Higher Profits Through Testing of Every Variable


zero point three equals two times

Zero point three equals two times

Pretend with me you’ve been conducting a direct mail campaign.

In testing your headline you’ve discovered that changing its focus from greed to fear increases the response rate from 1.5% to 1.85%.

Not bad. Three-tenths of a percent. That’s enough to get marketers excited.

You’re kidding,” I can almost hear you say. “People get excited about a tiny fraction of better response?

Well, yes. Yes, they do. You see, that tiny fraction amounts to a 23.3% improvement in top line sales. It has an even bigger impact on the bottom line.

First, Run the Numbers

For the sake of this example, let’s assume the following:

Your selling price is $74.95, and your gross margin is 65%.

The cost of printing your single-page, one color letter and its envelope, folding, stuffing, and addressing is $0.33 per piece.
The cost of postage (bulk mail) is $0.21 per letter.
You’re paying a list broker $40 per 1,000 names (4 cents each).

Add these individual sums, and the cost of promotion becomes $0.58 per lead.

You mailed 10,000 pieces with the first headline.

1.5% of the recipients of the letter purchased: a total of 150 sales. Each sale produced revenue of $74.95, for a total of $11,243.

You’re working with a 65% margin. Therefore, your gross profit is $7,308.

It cost $5,800 ($0.58 per lead times 10,000 leads) to make those 150 sales, which makes your net profit on this mailing $1,508.

Then You Tested Your New Headline.

You mailed 10,000 more pieces with the second headline.

This time, 1.85% of the recipients of your letter bought: a total of 185 sales.  (This is the three tenths sales lift we mentioned).

Each sale produced revenue of $74.95, for a total of $13,866.

You’re still working with a 65% margin, which makes your gross profit is $9,013.

The cost of promotion is the same $5,800.

Your net profit with the second headline is now $3,213.

When you run the numbers, this new headline has more than doubled your profit.

Wow.

Testing Needs to be Mandatory

This is why you must test at every stage of the persuasion process. (It’s also why you must keep detailed records of your results).

Test your headline, test your offer, test the medium, test the frequency of repetition of your message. Test every variable.

When you find an outcome which works better than what you’ve been doing, make the new way your new standard.  Then start testing against that.

It only makes sense that you use the most attractive bait when you’re fishing for customers.

Your Guide,
Chuck McKay

Marketing consultant Chuck McKayYour Fishing for Customers guide, Chuck McKay, gets people to buy more of what you sell.

Got questions about creating maximum impact through testing of your marketing? Drop Chuck a note at ChuckMcKay@ChuckMcKayOnLine.com. Or call him at 304-208-7654.

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Are Your Ads Working? Can You Prove It?

Originally published June 3, 2005

Rosser Reeves

The late Rosser Reeves, former CEO Ted Bates Advertising.

In 1961 Rosser Reeves, the Creative Director of Ted Bates Advertising, Inc., wrote a book titled Reality In Advertising. Although it’s now out of print, you may be able to find a copy at a used bookstore or a library.

Reeves was the man who created “I Like Ike,” “Melts in your mouth, not in your hand,” and the famous Anacin ad with the tiny bubbles carrying relief to boxes in a silhouette head.

Reeves also had a simple method of determining whether an ad was “working.”

Reeves Ad Penetration Test

His staff phoned 1,000 people across the country at random and asked two questions:

Are you familiar with our advertising?

Do you use our product?

He put the tallies into a grid much like this one.

Please appreciate the elegant simplicity of this test.

Some People Will Remember Your Ads

The left side is made up of people who are familiar with your ads.

As a percentage of the total, these people represent your MARKET PENETRATION. The higher your Market Penetration, the better your advertising is working. The lower your score, the greater potential for increased sales with a good advertising campaign.

The top side is made up of people who buy what you have to sell.

If ten percent of the unpenetrated group buys your product, and twenty percent of the penetrated group buys, you may subtract the first group from the second to get what Rosser Reeves called the “Usage Pull” of your advertising. Today it’s better known as the CONVERSION FACTOR.

Sometimes, No Exposure is Better

Thankfully, we don’t see it often, but it is possible to have a negative Conversion Factor. This is evidence that your advertising is actually harming sales. Should you find yourself in this situation, STOP YOUR ADVERTISING IMMEDIATELY and get help.

Reeves techniques are nearly half a century old, but they still work exceptionally well. If you can find a copy, Reality In Advertising deserves a place in your marketing library.  Consider it a guidebook to go fishing for customers.

Your Guide,
Chuck McKay

Marketing consultant Chuck McKayYour Fishing for Customers guide, Chuck McKay, gets people to buy more of what you sell.

