How smart companies are selling more and spending less
we've long been impressed by how innovative start-ups are when it comes to marketing their products and services. Forced by lack of resources to be creative, they come up with great ways to get around the usual channels of distribution, the traditional advertising media, and the expensive outside agencies. We've noticed lately that they aren't alone. We've talked to dozens of companies recently, some old, some new, some with revenues of less than a million, some with revenues in the tens of millions. They all have one thing in common: they're doing more of their marketing in-house and they're liking it better.
Some words and phrases come up over and over as owners explain why they've decided to leave their typesetters, ad agencies, public-relations firms, or marketing consultants.
* Control: In this chaotic economy, managers want as much control as possible over all phases of their operations, to keep their businesses on track.
* Flexibility: As competition keeps apace, chief executives have to be able to move quickly and aggressively, and they have a much better chance at that when the work is done inside their companies.
* Clutter: To get a product or service noticed these days, a company has to be innovative to get through the clutter of advertisements and direct mail.
* Quality: To a person, those we talked with thought the quality of work done in-house was far superior to that farmed out. The common refrain ran, "No one knows our company like we do."
* Savings: For the most part, managers reported significant cost savings by doing all or part of their own marketing.
Overall, the companies we've been talking with are evangelical about their do-it-yourself approach to marketing. And one thing's for certain: it's hard to argue with the results.
Across the country, company owners are finding not only that it's less expensive to do their own advertising and promotions, but it's also much more effective. John Hewitt has been in the tax-service business for 22 years. His company, Jackson Hewitt, is based in Virginia Beach, Va. It operates in 27 states and the District of Columbia, and is expected to do $28 million in sales this year. Hewitt figures he knows his business as well as anybody this side of H&R Block and Uncle Sam. That's why he decided in 1989 to fire the company's ad agency (its second) and bring the work in-house.
"When you go with an agency, you lose the drive," says Hewitt. He notes that agencies get a percentage of billings and thus have little incentive to get the best deal for their clients. "It's a conflict of interest."
Hewitt says the seasonality of his business works well for him when it comes to buying media time. That, he claims, was not fully appreciated by his last agency. "Most agencies don't understand how lean and hungry the first quarter is for TV and radio stations," he says. "Well, that's when we do all our advertising."
Hewitt recalls an instance in January 1989 when he went into the Buffalo market and told his agency he wanted to pay around $10 per gross rating point for TV airtime. (A gross rating point is 1% of the audience at a given point in time.) His ad agency balked when he named what seemed a ridiculously low price. "We were told the range is $30 to $60 per gross rating point. They said H&R Block was paying $30 a point." Hewitt said he didn't care; he remained steadfast on price and sent his agency back to negotiate further with the station. "We ended up paying $10.66."
With both agencies he employed, Hewitt estimates, it took two years to bring them up to speed on the nuances of the tax-service business. "With an agency, there's always a learning curve," he says. "They have to understand who we're after. Agencies tend to talk in terms of age groups and income levels." Hewitt claims his market is much more fragmented and fast changing than that. An early tax-return filer tends to be a blue-collar wage earner, a late filer an upper-income individual with a more complex return. Fifty percent of the population files its returns between January 1 and February 20. "If you're not ready, and you don't know who those people are, then you've lost 50% of your market right there," says Hewitt, whose airtime buys range from prime time to 3 a.m., depending on the week of the year.
Hewitt says annual revenues have increased by 100% each year and costs per ad have declined by 10% since he began doing his own advertising. The product, he believes, is also better. "An ad agency might have 30 to 40 clients. They don't have the time to understand us as well as we do."
Robert Kullman of Kullman Industries, a $50-million commercial construction company in Avenel, N.J., didn't do any advertising until the company's revenues reached $8 million. And he didn't take any stabs at public relations until the company reached $17 million. With the goal of diversifying the company's markets, Kullman and his vice-president of sales, Chuck Savage, began interviewing PR agencies a few years ago. They were shocked at the fees: $10,000 to $25,000 retainers, plus monthly expenses. "Also," says Kullman, "I wasn't super impressed by any of the firms we talked to; they didn't appear to have press contacts."
Savage's own efforts at publicity persuaded them to stay in-house: a story he wrote about a synagogue project made the cover of The New York Times real-estate section and led to a $10-million deal.
