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7)      Fundamental marketing concepts

A) Introduction

Marketing plays the role of a market arbitrageur, that is to say it helps brings the goods markets to an equilibrium. How does it achieve this purpose ? By enabling high value added products to be sold at a high price. Of course, marketing campaigns are costly, but provided that the variable margin earned per product sold is high enough, the company will be able to launch even more marketing campaigns and make even more profits, until the market is saturated and the cost of increasing marketing expenses becomes greater than the profits brought by the resulting few extra sales.

One of the problems raised by marketing is that of the affordability of marketing campaigns: if your business cannot incur marketing costs, does this mean that your products are not creating enough value as compared with your competitors’ ? Not necessarily … indeed, marketing costs often are what is called “indivisible costs”. For instance, in order to purchase an ad on TV, you need to have a huge budget: maybe your products would sell at very high volumes if they were advertised on TV, and maybe you would enjoy very high profits as a result, but the fact is that you can’t afford this initial TV campaign that would make you successful. In this way, companies who already have a strong financial clout are standing at a clear advantage. There are three solutions in order to remedy this problem:

-          find cheaper sources of marketing

-          include marketing costs within the selling price of your products, thereby transferring the marketing expense from your company to the end user. In order to achieve this, you must preferably be producing high value added products (so that marketing costs won’t be too high as a percentage of the selling price)

-          invest shareholders’ equity into marketing, which may be risky if the marketing campaign fails to deliver good results (of course, you might want to bear this risk, but you need to be aware of the possibility that you might loose the funds)

With respect to the above, one of the main lessons to remember for the young entrepreneur is that you should shift your attention towards high value added products if you want to be able to incur marketing costs and thus growth your business more quickly. Note that this remark also stands true for internet businesses: indeed, the cost of advertising online is more or less fixed, therefore by selling inexpensive products you cannot afford any marketing campaign and must either resort to affiliates or grow enough organic traffic (the first solution implying that you must abandon large commission to your affiliates, the second one being very difficult to achieve in practice, since it takes a lot of time to grow enough organic traffic; note that by “organic traffic” we mean return visitors along with all the traffic which is sent to your website by search engines or directly by word of mouth, as opposed with paid traffic which is obtained through marketing campaigns; organic traffic can be obtained by posting free quality content to your website, content which will be indexed by the major search engines’ robots and will attract visitors)