Business

The marketing paradox: To spend or not to spend

Every startup wrestles with the question of how much they should spend on marketing. Big companies spend all kinds of money on marketing, but how do you get big?

This is a very important question, as spending too much can kill a business, and spending too little could mean you don’t grow big before the competition catches up.

On the surface, marketing is a visible, non-technical activity, so every person in the company has an opinion on it. The head of sales favors spending more on marketing as it helps her grow the pipeline. The head of marketing favors spending more as it gives him a bigger palette from which to paint. The head of engineering may like press coverage as it features his creations, but is blurry on where marketing ends and sales begins. And the head of finance is always reluctant to part with the money. And so it falls to the CEO to decide.

Well then, what should the CEO do? The simple answer lies in answering the following quiz:

Here are two groups of very successful and well-run companies that we all recognize as global brands. Which of the two groups of companies do you identify with?

Category

Group 1

Group 2

Fast food

Starbucks

McDonald’s

Retail

Costco

Walmart

Search Engines

Google

Bing (Microsoft)

Non-scientific and anecdotal polls indicate that most people prefer Group 1. When asked why, almost invariably the answer is that Group 1 has built a stronger brand through better marketing and advertising campaigns.

Hmm….When was the last time you saw a TV ad for Starbucks, Costco, or Google? How about the last time you saw a TV ad for McDonald’s, Walmart, or Bing?

As it turns out, Group 1 spends very little on advertising, while Group 2 spends a lot. We rarely see ads for Starbucks, Costco, or Google.  But have seen tons for McDonald’s, Walmart, and Bing.

Companies that spend very little on marketing and advertising end up offering products that cultivate natural affinity from customers. A big part of this is because the money saved on marketing goes towards building or delivering the product.

For example, Starbucks, and Costco both provide health care for the bulk of their employees, while McDonald’s and Walmart do not. In retail, employees are part of the product; happy employees treat the customer better.

In essence, Starbucks and Costco have opted to skimp on advertising but spend on product. In contrast, management at Walmart and McDonald’s choose to spend lots of money on advertising but not provide healthcare for employees.

Walmart and McDonald’s are global giants that grow through advertising. Starbucks and Costco grow through word-of-mouth. Customers often set up meetings at Starbucks, creating viral growth. And Costco carries custom party effects like birthday cakes to foster viral growth, since a parent with young children is the most natural starting point for a Costco customer. No matter that custom cakes are very strange items for a warehouse store that sells toilet paper and dog food in volume.

The above applies to companies big and small, whether they sell to consumers or businesses.

My employer, Bitglass, offers security software for the Global 2,000 to secure data on cloud applications and mobile devices. We choose to skimp on advertising and spend on improving the product we deliver to customers. In the short run, our choice might puzzle employees, prospective employees, and the competition. But in the long run, we will delight our customers, retain happy employees, and confound the competition.

The choice to skimp on advertising and spend on product is something that each company must make for itself. There is no right way or wrong way, it is a strategic choice that typically reflects the values of the company.

Nat Kausik is CEO at Bitglass, a company that provides mobile and cloud security products to the enterprise.

More information:

Move Forward With Cloud and Mobile, Securely. As enterprises adopt cloud applications and BYOD, IT is faced with securing corporate data that resides on third-party servers and travels over third-party networks to employee-owned mo... read more »

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