Where do the big guys spend their money?

Business
1

A friend of mine asked me why his shop can’t compete with the likes of amazon, tesco, argos, etc - same product lines, same market. All I could really tell him was his £50 a month is a tiny fraction of what they are paying…

I just wondered, apart from the off-line marketing, where do these big guys spend their money? And how much do they spend?

Obviously top-notch, super-fast reliable servers and a team of people keeping the content up to date, but what else??

How many people, and how much money does it take to make amazon tick?

2

It’s not about how the big players are doing things, nor a simple question regarding ad spendiure. He needs to find a business system that works for him. I.e. something that pay all the bills, leaves a profit, is sustainable over time and scaleable.

Getting there often takes knowledge, research and iteration. The time/cost of finding that business system is what he should expect to pay to see any results.

Big ad dollars doesn’t fix a bad business system.

3

Even if he spends tens of thousands of dollars a month it probably won’t make a huge difference unless he can differentiate himself from his entrenched competition

I agree.

When you’re the underdog, you have to make up for name recognition and simple human inertia with innovation and intelligence.

Success can happen. Lot’s of things could happen – doesn’t mean the odds are in your favor.

4

What Tesco spends, or doesn’t, has next to nothing to do with the £50 client. Anyone talking about Tesco with that kind of budget has a loose hold on reality.

For 2009, Tesco’s ad budget was £77.6 million. Many of these guys have integrated marketing campaigns, so separating out the online component of a coherent marketing campaign can be highly misleading.

For 2009 The COI, boosting its internet budget 45% to £10.4m. 5% of its £218.3m overall media budget.

If we assume a similar percentage (not great, but suitable for this purpose) we get £3.88 million for a rough guess. So, say, 3-5 million. Based on what I said, you could have a duplicate site, servers, and IT staff and not do a fraction of the business Tesco does – even matching spending pound for pound.

Does that help anyone in any way. I doubt it.

I guess a more sensible question to ask would be, what kind of figure should he expect to pay to see any results ?

Unknown. That depends on factors like what the site is like, pricing – also dependent on buying power, product mix, marketing (unique selling proposition), usability, service policy and so on. The high opinion of the site the client has, while charming, isn’t relevant. What users think (or more importantly do) matters so much more.

Don’t invest in traffic if the vast majority won’t convert to paying customers. Convert first. Then traffic. If users only stick with you for one or two purchases, purchase on average half of what they might purchase with better visual merchandising, and refer the site to others approximately never, where are you then?

Suffice to say, just an evaluation could blow that budget out of the water. And if you’re talking about competing with Tesco, you’ll need that level of evaluation and business analysis.

5

The most sensible question would be “why would a consumer choose to buy from some unknown mom and pop shop on the Internet when they can buy from a brand name respected company where they know if something goes wrong that they will be able to deal with them”?

Even if he spends tens of thousands of dollars a month it probably won’t make a huge difference unless he can differentiate himself from his entrenched competition.

Can he offer quicker delivery?
Cheaper prices?
Better support?
More products?
More product knowledge?
Preferably more than one of the above?

6

I certainly wasn’t dismissing the offline stuff!

I just wondered how much money & how many man hours went into the online marketing, seo and general running of these big sites - so that next time I’m asked ‘well how much do tesco spend?’ after telling someone they are not spending enough, I might have some kind of answer.

I do take your point, if you are not lucky (or smart) enough to be in the right place at the right time, you have to come up with something a bit special, and I think you are absolutely right about Apple.

But I am talking about box-shifters, not designer/manufacturers. My friend in his local family-run shop, selling big-brandname products, is trying to go national through his ecommerce site. And, although I know his £50 is peanuts compared to what amazon spend each month, I have no idea what that figure is - thousands? 10’s of thousands? 100’s of thousands ?

And where does it go? Do they have a team of 5 people full-time on seo’ing & adword campaigning for ‘kettles’? … another 5 on ‘lawnmowers’ ?

I guess a more sensible question to ask would be, what kind of figure should he expect to pay to see any results ?

7

I don’t know how much Amazon (and the likes) spend on marketing but I think it’s very substantial. Amazon has huge center providing support to their customers, their affiliates, etc. They have invested many millions in their server-cloud and performed (and bought) loads of market research. They have spent years refining their model to allow 3rd parties to sell through their system. They have invested millions in to some pretty innovative and fancy logistics/operations to make their shipping more efficient.

I don’t think there is any big secret expenditure that you need to discover to compete with companies like that. Many of them are reasonably efficient for their size and have very large budgets from marketing to IT and everything in between.

I have a feeling you’d be surprised if you learned just how many people, physical locations, servers, etc. it takes to run a business like Amazon!

8

apart from the off-line marketing

You’re kidding. Right?

Let me get this straight. A competitor puts out ten or twenty (or fifty) million offline to drive traffic directly to their site or into their stores. And we’re just going to ignore that. We’re going to assume that doesn’t matter.

his shop can’t compete

Death on the web is Monkey-see, monkey-do. The reason is that is the easiest route the unimaginative take. Competition means competitive advantages – key differentiators that set you apart from “me too” competitors.

You do not “compete” with a full-on frontal assault on an entrenched competitor. What happens isn’t that you take any of their market share. A million little nobodies split up what’s left over.

Obviously top-notch, super-fast reliable servers and a team of people keeping the content up to date, but what else??

Get into an emerging market early and be the last one standing after a decade of monkey-see monkey-do competitors bit the dust. So step one: Fire up your time machine.

Either that or find a wide open market to be first in. Get close to the customer. And stay close to the customer.

Apple enters seemingly entrenched markets. They get find out what inbred, unimaginative competitors miss (almost entirely on the human factors end – Apple “invents” little technology: Not the scroll wheel, they didn’t invent MP3 players, they didn’t invent tablets or touch screen phones).

They take a dozen or so off-the-shelf technologies, refine and reiterate the design, and then blitz the market with Design Driven Business strategies and tactics. And they do this when everybody – and I mean everybody – focuses on technology and cost cutting. (Because as entrenched competitors they “Know” the market is maturing).

Competitors hire graphic artists to make products look pretty just before launch. Technology, manufacturing, and bean counters dictate to designers and apply a hundred constraints.

Apple makes technologists realize the vision of an ambitious design. Other companies slap a logo on a case, Apple brands through design.

That’s why every single Apple product for the last decade is pronounced dead-on-arrival, most especially by entrenched competition. When you ask the technologists about Apple before they enter the market, all Apple ideas are marketing fiascoes. Five years later, the very same people say Apple is all about marketing.

When you look at how the technologists develop products, it’s reminiscent of 1950’s era business. (They look at an Amazon and all they see is servers and IT personnel) Apple is a twenty-first century company with mid-twentieth century competition.

9

it is reasonable! i agree with this idea!