Through the efforts of marketing director Amy Delman, the company has written and placed more than a half dozen articles in trade journals covering industries where Kullman is trying to build market share. Recent stories penned by Delman in American School and University, for example, have already brought Kullman a private-school project worth $2 million.
"We're a small-to-medium-size company," says Kullman, "and for the type of PR firm we'd attract, we'd be just another account. Our in-house PR person knows the company inside and out; she lives it every day. She's part of the management of our company. That's much different from going to a public-relations firm."
Doing your ads and promotions in-house can also energize your salespeople, according to Pat Kelly, chief executive of Physician Sales & Service (PSS), in Jacksonville, Fla. Kelly says his $86-million company has been doing its own advertising and promotion since 1983. "We've interviewed agencies now and then in the past," he says, "but we think we're doing a better job already than what they propose."
PSS, which distributes medical products and supplies to doctors, produces sales-promotion material -- primarily brochures -- on a regular basis. In that effort every one of its 28 branch sales managers and three regional sales managers works with the company's creative team on a rotating basis over the course of a year. Says Kelly: "It not only saves a lot of money, but we get a good 'buy in' from our people. If you develop the sales program, then you feel responsible for making it work."
Last year the company launched a national sales promotion. The program was to last a year, with the best performers winning a trip to Europe. The promotion required the design of brochures, monthly performance statements, and other assorted materials. Kelly had two ad agencies bid on the project. Both bids came in at around $30,000 -- and that didn't include promotional giveaways, which would have cost another $10,000. That was too high.
He convened a team of his three regional managers and two managers from the corporate office to figure out what the campaign should look like and what it would cost if done internally. In one day of brainstorming the concept was agreed upon and laid out. The work was farmed out to a local printer, who did the design work and printing. The total cost, including promotional giveaways, came to $11,000.
Were the considerable savings worth it? The goal of the sales campaign was to have 200 units of a $10,000 piece of medical equipment sold during 1990. Kelly expected that if that goal was reached, 18 people would go on the trip. "We sold 343 units, and we ended up carrying 60 people to Europe," he recalls. "Everyone bought in."
Technological advances -- especially desktop publishing -- have allowed even the smallest companies to bring design and typesetting in-house. That's a particular boon for catalog companies, which now can make last-minute changes that would take days on the outside. It gives companies both control and flexibility. "When you're dependent on harvests," says president Shepherd Ogden of The Cook's Garden, in Londonderry, Vt., "it's nice to be able to make quick switches." Ogden and his wife, Ellen, run a mail-order seed and gardening-supply business, which started with a garden stand in the early 1980s and went full-time, with a homegrown catalog, in 1988.
The Ogdens write all the material for The Cook's Garden catalog (now 80 pages), its laid-back press releases, its direct-mail pieces, and its seed-package inserts.
"I would never farm any of this out," says Shepherd Ogden, who calculates that the savings from just one year's typesetting bill have paid for the desktop-publishing system. The company, with revenues of less than $500,000, uses about $10,000 worth of equipment, including IBM-compatible PCs and laptops. The catalog's black-and-white woodcut illustrations are easily incorporated into the layout, using a $500 scanner.
"Doing the catalog is the part we enjoy," Ogden says. "If I were to hire out anything, it would be packing and shipping."
Recent technology has also allowed the Ogdens to target specific zip codes in their catalog mailings. It is the sort of thing that just a few years ago a small company couldn't afford to do, but inexpensive software packages are now available -- the Ogdens use Zip Data from Melissa Data, which costs about $100.
Some companies have experimented with outsiders over the years but keep finding out they do all aspects of their advertising and promotion better themselves. That's the conclusion of Tom Lisicki, president of Stash Tea, in Tigard, Ore. Stash processes and blends teas, which it then sells through catalogs and in grocery stores, restaurants, cafeterias, and health-food stores. Lisicki has tried an outside catalog-fulfillment house, an outside advertising agency, and an outside catalog-production service.
Going counter to conventional catalog wisdom, Stash has even built its own mailing list. That's too expensive, the experts say. To find out who buys through mail order, you rent lists. Period.
Reaching established catalog consumers, however, is one thing; finding the true enthusiasts of your product is quite another, as Stash Tea knows well.
The company has developed a mailing list of 150,000 hard-core tea drinkers. More than 30,000 are now Stash customers -- that's a 20% return rate. A few years ago, just for fun, the company rented a list of "certified" mail-order buyers. It got the normal response rate: 2%.