Have questions about whether your advertising is drawing customers?  Drop Chuck a note at ChuckMcKay@ChuckMcKayOnLine.com.  Or call him at 304-208-7654.

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Testing Advertising Response in the Store

Since 1892 when the English Court of Appeals ruled on Carlill v Carbolic Smoke Ball Company, companies are legally allowed to make claims they can’t substantiate. The court ruled that reasonable people don’t believe exaggerated promises by advertisers. The legal term for these claims is “puffery.”

The public simply calls them lies.

The practice of puffery is so common in advertising that according to the 2008 Edelman Trust Barometer Survey, only 20 percent of respondents trust corporate or product ads.

Believe it or not, this information will effect the outcome of Ralph’s new test of his advertising. At least, it would if Ralph had been paying attention.

Let’s talk about Ralph. He owns an appliance store. He purchases four cases of Del Vecchio cappuccino makers from China.

Ralph places an ad in the newspaper explaining that after the Del Vecchio cappuccino maker brews up to four cups of espresso in it’s glass carafe, its swivel jet frother will make steamy, frothy milk for cappuccino. The ad boasts that Del Vecchio cappuccino makers are available this weekend at Ralph’s Appliances. Not at the $89.95 one would expect to pay for an appliance of this quality, but rather for only $34.95.

But Ralph doesn’t display those $34.95 cappuccino makers.

When the ad hits the newsstands, the cappuccino makers are still in Ralph’s back room.

Ralph wants to know who’s coming in to his store as a result of his ad. He has concluded that the only way anyone would know about the cappuccino makers would be from seeing his newspaper ad. Therefore, if Ralph forces customers to ask for the item, and tallies the sales, he believes he’ll have a fair test of the effectiveness of that newspaper ad.

He’s wrong.

He’s not testing the advertising at all.

What Ralph is measuring is a customer’s willingness to ask for something she doesn’t see on display. And he’s limiting that test to those who’ve see the ad and come to the store looking for a specific product.

Will shoppers ask for items they don’t see on display? Some surely will. Most will look for a Del Vecchio cappuccino maker, and not finding it, will simply leave without making a purchase.

They will also tell their friends not to believe any ads from Ralph’s Appliances.

Their friends won’t be surprised. “After all,” the friends reason, “doesn’t every business lie in its advertising?

So, if forcing shoppers to do things they don’t want to do is a bad test, how does a manager/owner determine the effect of advertising on a specific sale?

Indirectly, My Dear Watson.

Check the day’s total sales, and compare to yesterday, last week, and last year. Any significant change in trending can be assumed to be the result of some outside influence. Barring any other influences, we can assume the advertising was the primary factor.
__________

Chuck McKay is a marketing consultant who helps customers discover, and choose your business. Questions about testing your advertising may be directed to ChuckMcKay@ChuckMcKayOnLine.com.

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Conduct Only One Advertising Test at a Time.

The only Chevrolet dealer in Smallburg,Texas, augments his local newspaper ads with a schedule on a regional radio station licensed to the adjacent community, Midville. He’s been selling an average of 18-20 cars per month. At the end of his first month with the new radio station he has sold a total of 27.

In his next newsletter the station manger writes, “When you see Ned Vanderslice of Vanderslice Auto, ask him why he’s grinning. He’ll tell you sales are up 30 percent.

The newsletter hits the mail. Within hours the manager receives an angry phone call from Vanderslice. “How DARE you claim my success?

Ned,” asks the manager, “other than advertising on my radio station, what other changes did you make last month in your advertising? Did you run any additional newspaper? Any additional television? Any additional direct mail?

No,” says Ned, “but you had nothing to do with my sales increase. Nobody drove from Midville to buy cars from me.”

Ned thinks advertising cause and effect is common sense.

Is it? Yeah. Most of the time it is.

In this case, I’d bet that Midville’s regional radio station has listeners in Smallburg. How many? At least seven. At least seven that were ready to buy new cars. Since no other part of the advertising mix has changed, we can pretty well determine what drove the increase.

The key is to test only one change at a time.

Then watch the outcome. Sometimes it’s not what anyone might expect, but it’s usually still common sense.

An apartment complex which does a very credible job of tracking the source of each lead has just added radio ads to their marketing mix. I advised them to watch for an increase in ALL of their lead sources.

1.Realtors, hearing the ad, will naturally think of this complex more often. We can expect them to recommend it more than they might have without the reminder. 

2.People hearing the ad are likely to look up the phone number of the complex in the Yellow Pages. We can expect Yellow Pages referrals to increase.

3.People keying the name of the complex into Google will, of course, drive up the on line referrals. But common sense will tell you there was only one change in the
marketing mix.

