Article is published in The Baltic Times
(08.01.2009., Nr. 637)
How to choose a marketing agency that will make you money
The level of marketing development in small and medium size businesses in the Baltic States is shockingly old-fashioned. It’s quite unbelievable that within the past 20 years of free enterprising this field has stayed so underdeveloped. Companies from that region with yearly turnover around 10 million € and more, have recognised the true role of marketing in their business – the main role. In businesses with yearly turnover less that 3 million €, the situation is totally opposite.
The purpose of this article is not to persuade the owners of such companies to invest in marketing. A businessman, who sees his business not just like a tool for making everyday living to his family, has to understand it by himself. The toothless marketing makes the Baltic companies so impotent at the export markets. Using “Marketing, as the least important action” principle is the reason why people can’t create additional value to their products and profitability of 5% is considered to be normal in the Baltics, and not an absurdity.
On developed markets, besides creating a talented and creative marketing team inside ones business, there is a habit of finding outside specialists and outsourcing. What’s so good about that? Comparing who (“us” or “them”) is better, more bold or hungry – is not considered to be right. Teams do not compete. Teams merge. Everyone is occupied with the task that is in his best competence. But what if the “outside” marketing people are not better than the “inside” people? A question arises – how could you evaluate this objectively? And even if you could, the main strength of outsourcing is a fresh look on the task and a big quantity of finished marketing projects. Projects, concerning all the various market categories, which are an equivalent of trainings for professional sportsmen in comparison with the trainings of ordinary people.
Every businessman with enough mental capacity understands that reasonable marketing investments are the key for long-term profitable development. But if all this is depending on an outer company – a marketing agency – how should we choose the right one? Marketing agency must earn you money and not throw your marketing budget into the wind! This article addresses that question and offers you following criteria:
Choosing criteria no.1: specialisation
Which one of these two candidates would you choose to be your next sales manager:
Education: business management, bachelor’s degree.
Courses: around 20 various courses and seminars about sales management, business negotiation, customer care.
Working experience: sales manager in company “А” (works in a branch, similar to yours) – 2 years;
Sales manager in company “B” (works in your branch) – 3 years.
Education: jurisprudence, master’s degree.
Courses: around 10 various courses in accounting, bureaucratic procedure, taxing, courses for foreign languages (Italian, French), around 10 various courses and seminars in basic enterprising, finance management, sales and marketing.
Working experience: lawyer in company “C” (works in your branch) – 2 years; financial specialist in bank “D” – 2 years; sales manager in company “E” (works in your branch) – 3 years; translator in company “F” (works in your branch) – 2 years.
The main problem with candidate no.2 is that it’s not clear in what field he could be called a specialist. He is more educated and has big working experience, but keeping in mind that we are looking for a sales manager – we will choose the candidate who is not so well educated, but who has “specialised” in our area. It’s common knowledge that a person, who claims to be excellent in many various subjects, is wrong and doesn’t evaluate his abilities correctly. It’s not possible to be on top of every theme. Even the best lawyers are hardly equally good in civil-, criminal- and international law. The best cardiologist can’t be the best dentist.
Unlike lawyers and doctors, many people who work in the marketing industry are “multitalented”. They can offer services for branding, creating an advertising campaigns, media planning, marketing surveys etc. It’s quite possible that in one agency one can find highly qualified specialists for all those fields. But its out of question that this agency would work with poor marketing budgets of Baltic companies, who’s yearly turnover is under 3 million €.
By the way, unlike lawyers and doctors, lots of people, working in marketing, don’t have any specific, suitable for one area only, education. On one hand, marketing training in the Baltics is limping both legs. On the other hand, former secretaries, sales reps and even radio DJ-s can’t put up a professional platform in marketing, based on which the businessmen could make their marketing investment decisions.
Make certain that the marketing agency is specialized on the tasks for which you hired it in the first place.
Choosing criteria no. 2: experience
Every specialist in every branch has had victories and downfalls. The same goes with marketing people. The main question is: has the specialist learned a lesson from his mistake. One delicate moment – marketing people don’t pay with their own money for their mistakes, the client pays. That’s why its not easy to understand how “personally” are those mistakes taken and are those “free lessons” considered to be “fearful enough” not be repeated in the future.