In Stash's first 10 years, supermarkets wouldn't give the tea company the time of day. Then it placed a small advertisement for a catalog on the back of its foil tea wrapper, which itself was designed in-house. Thousands of letters began pouring in. (A recent one begins, "Greetings and salutations from China! I am surrounded by tea and yet there is nothing to equal your products.")
"Basically, we developed this list of qualified leads at no cost to us," says Lisicki. "We were getting a 6% to 8% response rate just by sending the catalogs out." But then Stash went one better; three years ago the company began including a personal note with each catalog. An on-line database of the letters and sophisticated querying capabilities made the task fairly easy. The response rate jumped to 20% to 30%.
Armed with a printout of people clamoring for its tea, Stash has pushed its way into 2,000 stores in the past five years. During that time, the company has been profitable: the mail-order business has quadrupled; retail sales have tripled.
The 19-year-old company's do-it-yourself approach has won two Gold Echo awards -- the direct-marketing equivalent of the Oscars.* * *
If credibility in the marketplace is one of a company's primary concerns, then advertising in and of itself -- even in-house advertising -- may not be the answer. You may need to enlist the support or endorsement of enthusiastic but independent users in order to persuade prospective customers to try your product or service. That was the challenge facing Magellan Systems Corp., founded in 1987 in West Covina, Calif., to exploit a star-wars technology called GPS (global positioning by satellite). GPS can pinpoint a person's location and altitude anyplace on earth, using radio signals from orbiting satellites that are translated back on earth. Processors that use this technology come at a relatively modest price from companies like Magellan, whose sole product, a hand-held receiver/computer called NAV 1000, retails for around $2,000.
Though it was a typical consumer-electronics start-up, Magellan faced more than the typical problems of product acceptance. On a low budget, it had to earn credibility: not only did it have to prove it was capable of contending with established competitors; it also had to prove the uncanny abilities of the novel instrument it was about to manufacture. Magellan identified three market slices: sailors, surveyors (in oil, gas, mining, and forestry), and the military.
Magellan assigned boat owners top priority. But to blanket them with advertising would involve buying space in perhaps a dozen modest-circulation specialty magazines -- one for motorboaters, one for racing sailors, one for casual sailors, one for yacht-club members, and so on -- at an average cost of perhaps $12,000 per page. And for all that, readers probably wouldn't trust a little box that looks more like a toddler's toy than a potentially lifesaving precision instrument.
Magellan had to foster faith, but not via a high-priced rollout. One way to do that was to seed the market by placing units with key hobbyists, professionals, and journalists -- "people who could grasp the technology quickly and somehow be able to promote it for us," Magellan's marketing vice-president, Richard Sill, describes them. Six units dispensed to such presumably talkative people would equal the cost of one magazine ad. And the payoff would be greater.
Such was the thinking, anyway, of Sill, a veteran marketer from an earlier stint at Bausch & Lomb. His first success came on February 23, 1989, when Magellan's just-off-the-line product made its public debut. Sill had just given one to the editor of a boating magazine. As the editor strolled with it in hand, the contrivance magically tracked his exact position. Shortly thereafter, an enthusiastic article appeared.
Following a basic seed-scattering dictate -- find someone who's doing something that's bound to hit the press -- Magellan put a receiver in the hands of a South African adventurer attempting to set a world record by circumnavigating the planet in a tiny, open boat. Another went to an individual attempting the first-ever crossing of the Atlantic in a solar-powered vessel. After a Magellan sales rep spoke at the Explorers Club in Manhattan, he was approached by the president of the New York Botanical Garden, which was supervising a project in the jungles of Brazil. The project involved plucking leaves from potentially curative plants and shipping them to medical researchers in the States. The problem was how to return to a given plant, the botanist explained. GPS seemed to be just the ticket, but the nonprofit society didn't have funds to buy a NAV 1000 outright.
What did Magellan expect to get from donating a NAV 1000? Free mention. The botanical garden's chief is often asked to appear on TV, and he sometimes mentions brand names of donated products. Furthermore, botanists are a tightly knit international community through which word of mouth would rapidly spread. In addition, donations to nonprofits are, at least for tax-deduction purposes, considered charity, driving the dollar cost of seeding even lower.
