Question

Topic: Strategy

National Interest - Cost Prohibitive?

Posted by stacey on 10/27/2009 at 12:07 PM ET 250 Points
We've been running a pilot program in MN for 5 years, which has proven to be very successful. We deliver congrats gifts to new moms and follow up w/website and direct mail. Redemption rates are as high as 30%, avg. 10%. A year later, 88% of the recipients can recall what was in the gift when they received it.

We recently attended a conference to measure national interest in expanding the program. Our preliminary findings are that many national brands are interested in our program.

The issue: Cost. Because of the style of our container (gift) and cost of shipping this piece, we're looking at costs to a national partner upwards of $450K-500K per year. That does not include cost of materials they provide or redemptions.

If we deliver to 600,000 new moms/year w/an avg redemption of 10% that's 60,000 redemptions/year or 5,000/month since we do deliver monthly (50,000 deliveries/month).

I do not have a background in marketing, I was the target of the marketing. I've read that advertising budgets are anywhere from 3 - 10% of revenues.

I can't get around if this is a doable business model for national expansion. It seems expensive to me, but it's efficient and effective, which is more than what some of the other advertising venues can say.

I'd appreciate any thoughts/suggestions/resources you can share.

Sincerely,

Stacey

www.newmominc.com
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RESPONSES

  • Posted by CarolBlaha on 10/27/2009 at 12:10 PM Member
    Why are you paying for this cost? Why isn't the national parter?
  • Posted by stacey on 10/27/2009 at 12:29 PM Author
    The national partners would be covering the cost, the $450K-550K/yr. That's my question, I'm feeling it may be cost prohibitive to them.
  • Posted by CarolBlaha on 10/27/2009 at 12:35 PM Member
    Ok, got it. Geez we are making a lot of babies arent' we!

    Can you share the cost between multiple national partners in one basket?

    Can you give them option of only certain areas and less distribution? They may ask for that in areas their product isn't popular anyway or where their demographics don't fit their target clients.

  • Posted by Peter (henna gaijin) on 10/27/2009 at 12:50 PM Accepted
    You have your cost and have a feel for return (in number of people) from your activities - what is missing is what the benefit to the advertising company would be. If you can calculate this based on your local experience, you can get a feel for the dollar benefit to your potential clients (which would tell you whether they would think it is worth paying the $450K-550K/yr).

    If the total cost seems prohibitive to them, you can slice and dice the target market for them. Work with them to only target certain regions. Some big companies are regional anyway, so this may be a benefit for them. Or a way they can try the system with a lower cost to make the decision whether they want to go national.

    Another way would be to add value to what you are doing through targeting new moms of a certain demographics. Maybe the advertising company only wants to reach new moms who have family incomes of over $50k. If you could break out your list like this, it adds more value to the customer (so they are more willing to buy, or possibly you could even charge more for this service).
  • Posted by stacey on 10/27/2009 at 12:54 PM Author
    The demographics we delivery to include babies born w/in the last 4-6 weeks to households w/family income over $65K.

    We also continue the relationship w/a direct coupon mailer and online resources.

    I've been thinking of continuing to use MN as a test market for the nationals to get a feel of the program's success first. But even if successful, the cost may be a factor?

    The $450 - 500K is a breakdown per client, this assumes we have 20 clients participating. Again, the cost is definitely a big factor.
  • Posted on 10/27/2009 at 1:37 PM Accepted
    The cost is NOT a big number to the kinds of companies you're targeting. When I was with Playtex we spent way more than that for some of our new-mother programs. (The key is measuring effectiveness and efficiency -- not counting absolute dollars.)

    What you need to do is demonstrate how/why the program is cost-effective/efficient for the target audience, show them how it has been successful (in MN) for others, and then give them a way to test effectiveness for themselves without biting off the whole country right off the bat.

    Of course, the more you can sub-segment, the more attractive your program will be to many of these sophisticated marketers. For example, a company like Playtex may want a different message in markets where there is a high incidence of breast feeding than in markets where the incidence is lower. Etc. It depends on what their marketing strategy is and how well they've segmented their own target audience.
  • Posted by CarolBlaha on 10/27/2009 at 2:33 PM Member
    I'd follow Goodman's advice-- don't assume cost is a factor. Build the case that your returns justify their investment. For example, I just researched this and found people spend an average of $800 year on disposable diapers-- that means its a 480 million dollar a year business in diapers alone.

    While you can empathize that the cost is high, don't sympathise. Sympathy will hold you back-- and have you double guessing yourself. Sympathy will have you thinking -- gee this is a lot of money, and I can see why someone wouldn't spend it.

    Empathy will have you understanding the investment is high, but you are delivering a quality and unique product into the hands of moms ready (and needing) to buy now-- and the numbers justify the investment.

    Just a direct mail piece to the mom's - at $1 a piece is more than your investment. And most direct mail ends in the trash, unopened. Thinking like that easily justifies your cost.

  • Posted by stacey on 10/27/2009 at 2:48 PM Author
    Demonstrating how/why the program is cost effective/efficient:

    It's efficient because:

    We deliver directly to mothers who have had a baby within the last 6 weeks - not a cent is spent on someone who is not your targeted consumer.

    We deliver to moms who've had babies within the last 6 weeks and have HHI greater than $65K

    We limit the number of participating companies, therefore eliminating the clutter and keeping your brand visible.

    We deliver directly to her home - this way you know it's been received, you're not depending on someone to pick it up or to get it home.

    It's effective because:

    Our clients experience redemption rates of 10 - 30%.

    According to our recipient surveys:
    Participating brands are seen in a more positive light because of their participation - they're seen as caring about the consumer.

    2/3 of the recipients become repeat customers of the participating brands

    88% remember a year later who was in the gift when they received it

    On average, recipients tell 7-10 others about the congrats gift and participating companies.

    97% are more likely to purchase from participating brands than those seen in print or on tv.

    Moms spend more than 8 minutes going through the gift.

    Do those stats demonstrate its efficiency and effectiveness appropriately?




  • Posted by CarolBlaha on 10/27/2009 at 2:53 PM Accepted
    Absolutely they do. You have a great value statement.

    In addition, run your redemption rates and the 2/3 who become repeat customers with the diaper cost alone.

    10% redemption rate of a 480 mil a year diaper biz means 48 mil in sales. 2/3 become repeat customers-- that is 32,160,000. Babies wear diapers approx 3 year. That is $96,480,000. And when baby #2 comes along, we remember the product we like-- and buy it again.
  • Posted by stacey on 10/28/2009 at 10:47 AM Author
    Thank you for your time and suggestions. Emphasizing vs. sympathizing is a key component I need to be conscience of.

    It's encouraging to hear that Playtex spent much more than that on their new mom programs, though number of impressions still concerns me a bit.

    I have meetings set up w/some ad agencies interesting in hearing about our program for their clients. I'll keep all of your points in mind as I prepare the pitch.

    I maybe back asking for more advice...

    Thank you,

    Stacey
  • Posted on 10/28/2009 at 11:07 AM Moderator
    Can you create a worksheet so a prospective client can enter their own numbers (price, margin, anticipated redemption rate, etc.) and calculate for themselves how much money they'll make by using your delivery system?

    Also, do everything on a "per-thousand" basis, so they can compare you to other alternatives on an apples-to-apples basis.
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