The practical meaning of the word “experience” has become blurred. What do you value in a marketing specialist: 20 years of marketing experience in general or 5 years of marketing experience in your purview? Maybe the amount of years isn’t so important after all? Maybe it’s more important to see the companies and brands list, the marketing person has worked with? Or to look at the growth of sales resulting from his work?
It’s very important for the client of any marketing agency to understand what exactly are his needs and expectations. And the client has to come to that decision all by himself. The marketing agency could and should join in when establishing real and achievable targets during the co-operation negotiations. The agency, which offers the most adequate vision of targets and how to reach them, takes the upper hand.
After determining the target and finding the quantity indicator, it’s easy for businessmen to decide what kind of “experience” they need from the marketing agency and how to evaluate its correspondence to their company’s needs. For example, if you expect the marketing specialists to increase your company’s monthly turnover from 10 000 € to 100 000 €, you need an agency with experience in bringing a new company to a turnover of a 1 000 000 € per year. In case you want to increase the recognition of your brand name inside your target group from 25% up to 40% during the advertising campaign, you need to look for similar achievements within the similar timeline and budget.
It’s a common belief that “field experience” is very important. So if you are interested in development project, it’s quite likely that you give the contract to a company who has already succeeded in the real estate business and turn down the company with no field experience. When we take a look at FMCG (Fast Moving Consumer Goods) market, which is quite specific, we see, that the advertising campaign of a new cookie trademark is hardly given to specialists who have not proven themselves, maybe not with cookies, but with other groceries, say meatballs.
The knowledge of specifics of the subject is recommended. Unfortunately it's really rare when marketing specialist have more than average knowledge about this or that segment or further more are experts in the field needed. But the client of the marketing agency is an expert in his field. And this is why the lack of specific knowledge of the marketing people will be "backed up" by the people of the client-company - that is a part of teamwork. Inexperienced specialists (in this certain field) are able to generate fresh ideas, not used in the field before, but proven successful in others. A perfect example of a professional’s viewpoint - banks have used the marketing instruments of retailers and insurance companies copied the software developers actions.
How does the marketing company reach the goals put in front of him and what are its grounds to presume, that your goals will be reached also?
Choosing criteria no. 3: complex approach
Many people get stuck on details and loose the big picture. Organising a Direct Mail in newly housed area or publishing an advertisings in a ladies magazine could be efficacious or not. And the reason of polarity of the outcome is often not connected to the actions carried out as the project is still in the planning phase. Planning could have been done poorly or not done at all. For example if a company tries out an approach and gets negative results, a decision is made that this kind of approach "doesn't work for our company" and it will never be used again. But the way of promotion (leaflets, printed Ads) cannot be the main reason for failure, as the hammer cannot be the reason for a crookedly hammered nail.
During the planning phase (conceptualising the strategy) it must have come out that our potential clients, although living in newly housed areas, rarely read ladies magazines. Their attitude towards nameless advertising scrap paper in their mailboxes is clearly negative, so we should use envelopes with correct names and addresses. Besides that we should use printed posters on the entrance doors, elevators and underground parking lots of the new buildings. Also the advertisement could be placed on the other side of the monthly invoice, dwellers get for their house management. And these were only promotion methods and communication channels - we haven't touched the content of the message, design, graphics, the name and logo of the trademark...
An agency, which has no complex approach to solving the task and relies on one-time actions, cannot guarantee systematic positive results. They can happen only by chance. Tactical actions, even if they are correct – they are just tactical actions, which is details. Sending a jingle to radiostation, creating a company calendar for a gift, putting up a light box to the front of the shop – all these are tactical actions. One can just throw money away with those, but it’s possible to use your money wisely and on good targets. In the first case nobody plans anything and the outcome will be what it will be. In the second case – we know what we want (we have a target and a strategy) and we just create a task, evaluating the results based on input data.
