How many of you would buy a ten dollar bill from me for five dollars? I am willing to bet every one of you would do so, if you knew that I would actually be foolish enough to sell ten dollar bills for one-half of their value. We all know that there are some basic economic laws and one of them says, “A dollar is worth a dollar, no more and no less.”

Why do you think you are different
Why is it then that so many advertisers believe they can purchase circulation numbers for less than the cost of printing and distributing a magazine? I continually hear stories from advertisers who swear they purchase ads in magazines that have 200,000, 300,000 or 400,000 copies in circulation, at prices that cannot even cover the cost of the paper and ink to print the page. Either these good people are lying to me or they are repeating the lies told to them. A dollar is only worth a dollar. You cannot get ten dollars worth of value for a single dollar. There are people far smarter than you and I who would have cornered the market on this if it were true.

If it is too good to be true – guess what?
It never fails to amaze me how the most reasonable and seemingly intelligent people can be convinced that they can consistently buy a product below cost. It is an economic impossibility for anything other than very special short-term circumstances. As a business person, none of us would want this practice to become commonplace. If it did, the laws of economic balance would require each of us to sell our products at a loss in order to compete. Our entire economic system would quickly drain itself and free enterprise, as we know it today, would end. Why then do we continue to erode other companies’ profits and yet are offended at the suggestion of doing so with our own?

There are two things wrong with advertising: how it is sold and how it is bought. When buyers focus on price, salespeople are tempted to inflate circulation numbers in order to lower the perceived cost. But basic laws of economics tell us that you cannot consistently buy a product at a loss. Yet the more price pressure is put on the market, the more temptation salespeople face to inflate the product value. Eventually, buyers are only dealing with lies and exaggerations. Does the biggest liar always win? We all know that businesses cannot continue to sell to us at a loss, but too many believe that they are the exception to this rule.

You get what you pay for. Advertising people seldom overcharge customers. There is too much competition to do so. The problem is too many advertisers actually believe they are getting more than they are. Their insistence on getting a deal leads weaker salespeople to promise more than they actually deliver. I know. I have called several competitors for rates and circulation, and then have checked their quoted circulation against their certified numbers.

So when you think you are getting a something too good to be true, I suspect you are only getting exactly what you are paying for in today’s business environment but are being led to believe it is so much more. Paper, postal and newsstand promotional costs are all rising. No publisher can maintain the same circulation numbers as a few years ago without raising advertising rates. If advertising rates are not going up, then what you are buying is going down. It is an economic certainty.

The good news in all of this is that nobody in the craft industry actually needs an additional 400,000 customers. When you analyze your business and discover your market share, you may well discover you could not handle a business increase such as this. Remember, once you determine the annual value of your customer and divide your growth goal by this number, you arrive at the number of new customers needed to reach your increased sales goal. In the majority of cases, the number of new customers required to provide your sales growth will represent only a portion of the circulation available to any magazine in your category.

Relying on price to make your media buying decision is as dangerous as relying on price to decide which surgery you need when you have a failing heart. A tonsillectomy is much cheaper than triple bypass heart surgery, but when your life is at stake, you are not buying solely on price. As a matter of fact, I am willing to bet that if the price of heart surgery is not as high as you expect, you will be looking for a second opinion. You see, your life is very important and you want the make sure you pay enough to get well. You will even be willing to pay a little too much in order to make sure you get well. Yet too many advertisers are only willing to pay what they want to pay, but rarely willing to pay what is needed to pay, in order to grow their businesses.

Many never consider the content of their message or how targeted is their media buy. What you say and how you say it is as important as to whom you say it. I often tell the story of the $15 Cadillac. A very rich man bought a new Cadillac and in the first week decided he didn’t like it. The dealership would not refund his money. They would only give him a “trade-in” value for a car less than a week old. In frustration he tried to sell this new Cadillac in a local newspaper ad for $15. The newspaper had a lot of readers. Yet nobody responded to the advertisement. The reason was that the offer was too good to be true. And because it seemed so unrealistic, nobody who read the ad bothered calling even though many of them were interested in buying a car. Your message must convey value for your product in balance with the price of your product. Our consuming public is far too wise to fall for bait and switch ads or other con jobs designed to fool them into acting. Again, a dollar is worth a dollar, as is the perception of a dollar.

When someone offers you a discount, you should ask yourself why. Nobody offers to cut their price without a solid reason. The only time I offer price concessions is for my convenience. When I want to increase the amount of booked revenue well in advance, when I want to increase my dominance in certain business categories, and sometimes when I am training sales people, I am likely to offer price breaks. I trade this profitability for other strategic advantages. Want a discount from me? Offer me a strategic marketplace advantage and you will win my heart. I never discount for someone else’s convenience. Neither do my competitors. Be very wary of anyone who gives discounts because “they like you.” Either you are not getting a true discount, or you were paying too much in the first place.

This entry was posted on Wednesday, July 15th, 2009 at 5:16 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.