A hidden benefit of calculated giveaways is that people from other market sectors call up and identify themselves. Promising user sectors that subsequently tapped Magellan's largess included a treasure hunter searching for the remains of Columbus's ships, a biologist tracking land tortoises in Arizona, the director of research for the Appalachian Mountain Club, and a mapper of the Grand Canyon.
No matter the total expense (undisclosed, but it's no doubt a pittance: let's say 100 units at maybe $800 wholesale each, plus shipping), the seeding concept clearly is paying handsome dividends. In 1989, Magellan's first (but incomplete) fiscal year, sales were $1 million; in 1990, $7.3 million; in 1991, $22.4 million, a sum that includes $7.5 million worth personally bought by Desert Storm soldiers as insurance against getting lost.
The trick to seeding a market is to find the fewest people who can do you the most good. And the technique isn't only for ambitious high-tech companies. On a culinary lark in the summer of 1987, Chris Schlesinger, chef and co-owner of the East Coast Grill, in Cambridge, Mass., bottled up some hot sauce under the unlikely name of Inner Beauty Real Hot Sauce. Ideas for marketing Inner Beauty to the world beyond the grill, a humble establishment in a down-at-the-heels neighborhood, fell to Boone Pendergrast, a transplant from Memphis. The restaurant had hired him to computerize the operation and perform sundry administrative tasks.
With no formal background in sales, marketing, or public relations, his first stop was the Boston Public Library, where he did a database search of articles on peppers written in the last three years. That cost nothing and took an hour. The search yielded a list of about 85 food writers and editors around the country. Pendergrast mailed each a bottle of Inner Beauty and a one-page homegrown press release that began, "Inner Beauty Hot Sauce, hottest sauce in North America, unleashed on general public . . ." That first mailing cost about $200.
The payback was not long in coming. Within six months Inner Beauty Hot Sauce had garnered mention in half a dozen magazines, among them such widely circulated national journals as Metropolitan Home, Family Circle, and CondÉ Nast Traveler. The coverage, Pendergrast believes, earned Inner Beauty more than just free exposure. "The difference between advertising and having your product mentioned in an article is credibility," he says.
Today Inner Beauty appears everywhere, from the menu at The Four Seasons Hotel in Chicago to the cart of a sausage vendor named George, outside Fenway Park in Boston. Sales this year will approach $200,000, wholesale. Pendergrast, who spends 60% of his time helping to manage the restaurant, estimates he has spent $6,000 in the past three years in direct-marketing costs (postage, samples, and other promotional materials).
Company owners -- especially outgoing company owners -- can also take actions of their own to achieve the credibility needed to drum up business. That is Bailey Ruff's strategy. Ruff, his wife, and his son run two hardware stores in Arlington, Tex. It's a town without its own newspaper, TV station, or radio station. No matter. Arlington Hardware was voted the third-most "fun place to shop" by readers of the neighboring Fort Worth newspaper.
From the start Ruff has managed to get noticed. In the inflationary late 1970s, shortly after he founded his first store, then-president Jimmy Carter went on the airwaves to ask the nation to please follow some price and wage guidelines. Ruff quickly ran a small ad in the Fort Worth Star-Telegram, saying, in effect, "Yes, Mr. President, our store will comply with your guidelines. And we will post the names of suppliers that don't." A Dallas TV station snapped it up, and Ruff found himself on the evening news. A dozen radio interviews followed.
Suppliers that had routinely raised prices more than 5% every few months stopped doing so; the threat of exposure was enough. Sales, meanwhile, doubled from 1978 to 1980. "Fifty-percent increases weren't unusual in those years," recalls Ruff. "It gave us super credibility to be on the 6 o'clock news. We were still a young company then. It let people know we were serious about keeping our prices down."
These days, with 60 employees and his stores' sales at about $10 million, Ruff -- and Arlington Hardware -- continues to be in the public eye. For the past three years, Ruff -- dubbed "Mr. Firecracker" by the locals for underwriting the Fourth of July festivities -- has had his own TV gig. "On the House," a short spot at the end of a popular cable-TV show on real estate, airs four times a week and features Ruff offering tips on home repair and gardening.
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Event marketing has been going on as long as Betty Crocker has been sponsoring bake-offs. A now time-honored institution among consumer giants, event marketing has emerged as one of the fastest-growing arenas in marketing. But billion-dollar benefactors are not the only ones playing the field these days. Among the North American companies that will spend $3 billion sponsoring events this year, some of the savviest are small, niche companies that manage to turn their products into public spectacles and, as a result, transform their marketing into news events.
