Artificial intelligence (AI) is no longer a distant dream; it’s actively reshaping the business landscape today. From automating tedious tasks to unlocking groundbreaking ideas, AI’s impact is undeniable. But what does the future hold? Fasten your seatbelt as we explore emerging trends and delve into 3 key areas where AI is changing the game.
There is a common misconception that marketing and advertising is one and the same thing, but marketing actually runs much deeper than a cleverly crafted advertisement and spans a much wider subset of considerations including the method of delivery, what to sell and where to sell it and how to price and promote. At the most basic level a clear marketing strategy helps to get your business’ product/services into the eyes of the customers you are targeting at the right price and through the right channel.
If you have read about or heard about marketing techniques in business you most likely already have some knowledge of the “4 Ps”. These “4 Ps” Product, Place, Price and Promotion (aka the marketing mix) provide a useful framework to reference when thinking about and developing a marketing strategy:
Overall a successful marketing strategy should look to inform, attract and engage your target audience, articulating why they should choose you over someone else by spelling out how your product/service serves the needs they have. Good marketing and a good product/service offering should then provide a foundation to build your reputation, sell more and ultimately grow your business.
Social media – Social media has risen rapidly as one of the key and least expensive methods of advertising (depending on how you use it) and it is therefore paramount that your business have some form of social media presence especially on the big 3 – Facebook, Twitter and Instagram. Having an active account/page on each of these mediums can present significant opportunity, not only can your prospective customers find you easily, but it also allows you to run campaigns such as contests and influencer promotions (see below) whilst also engaging with other trending topics to boost visbility.
Hosting contests – Contests can be potentially linked to social media, but can also be run through other mediums and are an excellent and cost effective method of reaching a wide ranging audience. Contests often work via enabling customers to share your content in return for an entry into a prize draw – the sharer gets the potential to win something and you get inexpensive advertising. The drawback however is that this isn’t especially targeted and often content might be shared with individuals who are completely disinterested in your offering.
Gamification – Gamification seems to be a consistent hot topic in the world of business and involves incorporating gaming elements into a non-gaming context to improve engagement and encourage action. Many companies employ gamification principles in their marketing especially with things like loyalty schemes (e.g. Mcdonalds monopoly), but you can also find more innovative examples that tap into customers’ and/or employees’ competitive spirit and desire for reward.
Internet – Using your business website to generate leads should be incorporated into any promotional marketing you do. Often organisations do this through a combinations of Search Engine Marketing (paid advertising e.g. pay per click) and Search Engine Optimisation (optimising your website to ensure it gets a higher rank on search engines e.g. Google).
Post-purchase – Looking after your customers post-purchase is a necessity as ensuring they are happy with the product/service provided will ensure they are more likely to refer you to others and you can grow organically as a result. A happy customer is more likely to do business again with you in future and will often leave favorable reviews/testimonials which you can use in future promotions to enhance your business’ reputation.
Influencer promotions – Promoting your product/service through use of an influential person in the market can also be a quick way of advertising to your target audience. For example if I was launching a new fitness product, I could look at the most popular fitness influencers on the likes of Youtube and Instagram and strike a deal with them for some sponsored content.
Paid media – Paid media is a more traditional method of promotion including television, radio, billboards etc. This often involves paying a provider to air an advertisement for you for a specific period of time. Costs can rack up pretty fast doing this, but it gives you the opportunity to advertise to a significant base of prospective customers very quickly. In that regard, if your idea is relatively innovative in a relatively new market with only a few other small players, a paid media promotion might just give you an edge and push you into a customer perception as a market leader in the space.
Referrals and affiliates – Referrals allow some of your existing customers to bring aboard new customers in return for a future discount or other incentive. To incorporate such a program quickly you might want to use a referral program software or if you are familiar with coding you can put this together yourself. Affiliate marketing is slightly different in the sense that recommendations may come from individuals or organisations that are not necessarily your customers, but who will promote your brand and provide prospective customer leads in return for a commission should that lead turn into a successful sale.