My favorite advertisers intuitively know this. They change headlines, and record the response. They change insertion days, and record the response. They add the weekend edition, and record the response.

Roger de la Paz of Richie’s Real American Diner in Victorville, California knows that this particular ad delivers a consistently predictable 118 percent increase in gross sales every day it runs.


How? Because he’s already tested everything from ad size, to offer, to headline, to graphics, to the day of the week to run this ad in the Victorville, Ca. Daily Press. Roger systematically changed only one element at a time, and kept careful records of each outcome. He compares the demand for specific food items before the ad runs, and again afterward. He is then able to calculate the increased demand for specific menu items against the cost of the ads.

There are no quick answers. Each test helped Roger to make each successive ad more profitable. It took him three years to learn what he now knows about advertising his restaurant in the Daily Press.

But by carefully tracking the specifics of size, placement, and frequency of his newspaper ads, Roger can now predict to within a few dollars the ROI for each newspaper ad he runs for Richie’s Real American Diner.

Persistence, it appears, is also a key element in testing your advertising.

__________

Chuck McKay is a marketing consultant who helps customers discover, and choose your business. Questions about testing your advertising may be directed to ChuckMcKay@ChuckMcKayOnLine.com.

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Are You Testing Advertising, or Simply Your Offer?

Somewhere in America a rookie cable TV sales representative is talking to the owner of a men’s clothing store. The rookie could have been working in newspaper, or outdoor, or radio. The retailer could have sold sewing notions, or computers, or farm supplies. The the specifics could be variable. The outcome won’t change much.

The story begins.

Our rookie is explaining to the owner why his ads are such a bargain. The owner says, “Young fella, you’re making a pretty good case for some cheap ads. I’ll tell you what. I’ve got three hundred dollars left in my budget. See that rack of suits back there? You sell those. We’ll test just how effective those cheap ads of yours are. Do a good job for me on this sale, and I’ll consider advertising with you again.

The rookie takes note of the rack of pea green suits, and thrilled to have cracked this account, says “Yes, Sir! We’ll get right on it.” He calls his production department to schedule a video shoot at the store, and writes up the order.

Unfortunately, it will be his only order. The pea green suits will not sell.

A slightly more experienced media rep would from this point on avoid the client. The more experienced rep has already learned that these kinds of ads only work sometimes, and those times seem unpredictable.

Our rookie, however, is a little less experienced and a lot more conscientious. He will stop at the store to check on the progress of the sale. The owner tells him nothing is happening. Nobody is buying the suits. In fact, nobody has even mentioned seeing the ads.

Back at the station . . .

The rookie tells his sales manager that he’s worried about the new account. If they don’t make something happen, the store owner isn’t likely to advertise again. The sales manager tells the rookie to order a “blind bonus” – ads that the client will never be charged for. The client won’t be charged because the announcements will be added to the schedule without hiss knowledge, in an effort to increase the impact of the advertising, and cover up any shortcomings in the original plan.

Not surprisingly, the extra ads don’t drive any additional traffic.

When the sale is over, the ads have run, and its time to reconcile the books, our young media rep will apologize to the store owner. The rookie will collect the three hundred dollar payment. He will decide to never again try to sell this advertiser anything.

Worse yet, this conscientious young media representative has now started doubting that advertising works. He’s previously seen it work well. Sometimes. Now it seems that sometimes it doesn’t work at all. And he can’t see any way to predict which.

Did advertising fail the test?

Yes? No? Not sure?

Consider that rack of pea green suits. The regular customers of the store did not purchase them. Why? Are they the wrong color? Wrong size? Wrong fabric? Wrong style? Wrong price? Some combination of wrongness? It is a safe conclusion that something is wrong. The store still has so many of them in stock that those suits have become the entire focus of an advertising schedule.

Unable to sell these suits to his regular customers, the store owner now expects the rookie to magically create new customers. New customers who like unacceptable merchandise.

I submit that this exercise is not a test of advertising at all, but rather a test of whether it’s possible to sell goods no one wants. “Won’t you please buy one of these previously-rejected suits, despite their wrongness?” No matter how many times people see this ad the outcome is the same.

Oh, and it’s also a test of the rookie’s willingness to accept responsibility.

It always comes down to the offer.

Not that long ago the owner of a local business wanted me to create ads which said, “Mention you heard this ad and get a free key chain from Acme Widgets.” I agreed that any medium not able to deliver the message should not be included in his advertising budget.

Then I pointed out that a much more fair test would be “Mention you heard this ad and receive a free $100 bill.” He sputtered something about the stupidest thing he’d ever heard and slammed down the phone.