Innkeeper Chuck Hillestad, for example, has made event marketing his chosen weapon for penetrating new markets and offsetting business cycles. Through one event alone -- his Romantic of the Year contest, which offers prizes including a candlelight dinner, candies, breakfast in bed, flowers, and, of course, a night at his Queen Anne Inn -- he has reached hundreds of new customers. The cost: excluding the prizes, about $500 -- to photocopy and mail his press releases. After a winner was chosen, Hillestad sent discount coupons for one night at the inn to all the contestants. In return, he estimates, he got 30 to 40 new bookings that winter. The event took place, not so coincidentally, just after Christmas, the inn's slowest time of the year. "Last year turned out to be our best winter ever," he says of the inn, which had approximately $270,000 in annual revenues.
Then there's the New England Culinary Institute, in Montpelier, Vt., which has turned a campus pastime into a sales tool for recruiting students. In a sort of Olympian bake-off, the school's annual Quadrathlon pits culinary schools from different regions against one another. Each five-member team begins with an identical bag of mystery ingredients that its cyclist transports in a 15-mile loop to the institute's restaurant kitchens. Each team's prep cook then takes over, decides a menu, and prepares the ingredients, which he or she then passes on to the team runner. The runner carries the ingredients on a tray in a two-mile race uphill, where each finish chef must cook a meal. Finally, each team's server presents a finished meal to three judges.
As a result of its colorful contest, the school, with tuition revenues approaching $6 million, has attracted national publicity, including coverage on "Good Morning America" and articles in publications ranging from The New York Times to Runner's World. "In any given year 25% of the applicants we accept will have heard about the Quad and have had a positive response to it," says cofounder John Dranow. And the out-of-pocket expense for the competition is a mere $1,500.
Other companies are using events to launch products, gain wider distribution, build awareness, and just plain sell. And few are doing it better than Suntex International, an Easton, Pa., game manufacturer founded in 1980 by Robert Sun.
In 1989, after launching one modestly successful product, Sun knew rolling out his new game would be no trivial pursuit. If he had any dreams of selling his card game in volume, he'd have to persuade the large national chains, the real king makers in the game business, to cede him shelf space first. Without a titanic (and, needless to say, costly) promotional campaign, he faced weak odds of doing that. What's worse, his latest diversion was a math game, dubbed 24. Its object: to combine the four numbers on each card, through quick mental arithmetic, to equal 24. Not exactly Nintendo. And few math games had ever sold in big numbers.
Sun couldn't afford to promote 24 through advertising. Besides, even the most seductive ads would be no substitute for actually playing the game, he knew. "Customers have all sorts of questions before they buy: 'How do you play it?' 'How long does it take?' 'Is it fun?' You've got to get it into their hands to try."
Fifty cities and 2 million kids later, that's exactly what Sun has done, using a series of low-cost tournaments to build a base of players, increase his distribution, and garner hundreds of thousands of dollars' worth of free publicity for his product. More than 400,000 copies of the game have been sold in two years. And revenues will exceed $1 million this year.
Why tournaments? The idea grew out of seeds Sun had been planting for some time among educators and business leaders -- people he hoped would influence his market and lend their imprimatur to his game. Working the education circles and attending conferences helped. Scholastic DynaMath magazine, an educational publication that targets middle-school children, ran a national 24 contest for 30,000 fifth- and sixth-graders across the country. Soon after, Al Sterling, director of the Chicago Public Schools Adopt-a-School program, decided to test a tournament in Chicago. The 1989 pilot, which involved 3,000 elementary classrooms, proved so successful that Sterling persuaded his colleagues to take the tournament citywide the next year. With the enthusiasm of school officials behind him, Sun had little trouble winning the support of St. Paul Federal Bank as sponsor.
He offered a guaranteed audience -- 125,000 Chicago-area kids and their parents. The bank's logo would appear on all the games and promotional material. Bookmarks printed with the game and the sponsor's name would go to more than 100,000 homes. Suntex would run a publicity campaign, assuring the sponsor prominent mention. All for the cost of distributing and promoting the product -- about $10 for each of 4,000 classrooms. "The fee covers everything," Sun says. "The event costs the schools nothing. And the kids get the games for free. Everyone walks away a winner."