Expectation bounce – Exceeding your customer expectations can be an excellent way to bounce your reputation as it enhances your image as a quality business that not only delivers what it says, but goes the extra mile to exceed an expectation. A good example of this is Amazon – Many times they quote a delivery date 2-3 or sometimes more days further out and then end up delivering it early. In this regard they set an expectation; which they then exceeded; which in turn made you happy and gave you the impression they went the extra mile. If any issues occurred in Amazon’s delivery schedule then you likely still would have received your package in the expected timeframe and therefore still would have been happy.
Free framing – Samples, data, knowledge etc can all be given for free to attract an audience. With this technique you will essentially be giving away something that is desirable to a target customer for free as a vehicle to sell something else at a premium. For instance you might look to provide a website which looks to educate an individual on a subject e.g. the stock market. The free level of this information will be basic level, however you can up sell more premium content e.g. detailed business analysis for target stocks.
There are a number of organisations that may treat marketing as a necessity, but monitor and control the cost centre with little or no diligence (I’m not sure how often company branded mugs result in greater sales – but I see them quite a lot). Marketing campaigns should be clear, targeted and designed with traceable metrics to measure success.
Now there isn’t a one-size fits all approach to measuring ROI concerned with Marketing as it simply depends what objective you have in pushing the campaign. Typically, you want your marketing to drive customer awareness in order to subsequently drive more revenue; however it is important to spend some time to define exactly what it is you want from the campaign and the time horizon to measure its success.
For example I might wish to roll out a contest in order to retrieve new customers and drive some further revenue in the short term – Consequently my measures could be:
If I achieve these measures then my campaign was successful in line with the objectives I set for it, if not it could be back to the drawing board in order to test a different approach.
When setting your objectives/metrics for each marketing campaign you should look to ensure they follow the SMART principles – Specific, Measurable, Achievable, Realisitic and Time controlled. Ensuring your metrics cater to these elements will ensure you can trace and measure the success of your capital outlay.
Marketing considers more than just a cleverly crafted advertisement and a proper marketing strategy should consider what to sell, where to sell it, how to promote it and how to price it.
In todays modern age there are a multitude of platforms that you can use to promote your offering. Platforms vary in cost and each platform will have a slightly different target audience so understanding your target audience will always be the first step before investing in promotional advertisements.
Return on investment is notoriously difficult to measure when it comes to marketing, but you should include a few metrics to track to ensure your efforts and your investment was successful.
Identifying and assessing business opportunities is a key skill should you wish to set up a company. When you first identify a potential business opportunity and believe in its potential, it is important that you begin assessing its credibility through a logical approach rather than being blindsided by confirmation bias. Often there are lots of potentially great ideas out there, but you need to think about the resources you have available, the nature of the market and potential route to sustainability. Reading through this section should begin steering you in the right direction, ensuring that you don’t spend too much time or resource on an idea that in practical terms won’t work.
Identifying Business Opportunities –
The Quick Checklist
A checklist is a very simple, but very powerful tool to employ in any area of life, from picking up the right items at the supermarket to managing a project through logical sequential steps to even completing pre flight checks. I therefore like to employ a very simple checklist at the inception of an idea to avoid wasting too much time and effort on developing something that is likely just not going to work. This checklist is as follows:
Area | Description |
1. Market size and growth | How big is the market? Is it growing? |
2. Expected return | Can I charge above average pricing? Or is the market a race to the bottom? |
3. Upfront investment | How much would I need to invest to get things up and running? |
4. Cost of market penetration | How much marketing and investment will I need to reach customers? |
5. Cost of creation and delivery | How much does it cost to create and deliver the product or service? |
6. Differentiation | How unique is my idea compared to the rest of the market? |
7. Speed | How fast can you setup and get to market? |
8. Durable advantage | Is my idea easily replicated by a competitor? |
9. Passive potential | Once setup, how much effort do I need to employ to keep things ticking? |
You would simply go through the checklist and assign a score from 1-10 for each item 1 being not attractive at all and 10 being extremely attractive. I normally then dismiss any idea with a score less than 40.
