Wednesday, February 11, 2009

Marketing Insight Tip #4 - Bell Curve for Small Business

(photo credit: J. Phil)

How to use the Bell Curve in your small business marketing

Hope the graphic above isn't too overwhelming. It just points out the wide variety of applications for the bell curve. It's that way because this oddball curvey line describes a natural phenomenon which all businesses encounter and only a few really know and use.

Recently, I was reminded of this by some huckster I was still getting email from. He said that "this guy" was the best in writing sales letters and articles. So I checked his "this guy" out. The claim to fame was that his sales letters and landing pages routinely had a 2% conversion rate.

What he was saying was that he could write an average page and get average results consistently. Any sales page is supposed to get that type of result, almost regardless of how it's written. 2% conversion is what spam is based on. Volume contact, volume conversion - but the same percentage.

Let me introduce some numbers here:
96% - general public who are in some other niche market and who somehow found your site.
80% / 20% - attributed to an economist named Pareto, this combination tells you where the bulk (80%) of your sales are coming from and what percentage of your subscribers (20%) are making these purchases. It also tells you that most of your problems in your marketing are coming from a small percentage of areas.
3-5% - the number of people you can expect to have the best results with any line of service - these are the "rave results" you hear about (unless the guy is selling internet marketing, and has a bunch of hypesters on his page giving testimonials).

If you center these numbers along a curve, you'll see the 96%/80% in the center, with the 20% split to both sides, the 3-5% on the extreme edges. That's the Bell Curve. Now, if you set these up all from right to left, you get an exponential drop, 96-80-20-5-3%. This is the curve used to explain the Long Tail. Same numbers, different graphic.

Applications for these are numerous.

Narrow down to your top 20% of your products and put 80% your marketing emphasis on these. Don't discontinue the others, unless they fall into the category of causing 80% of your problems. Focus on your bread-winning efforts - what is really bringing home the bacon. Pay attention only to the essential core of your business. Clean up the rest as needful, but never spend more than 20% of your week at these. Set those others up on near-automatic and let them run. If your metrics show they suddenly become popular, then elevate them to your 80% area. If they are consistently causing you returns/refunds, ditch them without sorrow.

Big Box:
When you concentrate on a narrow area, you have better success than using a shotgun approach. This is the secret to Long Tail marketing, and the failure of corporate businesses who try to be everything for all customers. Wal-Mart knows this. They don't carry stuff which doesn't sell and sell well. You can't get products which are either high-end (which sell far fewer, but at a higher profit margin) or extremely cheap (no profit margin unless you are a bulk reseller.)

You'll find some representative (20%?) products for most (80%?) of what you want. Sam Walton figured out long ago that you could sell a lot more for slightly less and so improve your profit margins tremendously. If you want a particular type of screw or hinge, go to a hardware store - what Wal-Mart carries are general wood screws and common butt and strap hinges to repair average jobs around the average American house or garage. You won't find fine woodworking hinges here.

Where the small business outperforms the big box stores is in the exact niche. By finding and marketing to a specific set of people who want a particular and exact types of products, you will then be able to service these more precisely and will be rewarded with their loyalty. Corporations often confuse this one when they get "big".

I used to work for Brookstone - in their warehouse. I'd see the catalog and note that they no longer had unique tools in it - stuff that you dreamed about getting for your own shop. They only had stuff which was in other catalogs: radio-electronics, special mattresses, massage chairs. When they replaced their CEO, I wrote him a note about this. His reply was that they could no longer compete with Big Boxes and so had themed their products around home improvement. Huh?

Look, they built their brand on having unique tools for guys. And this is why their Father Day sales were great. When they expanded, they decided to go into competition with Lowes, Home Depot, Sears, etc. In other words, they decided to go Big Box. Meanwhile Duluth and other catalogs started servicing their original customers with unique tools and products. Why are they having trouble in this economy? Because they aren't selling anything essential. And any guy can tell you, having the right tool at the right time is essential - and everyone appreciates a gift. Brookstone abandoned it's successful policy and is reaping the whirlwind.

Long Tail Niches: This is where small businesses shine. Gary Vaynerchuk took his family liquor store and expanded it to a dynasty of selling wine to people online. He did it through education - infotainment. Go to his site and you'll see how he does it. (And better yet, he'll tell you how he does it.) Simple concept, brilliantly executed. Lots of people can buy different types of wine if they know which one to get for what use. The trick is that people don't know - and so make some regular videos that inform people about this area and your sales increase.

By concentrating on just wine and education, he was able to expand his family liquor store to an international success. For any small business, this means that suddenly you're not nailed down to only having the local people near your store able to access your products - you can ship these anywhere in the world. For small businesses to sell to niche consumers everywhere on the planet - this is a no-brainer. The Internet is the great equalizer - if you know how to use it.

Back to where we started. Look, it's a statistical phenomenon, proved over and over. Out of 100 pitches, 2-3 people will buy. Spam and telemarketing took off because they were able to lower the overhead (cost of doing business) and increased the volume dramatically. So sales picked up - dramatically. Unless you are doing something really wrong (like links that don't work), then you are going to have this type of percentage.

What you are concerned with is not so much initial conversions, but repeat traffic. These are subscribers. People who know you and your brand and keep coming back for more. When you see people say they have a "7% conversion rate", know that they have some repeat business in there. When you see "17% conversion" you know they are missing some prime "velvet-rope" opportunities - where they should be selling exclusive access to part of their site just for repeat customers.

I know this route - from working for an international corporation which dealt in self-help books, tapes, and counseling. There's been an external analysis of their production (not paid for by that corporation or connected to them) which found that about 70-80% of their initial course completions left after the first service. (That's a 2-3 day course, given for a couple of hours a day when the person can fit it in after work or during the day. Cheap - about $50, plus course materials.) Now, another 10% left in the first year. By year three, they lost about 97% of the people who had walked in their door for one reason or another. But they made their weekly millions off the 3% which was left. Those generally spent between $50K and $100K over the next 5 years. Each. They were put into more and more exclusive areas and paid more and more. By the time they got to the top, they had each personally invested millions (literally) in services and materials to that corporation. All on a "velvet rope" subscriber basis.

That corporation didn't really need the bulk of their prospects that walked in the front door. They just became extremely efficient for the few who had the money that corporation needed. Now, I don't think they've really done this analysis themselves, or they'd see how their marketing (something along the lines of your money is going to saving this planet as we expand internationally) is really false. And they'd also see that they are throwing away more than they're making. But it keeps the few continuing to buy in. And to that corporation, perhaps, marketing (and their millions in weekly income) is all that counts.

How you can put this to use:
OK, I've gone on too long in this area for most readers. What I'm saying here is that
  • the small guy can do whatever the big guy is doing, with the leverage of the Internet.
  • Just make sure that you are getting a broad exposure (cast a wide net) while concentrating on a smallish niche which is profitable.
  • And cherish your repeat clients.

Warren Buffet says (who is actually quoting Andrew Carnegie, who got it from someone else): "You can put all your eggs in one basket - you just have to watch that basket real closely."

Good luck - and good hunting!
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