On a December day this past year, Sun hosted his first major tournament in Chicago, with four newspapers, five camera crews, and six radio stations in tow to cover the scene. There were 50 finalists (culled from thousands of inner-city kids) in the throes of high-stakes mental arithmetic, screaming, "24!" They competed fiercely to be the best, to the delight of teachers, parents, and the thousands who would view reports that night on the evening news.
The results were tangible and immediate: Toys "R" Us sold out of 24. Dominick's, a Chicago supermarket chain, sold 7,500 copies that Christmas season. Its competitor, Eagle Foods, sold 3,000. A major book chain in the area moved another 3,000 games. And Waldenbooks, one of the country's largest booksellers, crowned 24 its number-one-selling game last year.
Manufacturers, banks, and the media began lining up to sponsor the 24 Challenge in other cities. Sponsors came in all sizes -- global and local -- and from all industries. In Columbia, S.C., the contest was sponsored by Bojangles Restaurant, and IBM furnished the games to classrooms; In St. Louis, Domino's Pizza hosted the contests; in five southern states, the sponsor was South Central Bell. Local radio jocks were playing the game on the air.
Sun estimates the game and tournaments have been covered in 15 top newspapers. He counts at least 100 mentions in print, radio, and television combined. "I would have had to spend $100,000 to $200,000 in radio and television advertising to get this kind of exposure for the product. It's extremely cost-effective. We've covered more than 60,000 classrooms at $10 a classroom. And most of that has been paid for by sponsors. To get the same amount of publicity and product recognition, we'd have had to spend $3 million -- strictly advertising." And although Sun is almost embarrassed to admit it, the tournaments have actually become a profit center for the company. "I could have a business doing well on sponsorship fees alone," he says.
Alternative Distribution Channels
Going to trade shows and using independent reps are standard methods of expanding distribution with little capital. Still, innovating in distribution is a time-honored way for entrepreneurs to make their mark. From Federal Express to Wal-Mart to Dell Computer, plenty of companies have gotten their start with a founder who had an idea for a better way to deliver goods or services to the consumer. But it's not always by choice that entrepreneurs go outside traditional distribution channels. Just ask Ted Bernstein of Assured Enterprises, in Chicago, who claims his firm sold $220 million in life-insurance policies last year, bringing in just under $1 million in revenues.
Back in 1982 Bernstein was sure he had an idea for a new service that would save consumers money. There was just one problem: it was bound to alienate all the people who would normally sell it.
At the time, Bernstein was a college student who -- following in the footsteps of his father and grandfather -- had already begun selling insurance. But he wasn't happy. Bernstein hated the bad reputation of insurance agents. To do their job, they had to become close to their customers. But because they were paid on commission, he thought they couldn't really have their customers' interests at heart. If an agent got a wealthy client, for example, the fixed-percentage-of-premium commission on a large policy seemed like an exorbitant reward to Bernstein -- a reward that he knew came, indirectly, out of the client's pocket. So he decided to change that. "I would not work in the insurance industry" as a commissioned salesperson, he vowed. "I would not be the butt of Woody Allen jokes all my life."
Bernstein's idea was simple. If he could get insurance companies to devise life-insurance polices with no commissions or very small ones, he could sell them while charging an up-front fee for his services. If he targeted wealthy individuals -- the ones he thought were overpaying in commissions -- he thought the combination of a cheaper policy with a fee would still be lower than an ordinary life-insurance policy.
That's where Bernstein's distribution problems came in. Obviously, he couldn't expect most insurance agents to get excited about the scheme. ("Great! You want to reduce my income on my most profitable clients! Where do I sign up?") On the other hand, if wealthy individuals wanted to buy more life insurance, they'd undoubtedly turn to their agents. So, at the age of 21, Bernstein didn't just have to sell his product but had to persuade clients to consider an alternative channel of distribution.
He decided to try a two-pronged attack. He could send direct mail to potential clients and then call on them. But he knew he needed credibility to persuade them to try something new, and insurance agents certainly weren't going to give it to him. So he started a campaign to explain his concept to other professionals to whom a wealthy person might go for advice about life insurance: namely, lawyers, accountants, and bankers in trust departments. He would ask them for a meeting to explain his concept, saying it was a new idea that their clients might soon ask about. Unfortunately, he discovered, lawyers, accountants, and bankers do not want to sell or recommend insurance.
