you should do your best to determine exactly which marketing investments bring money to your business.

In my business I’ve tested radio, direct-mail, newspaper, websites, Google Adwords, yellow pages, local sponsorships, home shows, and just about everything else. Over 2 years I’ve tracked the results of each item and today can, with very high certainty, know approximately how many dollars of revenue I’ll bring in for my best marketing projects. For my business, newspaper (which was literally the last thing I decided to test because I thought it was dying) has out performed everything else even though there are still some profits to be made with home shows and direct mail if done properly.

So what does that mean to me? I’m going to put as much of my marketing budget into newspaper marketing as possible as often as possible until it stops working. Do you know what marketing projects can produce those results for your business? If you stop investing in institutional marketing and start investing in direct-response marketing, you will.

To your direct response marketing success, Bryan

P.S. If you’re looking for a great book on the subject and some more details on what numbers you should track with your marketing, check out my blog about Claude C. Hopkin’s book Scientific Advertising.