No. 3 It forces you to reassess your target groups
Continuing with the gym example:
Whos ready to pay $1,500 per year to keep fit?
- Parameters would include the usual age, income and geographic-location demographics, but they also need to include psychographic profiles, taking you again to the next question: How does this person decide to come to my gym and not the competitors across the street?
Who will be the non-private lesson person?
Again, what are the key factors that drive him or her to the gym?
What should your target mix be?
- In actual clients.
- In budget.
- In the marketing mix.
Whats your allowable cost of acquisition? Typically, it ranges from 20 percent to 25 percent of the LTV.
So the next step is to build a budget model for your advertising and marketing. Taking 22.5 percent as a good average allowable and not factoring in the LTV, we can see this:
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By reviewing your gyms business model and the mix of clientele it wants to attract, you can also get a handle on the advertising/marketing budget you would need.
This is, of course, a simplistic model. It will get much more complex as we seek to fine tune it.
No. 4 It fine tunes your marketing mix
For example, if you know people who buy private lessons need to like the trainer, you might include:
- Meets and greets at the gym.
- Participation in local events.
- Sending postcards with bios
- Posting bios and videos on your website.
Another step from the budget grid is to build a response model for your business. A response model doesnt have to be either monstrously complex or so strict that it eats into your business time. It basically provides a baseline for your thinking.
A model that incorporates your budget assumptions, response assumptions and client mix would begin to looks as follows:
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What this chart tells us is that even the small differences in persuasion will considerably improve your bottom line and your understanding of the decision-making process. And how people get persuaded is the most profitable research you can conduct.
Lets look at a dismal scenario:
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Based on this, you only convince 10 percent of the visitors to join the gym and your advertising only persuades 0.5 percent (half of 1 percent) of those seeing it to visit the gym.
What would happen if (1) you can continue buying media at $81 CPM, (2) your advertising worked a bit better and (3) you knew how your customers made their decisions so you could convince a few more to join?
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You can achieve a 47 percent reduction in your media costs by (1) making your advertising a bit more impactful and (2) understanding a bit better how your customers make their decisions. And were not talking leaps here. Were talking about convincing 2.5 persons more for every 100 who visit you and have your advertising convince a quarter of a person extra for every 100 it reaches.
Flexing Your Muscles
Several years ago, I created a singular marketing model I called TOE (Theory of Everything). It was hard for me then, as it is now, to understand how people make isolated decisions without considering the entire mission. Looking at something as simple as how do people make decisions is just another way of looking at the entire marketing process. But understanding this can make the difference between convincing people to become your customers or notand better help you target your marketing efforts budget.
Other articles by Marcelo:
Is Social Media Good For Business?
The Washington Post Morphs To The Amazon Post?
Social Media Lessons Learned From MTV
A Messaging Strategy To Reach 3 Consumer States
Advertising? Why Three Creative Executions Are Essential
Its All About Persuasion, Isnt It?