The best Bernstein could do, then, was to convince the professional advisers that his was a legitimate alternative. So he started on a do-it-yourself public-relations campaign. Knowing that reporters saw their role as defending the public interest, he emphasized that consumers deserved to know about the costs they were paying in life-insurance commissions. When reporters balked at the notion of giving him what would amount to free advertising, he suggested that they not include his company's name but just mention the concept of "low-load" insurance.
Because Bernstein was among the pioneers in low-load insurance, he began to get press. First it was local, in Crain's Chicago Business, but eventually he was mentioned in Forbes, Fortune, and The Wall Street Journal, and by syndicated columnist Jane Bryant Quinn. Each time a story came out, Bernstein ordered reprints and sent them to the lawyers, bankers, and accountants he talked to. His aim was to solidify in their minds the notion that low-commission insurance was a credible alternative that was increasing in popularity. When Bernstein was trying to sell to new clients, he asked them who their lawyer, banker, and certified public accountant were -- and, ideally, he'd know at least one of them. If so, he would then suggest the client ask that adviser about Bernstein's concept. Your insurance agent, he'd say, will say we're awful, but your lawyer will know better. If Bernstein got a clean bill of health from an objective adviser, it was much easier to make a sale.
Bernstein built his credibility, and in 1985 he persuaded the accounting firm of Laventhol & Horwath to promote his service to its clients, primarily in the Chicago area, for a fee. Although Laventhol & Horwath recently went under, in those days its reputation was fine, and it gave Bernstein further standing within the professional community; it served as a badge of approval for his idea.
Since then Bernstein's concept has indeed become a trend of sorts; more than a dozen insurance firms have now entered the low-commission insurance market. Now Bernstein is thinking of expanding to wealthy regions such as Beverly Hills and West Palm Beach.
Like Bernstein, Armando Cuervo learned to rely on other professionals to help market his product. That was after a false start with traditional channels of distribution. Cuervo, through a federal research grant, had demonstrated that his invention, a device that simulates car motion and sound in a crib, stopped most colicky babies from crying. When he got baby stores to carry the product, he thought he was home free. But baby stores weren't interested in explaining the research to parents; the device was just one gadget among many they carried. Worse yet, Cuervo offered a money-back guarantee because he knew there were some babies for whom the device wouldn't work -- but stores hated being hassled by returns.
After a year of disappointing sales, Cuervo began targeting an audience that would understand and appreciate his scientific research: he started attending pediatric conventions and sending direct mail to pediatricians. The results were much better. Today his company, Sweet Dreems Inc., in Westerville, Ohio, sells its product, SleepTight Infant Soother, only by phone. Cuervo, who reports sales close to $350,000, says 50% of his referrals come from pediatricians.
Rather than inventing a distribution system or figuring out how to get into an existing one, Rick Chitty, CEO of Programmed Intelligence Corp., in Norcross, Ga., built his entire software company around the idea of getting somebody else to deal with the hassles of distribution. From the start, in 1986, Chitty and his partners decided that rather than spend a lot of money to get distribution, their company would license its report-writing software to other software developers that were writing for a variety of specialized industries. Their theory: whether the software was for accountants or pharmacists, the end-users would want a variety of options for printing out their data. It would be cheaper and easier for the software publishers to license Programmed Intelligence's software than to write their own.
Programmed Intelligence receives an up-front licensing fee as well as royalties. Chitty says his company now licenses its software to some 700 clients, who sell it under some 500 to 600 different names. Although licensing means giving up much of the profits, it's worth it to Chitty, who claims that his $8-million company has grown an average of 90% a year, with pretax margins in excess of 20%. "I'm interested in literally sitting in the background and clipping my little royalty coupons," he says.
If all else fails, consider the tack of yogurt maker Gary Hirshberg of Stonyfield Farm Inc., a Londonderry, N.H., company with revenues of about $9 million. Hirshberg got so fed up with bad service from distributors that he started a distribution company in his own region. It was an expensive and arduous task. ("Probably everything that could happen to us has," he jokes ruefully. "Every night when I go to sleep I wonder if one of my drivers is going to injure somebody.") But after five years Hirshberg believes it was one of the best moves he ever made, because sales in stores serviced by his drivers -- who are paid on commission -- are much higher than in comparable chains.* * *
Marketing Is Eternal
Despite the enthusiasm and success of these company owners, they would be the first to admit that there are drawbacks to do-it-yourself marketing. One of the main problems is the amount of time it takes. Innkeeper Chuck Hillestad puts it well: "You can't rely on one positive article or one clever trick. Marketing is eternal." While some chief executives hire people to take over the implementation of their marketing ideas, Hillestad persists in doing his own: "At this point we could afford to pay someone to do this, but why bother?"