For example I might think of starting a gym and my score could look something as follows:
Area | Reason |
8 Market size and growth | The fitness market is a high growth and valuable market, however there are a number of key players already established and I would need to ensure I can compete |
4 Expected return | A number of large players already exist in the market and therefore to compete my margins will need to be squeezed, there is no real opportunity to realize above normal returns |
4 Upfront investment | I would need to invest capital in equipment and potentially premises in order to start up, neither of which will be cheap. |
6 Cost of market penetration | My marketing can be targeted specifically at the local area and thus my spend can be concentrated and minimized |
6 Cost of creation and delivery | There isn’t much to create and deliver, just organizing the pricing and negotiating the costs and contracts with related suppliers e.g. Premises |
2 Differentiation | There isn’t much differentiation between gyms, many compete on using brand, price and facilities, but any blend is relatively easily replicated |
4 Speed | There is a lot of setup regarding finding the right premises, getting the equipment, marketing the concept etc. It isn’t a particularly speedy idea to set up in practice |
1 Durable advantage | Any gym can be replicated; you have little in the way to differentiate unless you build an extremely strong brand or reputation (which as a start-up I won’t have). In general though there is nothing in a gym environment you can patent or be an exclusive provider of. |
3 Passive potential | There is potential that I could grow my customer base to a level that the business ticks over in my absence and I bring on employees to manage the day-to-day running; however it is likely at least for the first few years that I will need to have a very hands on approach. |
Score is therefore 38 – meaning I would likely dismiss this idea unless I could find reason to believe one of my judgments was unfair. E.g. I could look at lease contracts and potential lease contracts for gym equipment and decide that item 3 – upfront investment is actually far more attractive than initially envisioned and should be a 7 pushing my overarching score to 41 which could warrant further investigation.
Assessing Business Opportunities –
Break Even and Price Competitiveness
To test an ideas initial feasibility it is always worth assessing its viability through the lens of cost and potential profitability (assuming this is designed to be a for profit business, however this analysis is also useful for non-profits sustainability). Often I do this through a quick break even calculation.
For example if I was going to start my own gym I would gather initial thoughts on the costs involved e.g. premises, marketing, equipment, employees etc. Let’s say:
Researching other organisations in the same market reveals an average price of £45 a month membership. I decide my business is designed to be a budget offering so I want to undercut and charge £40.
With that in mind, just to break-even on a monthly basis I would need at least 250 paying monthly customers (£120,000/12/40). At that rate I would be able to cover my monthly outgoings, but could never recoup my initial £8000 investment, consequently I would need to attract more than 250 customers to my gym in order to start seeing a return.
At this stage, if I believe it simply isn’t feasible to get at the very least 250 customers, then the idea is simply not viable.
Assessing Business Opportunities –
Customer Acquisition Cost
The customer acquisition cost (also known as the allowable acquisition cost) is closely aligned with marketing. Basically it is a method of attempting to compute the amount you can invest in trying to attract a customer to your product/service whilst still maintaining adequate profitability.
If your allowable acquisition cost comes in at £200 per customer, but you are estimating that you’ll need £300 per customer to get the message out there, then the idea may not have the ability to deliver a return worth the investment from a time, capital and resource perspective.
You can calculate the allowable acquisition cost as follows:
For example let’s say:
My calculation therefore is as follows:
Average lifetime value per customer (£1000 ) minus the cost to deliver that value (£200) = £800
Overhead per customer is equal to £100,000/200 = £500
I therefore have £300 (£800-£500) in revenue per customer before marketing.
As I want a 50% margin, I can only afford to spend 50% of that £300 on attracting a new customer giving me a maximum allowable acquisition cost of £150.
From a budgeting perspective, over the 2 year period I can’t afford to spend more than £30k on marketing (£150*200). If my forecast spend is much higher than this then the idea is likely going to be too costly to attract market share in the time horizon set for it to be profitable.
Assessing Business Opportunities –
The Shadow Test
If you feel you have landed on a pretty solid idea, that passes the above tests you may be able to employ the concept of a shadow test which is a relatively risk free way to understand whether there is really a market for it.
A Shadow Test works especially well in industries where significant capital is required upfront e.g. technology. For example, Fitbit, at its inception created a website for its fitness tracking product and marketed it out taking preorders without actually having a workable product to sell. This significantly reduced their cost and their risk as they hadn’t invested capital in the creation of a product that potentially wouldn’t sell. The interest garnered through this shadow test process provided evidence of a market which enabled them to secure investment and begin mass production.
Coming up with an idea is the first step in business, but you must take due care deciding what to spend time on and what to discard.