I’m assuming he and I won’t be working together.

So, the first decision must always be what we are to test.

Let me save you some time. It all comes down to the offer.

And why would you waste your money testing such lame offers as free key chains or racks of pea green suits, anyway?
__________

Want to learn how to make every ad deliver a positive ROI? I highly recommend the Advertising Performance Seminar next week in Denver, presented by the Wizard of Ads Partners. For only $99, you’ll come away with more knowledge of effective advertising messages and positive customer experiences than many of the media sales reps calling on your company.

__________

Chuck McKay is a marketing consultant who helps customers discover you, and choose your business. Questions about testing your advertising may be directed to ChuckMcKay@ChuckMcKayOnLine.com.

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How Can We Test Advertising?

Transcript of actual conversation: 

Potential Client : Tell me the truth. How important is advertising in this economy?

Chuck: It’s critical. When there is a lot of money in circulation it’s not difficult for most businesses to attract their fair share of it. When the velocity of money slows, small businesses have to work harder than ever to keep enough customers coming through the door.

PC: If I had the money, I’d advertise now.

Chuck: Why?

PC: It would help to differentiate me from my competitors.

Chuck: Why do you want to do that?

PC: Isn’t being different what makes a company marketable? It’s what would get me into people’s minds. Prospects would be more likely to choose my company.

Chuck: If I’m hearing you correctly, you’re saying that you believe advertising will bring you new business.

PC: Well, yes.

Chuck: Then why aren’t you advertising?

PC: I can’t afford it.

Chuck: You can’t afford new business?

PC: Well . . . new business is important. I need to keep money coming in ahead of my bills. I know, I should be advertising.

Chuck: Why are you hesitating?

PC: I’m in an industry that doesn’t traditionally advertise. I don’t know if I should or not.

Chuck: A minute ago you said if you had the money, you’d be advertising right now. Is the economy effecting your business?

PC: Yes. We’re hurting.

Chuck: How long can you afford not to invite new customers to do business with you?

PC: Honestly? I’m scared. I’m scared of what could happen, or more accurately what might not happen. I’m scared that the return on my investment won’t be measurable.

Chuck: I’m hearing you say that you don’t have the knowledge to make sure your advertising investment will pay for itself. What knowledge do you need? What information are you lacking?

PC: I lack knowledge of marketing. I don’t know enough to understand which is a good idea and which is a bad one. What kind of return will my advertising investment bring? How can I predict it? If there were some resources that I could use to learn the basics of marketing . . .

Of all the reasons to advertise . . .

Increasing sales is by far the most important. It’s been said that during good times businesses should advertise, and during bad times they must.

During the rough times, though, the stakes are much higher.

When customer counts drop, its common for businesses to find that operating costs exceed revenues. Most companies have some cash or credit which will allow temporary negative cash flow. The length of time they can sustain operations is their “staying power.”

Every additional day of negative cash flow drains those reserves.

Each day that cash flows out contributes to a chronic, protracted demise. Since none of us can accurately predict any economic downturn, we don’t know how much staying power we’ll need. Every dollar invested in advertising becomes one less dollar of staying power. That can put a company out of business quickly. The same conditions which create the need to invite more customers also create a danger in doing so.

Sometimes we simply fear customers won’t react to advertising because they have no money to spend. We fear the advertising lessons we learned during the good times are no longer valid. These fears become more justification to hunker down and wait for better economic times.

Oh, sure. We believe in advertising. Just not now.

The astute business owner/manager will note that his competitors have abandoned the advertising arena. Their absence leaves great share of mind available to the few with the courage to invite new customers to their places of business.

The courageous owner/manager will seize the opportunity to increase market share.

The prudent owner/manager will attempt to reduce the risk by “testing” his advertising. He’ll hedge his bets by doing more of that which proves to work, and eliminating that which doesn’t.

Interesting concept, testing. How does one test advertising? I wish there was a simple answer.

Let me rephrase that. Of course there are simple answers. They are worthless. There are also valid answers, but unfortunately they are never simple.

For the next several days . . .

We’ll be discussing methods of testing advertising. We’ll be calculating ways to make sure that every advertising dollar is held accountable. And most likely, we’ll come to some conclusions about media, messages, and scheduling.

We’ll explore good ideas, and bad ones. We’ll look at the returns that advertising investments should bring. Must bring. We’ll determine how to predict those returns. We’ll find some resources for basic marketing during tough economic times, or for that matter, during any economic times.

I invite you to participate.

__________

Chuck McKay is a marketing consultant who helps customers discover you, and choose your business. Questions about testing your advertising may be directed to ChuckMcKay@ChuckMcKayOnLine.com.

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