Shepherd Ogden of The Cook's Garden knows all too well how consuming a do-it-yourself effort can be. While he was learning desktop publishing, he was constantly distracted from other aspects of his business. Even now, on top of all his other duties, he has to maintain the system. And in these days of fast-paced technological advances, who knows how long it will take for his system to become obsolete?
Event marketer Robert Sun logged in thousands of miles (and shelled out considerable expenses) to attend his promotional tournaments. With event marketing, there is usually a fair amount of administrative logistical work that falls into somebody's lap. At the New England Culinary Institute, it takes about two months of coordinator Pam Matecat's time to arrange the annual Quadrathlon.
On the other hand, if you bring someone in-house to handle marketing, warns Chuck Savage of Kullman Industries, you should be certain that person is multitalented. Otherwise, the support staff can easily get too big and too costly.
Slower growth is often a characteristic of companies that try to do a good deal of their own marketing and promotion. Take Stash Tea, for instance. It's taken the company 19 years to grow to $12 million, and at that, it's still not a household name. A region-by-region approach to a national market -- especially if the owner has to be present -- can be at worst impossible and at best slow going. The latter is what Robert Sun is finding with his game, 24. And Sun faces an additional problem: the tournaments drummed up more demand for his product than he could deliver, because of a shortage of distribution channels. Still, it is a better problem, he says, than having products languishing on the shelves, which would probably lead to the closing of distribution outlets.
Despite those and other problems -- such as how Magellan manages to control the number of demonstration instruments it gives away -- many companies are finding that traditional marketing techniques are just not working for them. Their products or services may simply be too specialized for advertisements to pay off. Or they want to experiment with more direct and measurable approaches to increase their market share. Or, like Tom Lisicki of Stash Tea, they simply believe that in the long run, they can do the job better than anyone else can. "I'm much more confident in my own staff," says Lisicki. "Plus, if you do it yourself, you learn and you do it better the next time. And the more you do it yourself, the more the synergies start to happen."
-- Reported and written by Susan Greco, Nancy Lyons, Robert A. Mamis, Martha E. Mangelsdorf, Anne Murphy, and Edward O. Welles.
Guerrilla Marketing Attack, by Jay Levinson (Houghton Mifflin, 1989); $8.95
Marketing on a Shoestring, by Jeffrey Davidson (John Wiley & Sons, New York, 1988); $14.95
StreetSmart Marketing, by Jeff Slutsky with Marc Slutsky (John Wiley & Sons, New York, 1989); $14.95
Successful Catalog Marketing, by Richard S. Hodgson (Dartnell, Chicago, 1991); $39.95
The Advertising Handbook, by Dell Dennison and Linda Tobey (Self Counsel Press, North Vancouver, British Columbia, 1991); $8.95
Ogilvy on Advertising, by David Ogilvy (Random House/Vintage Books, 1985); $17.95
Do-It-Yourself Publicity, by David F. Ramacitti (Amacom/American Management Association, New York, 1991); $17.95
"Radio-TV Interview Report," a 50-to 100-page newsletter published by Bradley Communications Corp., in Lansdowne, Pa., for program directors and talk-show producers across the country. An entrepreneur can place an ad in the directory, promoting himself or herself as an expert on a given topic and inviting interviews. A full-page ad costs $479. A cheap way to get publicity. A tape is also available. For information contact Bill Harrison, at 215-259-1070.
"Special Events Report," a biweekly newsletter published by the International Events Group, in Chicago. Subscriptions cost $340 per year ($225 for nonprofits). IEG also publishes IEG Directory of Sponsorship Marketing and IEG Legal Guide to Sponsorship. Call 312-944-1727.
The Center for Corporate Community Relations at Boston College, in Boston, a membership organization providing training, consulting, and research to companies that are interested in event sponsorship, cause-related marketing, and community relations. Call 617-552-4545; in Oakland, Calif., call 415-287-9377.
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