A simple checklist method can help sense check ideas you have and avoid wasting time on business that isn’t viable.
Financial metrics are a quick sense check regarding viability, Break-Even analysis and Customer Acquisition are two of our favorites. Simple to calculate and provide significant and valuable insight.
Return on Investment is a mathematical formula that investors use to evaluate potential investments and their attractiveness in comparison to alternatives ways of using that capital/resource.
Dependent upon the nature of the investment proposal, returns could be more than just a simple profit/cost saving calculation and can stretch to areas such as realising efficiencies, gaining market share and building infrastructure. The calculation therefore is not always as simple as net income divided by the cost of investment and can get a little complicated when there are multiple facets of return versus the cost (e.g. cost efficiencies, additional market share and higher social media traction). However calculating a form of ROI will allow you to ensure you are putting your capital and resource to the best use, on projects that are going to return profits at a rate that is acceptable to you and any of your investors/partners.
The formula to calculate Return on Investment is as follows:
The answer is then multiplied by 100 in order to express the value as a percentage. Such a percentage can be positive or negative and represents the percentage rate of return of a particular investment proposal.
With return on investment, we ideally want this number to be as high as possible, or at least greater than or equal to a risk free (bond or fixed savings account) investment rate. A negative percentage indicates that the investment, from a financial perspective, will lose money and consequently it will be unlikely to be put forward unless it held some qualitative aspects that were not picked up in a purely financial ratio.
We would typically use Return on Investment to consider a number of alternative projects/investments in order to decipher which one was the most attractive from a financial return perspective. For example, let us consider two investments: Investment A and Investment B.
Looking at the figures purely from a return perspective, we would believe that Investment A was the most attractive as it returns 5x that of Investment B. However our ROI calculation is designed to express this as a percentage in order to give us an idea of the most efficient use of investment, so if we apply our formula to the above two scenarios:
From an ROI perspective therefore, investment B is actually more attractive with an 80% return versus investment A which only returns 25%.
In reality both investments are positive percentages, so both will generate a financial return on the investment and the organisation may therefore move forward with both. However, if the organisation had multiple projects in the pipeline and a finite budget then a large £10,000 outlay for only a 25% return may not be deemed attractive amid smaller projects with higher percentage return.
In the event you are comparing projects with different time horizons you will need to adjust the calculated percentage return by the time that the investment takes to realize. For example If Investment X returns 10% in one year and Investment Y returns 25% in 2 years in order to accurately compare the two you need to adjust Investment Y to the same time horizon as Investment X.
We do this by using the following formula to calculate the average annual rate of return:
Where:
X= Annualized rate of return
T = Time horizon
So for investment Y the formula is:
(1+X)^2 -1 = 25%
Solving for X
(1+X)^2 = 1.25
1+X = 1.118
X = 0.118 or 11.8%.
Investment Y therefore has an annualized rate of return of 11.8% in comparison to Investment X with 10%.
See, all that Algebra at school came in useful after all!
Measuring Return on Investment concerning marketing is a notoriously difficult concept and often the competing views of finance and marketing clash within an organisation. Marketing and promotion is a big investment and with such an extensive outlay you will need to track and measure exactly what you are getting for your money.
At a basic level you should measure the return on investment, which in its simplest form can be calculated as follows:
As with any ROI calculation you want to be looking at a positive number and ideally as high as possible, this would then indicate that the investment is worthwhile.
However despite the equation looking relatively straightforward the reality of a calculation is difficult. Whilst the cost of the marketing investment can be calculated relatively easily (and should include staff time and resource) the reality of measuring its return is a little more difficult. This is because tying a particular purchase to a particular marketing activity is almost impossible, many organisations attempt to do this through targeted questions at the time of purchase (the where did you hear about us question), but these could be inaccurate or usually left blank as the customer is really just interested in completing the purchase as oppose to filling in any sort of questionnaire.
The reality therefore is that you need to set objectives for your marketing spend and tie them to a specific time horizon. For example if the goal of your promotion is to gain 20,000 more visitors to your website within 3 months then this becomes something you can track in order to measure success. So when putting together a marketing strategy you should have a specific set of objectives, all tied to realistic time horizons, which you can measure in order to ensure that your marketing efforts are returning to the level you expect.
