Make sure it's a positive word on the street

First published on WalesBusiness.org

A few years ago I flew with a Dutch airline and had the worst flight of my life.

Halfway through the flight it came to light that behind us was sitting three Interpol agents who were extraditing a felon back to Ecuador. I cannot begin to tell you want is wrong with this scenario – especially when they gave him metal cutlery with his in-flight meal!

This was one in a long line of shortcomings which I haven’t got enough time to go into here.

Why am I telling you all this? Because this is a lesson that all firms should learn: that good old word of mouth advertising is still the best advertisement any business can generate even in this day of high technology.

Literally billions of pounds are spent by the huge corporations getting brands established in the public eye. Yet when all is said and done, a simple recommendation from a good friend or acquaintance will count for far more than any glitzy advertising campaign ever will.

Put simply, word of mouth advertising is the most powerful advertising medium any business can harness. In a world full of advertising noise and hype we become quite immune to the continual bombardment of the senses by the big spending companies and mostly ignore the message they are delivering.

This is why so much money is thrown at advertising by all business just to get themselves heard.

Did you know a full 80% to 90% of many company start-up budgets are directed into advertising? Spectacular failures were witnessed in the late 90s / early 2000s as many dotcom companies failed to live up to the hype and glamour projected by the advertising agencies. 

Often the collapse occurred after many millions of unwitting shareholders’ money was wasted.

In a conventional system of manufacturing and retailing the company produces the product for a known figure. Say the company is a vehicle manufacturer and a car they sell through a dealer is sold for (not worth) ￡10,000.

The manufacturer of that car would produce it for around ￡4,000 net cost which would include them making a profit from the car when sold to a dealer.

However this is just the start of the costs. To establish a strong position in the market place they then allocate perhaps 50% of the cost of manufacturing the car to advertising. So they have to make ￡6,000 to break even. On top of this they also have many hidden costs of running and maintaining expensive machinery and research and development projects.

This is all before the car even leaves the factory floor. So by the time the car is shipped to a dealer the actual price has been increased by a staggering 100%.

Then to top it all off, the dealer does their advertising so they can compete with all the other dealers vying for the customer. In all, 60% or more of the retail price of a car can be eaten up in distribution and marketing costs.

How much do you think a can of Coke would cost to manufacture? If you answered 7p or less you are close to the mark. It is somewhere under 7p to produce.

Yet that same can of coke after everyone has had a slice of the profits is sold to the public for about a pound. Now if someone tells someone else about this “great drink” do they get paid for it? Not on your life!!! The advertising agencies account for a great slice of the profit and the retailer makes the rest.

To harness the power of word of mouth is really the key for success in business nowadays, considering that consumers believe more about what other consumers advise than anything else.