Big companies like Maxima, Tele2 and Hansabank in the Baltic countries use a specific formula for advertising: creativity + repetition = recognition. The idea is that if you spend a lot of money, lots of people see you, remember you and you will get a result. But if the same formula will be used by a middle- or small size company from our region without the help of unlimited marketing budget, they can’t differentiate from the advertising clutter and their message will be unheard and the results need improving. One cannot win the «War of Budgets» if their budget is many times smaller than the other budgets. That’s why one must not step into this type of war. It’s wiser to have an accurate and specific plan for reaching the goal without military actions.
Does the marketing agency understand that the pie must be eaten and not “nibbled” on?
Choosing criteria no.4: values created
If we take a look around, we can see that a huge amount of advertising slogans are focused on cheap prices and discounts. Lots of people believe that buyers want only the cheapest prices. Offering the cheapest prices will be indeed noticed by a certain group of buyers, the most disloyal ones. Should the company be able to offer the cheapest prices in his market segment, there is no need to hire a marketing agency – the strategy is clear enough, the position for the company – a discounter – is chosen de-facto. But there can be only one company per market category, as the cheapest price can be only one. That said it’s clear that all other companies need marketing, which helps them stand out of the crowd and compete successfully.
If a marketing agency tries to build the marketing of your product or services on the base of cheap prices or discounts, stop all negotiations with this agency and forget about co-operation. It’s a dead end and doesn’t give any additional or real value to your commercial proposition. But that’s exactly the additional value that gives the business 15-25% profitability. If you are not interested in working like most of the Baltic businesses – with a yearly profitability not exceeding 5%, you have to find a marketing agency, which hates cheap prices and can sell for high prices.
Let’s take a look at a business with the lowest profitability – gas stations. Two of the strongest brands in the Baltic market – Statoil and Neste – have different strategies. The first one offers fuel for a higher price, but has additional value in the form of shops and services by its personnel. The second one offers fuel for lower prices but doesn’t have any own shops. Positioning of Statoil – high quality fuel and additional services for high price. Positioning of Neste – quick fill up for cheaper price and self-servicing. Statoil has additional values, Neste doesn’t. In the year of 2007, in the Latvian market, Statoil had the turnover of 283,5 million LVL and earned profit was 8,2 million LVL (profitability 2,89 %). The same year, Neste, in the Latvian market had the turnover of 202,9 million LVL and earned profit 3,6 million LVL (profitability 1,77%, which is 63% lower than Statoil profitability). Statoil had 67 stations (average profit of every one of them 122 000 LVL); Neste had 48 stations (average profit of every one of them only 75 000 LVL). Maybe the example was not the most correct, but one can decide which of the strategies enables to create more profit.
Choose a marketing agency that is determined to increase your profitability
Choosing criteria no. 5: who will take the risk?
The vast majority of marketing-, advertising- or PR agencies will invoice you for the execution of a project, based on the hours spent, priced by their specialists. By doing this, they refuse to take any risks in case the project appears to be a failure. The position of those agencies is: «We don’t risk with our money, but we risk with our reputation». But if the reputation is good (based on achievements) and the agency believes in the success of the project, why doesn’t it take some of the risks for itself? But if the reputation is not so good or not based on former achievements, the risk of loosing something you don’t have in the first place – it’s not a big risk. In the Baltic countries, not so many agencies have good reputation. And those who have, try to work with companies which yearly turnover is far over 10 million €.
Marketing consultants must take a significant part of the risk. If they are good in their field, they will be motivated by the bonus, percentage program and partnership (business share). Don’t ever hire a specialist or agency if they are not willing to change the financial terms of your cooperation concedering the responsibility. If the marketing agency always asks for a fixed price (100 € per hour for example), they are more than capable to lower the price to 70 € per hour and upon reaching some fixed margins during the process of the project, they would get additional 50 €. That makes the hourly fee of the agency already 120 €. That money would be an honestly earned fee.
Marketing agency must carry some of the client’s risks.
A marketing agency in the Baltics, in order to make money for the client and not just spend it, must be specialized in its field and have enough experience to solve all the arising problems. It must approach the project complexly and keep the big picture in mind. Creating additional values to the client’s product or service – it’s the duty of the agency who is responsible for its work and carries a part of the risks.