Hi, there this is Rajat from Startup Frat. Today we are gonna talk about marketing footprint. and what I am gonna talk about is a lot of different comments and outreach I receive on my email and all of that. And usually when I say hey man it’s become easier and easier to market your business even if you are a small business owner. You can market like a big brand and all of that. A lot of people have started thinking that maybe by easier, I mean you’ll be able to do set in your little cubby hole and not spending on your marketing. You are able to do it for free. So, two big mistakes that the average business owner makes if you are in this community. First of all, we are the lowest-cost provider. We actually provide the cheapest products in our space and the second is till now I have only got business through word of mouth marketing. A very proudly you know, we are the cheapest provider in space and will how have you been selling sofa well all of our business till now has come from word of mouth.
Big mistake in the numbers for you, I will give you the match. But before that let me outline if you are a business owner or a wanna be a business owner of corporate professionals who want to get into you know business and you want to be the cheapest provided that people default custom risk and basically default to run the numbers and see that’s a good idea. But long story short everybody does business for one reason only and that is total net profit in terms of dollars in rupees per year. The only goal as a business owner is to expand that figure which is total net profit which is the total number of rupees per year or Dollars per year.
A quick reference to notes now, the most businesses are structured in India is that the product cost which is how much money takes to produce your product let us say 70 rupees and let us say the margin that you charge on top of it which is your profit is let say 30 rupees and then MRP which is what you charge the customer will let us say100 rupees. So, 70 + 30 = 100. We don’t do any marketing because word of mouth reference we are so good and you know we are nice and try to keep it cheapest for the customer all are marketing comes from word of mouth.
Are you gonna get killed in the market?
Are you gonna get killed in the market? Because when I say it’s becoming easier and easier to become a business owner that means that does not mean it’s becoming easier and easier to set up shops and just get into business and make all the money etc. If you want to collect a net profit of total let says ranging from 10 to 20 Lakh rupees per year. Every single day that you don’t get the word out to your customers a potential customer as far as possible as far out and as deep into your market is possible every single day that you’ll lose. Not getting the word out to your customers somebody else who starting a new business who could be smaller than you whatever is able to capture those customers away from you.
So let me give your scenario. What is the scenario? Let us say so you now have zero marketing cost. Let us say I add marketing to it. Marketing 0 + 70. Let us say In a scenario you do 70 rupees per piece of marketing and you add 70 rupees per piece of product and you sell your product at a 60 rupee mark up which means the total MRP to the customer is 200 rupees. The total MRP to the customer is 200 rupees, because of this marketing let us say instead of selling 10 pieces a month you are able to sell 20 pieces a month. So, over here your total net profit is 100 x 30 is about 10 X 30 is about 300 rupees. Over here because of marketing you are able to get to more customers you know probably have double the customer base etc. You are able to do 16 x 10 = 600 rupees, 16 x 20 = 1200 rupees 20 pieces 1200 rupees.
The total net profit by investing into your marketing is why I’m using the same figure 70 + 70 the cost of getting a product shifted and in the hands of your customers 70. You need to add approximately another 70 to the marketing and you will easily quadruple your current net profit in terms of rupees per month or rupees per year. Now you may say why should I charge my customers more when I don’t want to and all of this marketing causes paid for the customer. Yes, my friend when you buy 20 rupees Coca-Cola that was made for 1.2 rupees essentially the 19 rupees going to some sports celebrity or whatever that marketing.
The whole marketing engine which they have. Which is the free refrigerator they gift your Kiranawala in order to store the coke. You know that the money they paid celebrities and things like that. So the customer definitely pays for all the marketing everything you buy as a consumer. You paid marketing dollars to the company. So, if you have even the nicest of brands and all of that you buy soap shampoo whatever it is. Basically, there is a 30 to 40% problem 60% of the price that you paid was the marketing cost.
Now how does that and for the customarily you know why should I do that to the customer you know it’s unfair to the customer etc. My friend, you will be able to supply the customer for long periods of time and provide this value for long periods of time and improve the value that you’re providing to the customer over long periods of time. Does having a much bigger footprint on this planet which is valuable to the customer.
If you survive for 10 years and constantly grow this footprint. Think Apple versus Nokia. Nokia was providing great value to the customers very cheap etc. But after a certain point, Nokia was useless for the average consumer. When Apple came it was at an average 4 to 6 times more expensive than a Nokia. But the value that they provide since then is so immense that today an Apple customer or regular Apple customer can not live without Apple because that device does so much more for the customer than a regular Nokia.
Today if you are given a Nokia phone for 4000 rupees to 4000 rupees down the tube it would be a waste of your 4000 rupees. But if you buy a Oneplus for 30000 rupees it’s 10 times that price for a Nokia, Apple for 60 to 80000 rupees 20 to 30 times price the value that little device provides today makes an acute change in your life. ok, Steve Jobs changed the world and all of that stuff. So don’t think in terms of lowering the price, think about increasing the value not loading a price increase in the value. If people love you and like you and you fail to survive if failed to survive for the next five years you would have done a great disservice to the customer and to the market. Think about all the beautiful little Indian brands that used to be there 20 years back when we were in childhood and they just failed to sustain. They had a better product they had everything they just fail to sustain the plane failed to sustain. They are not there anymore and all of that has been taken away by the Global MNCs and all.
It’s not a problem Global MNC is that they do they are not, nobody is coming by force to India and having their stuff down your throat it is just that they have better marketing they have better distribution they can get their product down to the exact last person on this planet that I have no access to anything else. Think Pepsi and Coke, Even you go to the smallest village they will have it. They will supply the Kiranawala with the Free fridge and enable them to supply you with Coke and Pepsi or whatever. You know the last person on this planet who probably doesn’t have connectivity doesn’t have good roads that have anything Coke make a show that product reaches the absolute last person in the country and on the planet as well. So they are able to utilize all these marketing dollars to make sure that there are able to impact more people for longer periods of time which is the definition my friend of customer values.
You will over a period of time with this model reduce the overall price for the customer because of something called batch processing. The principle of batch processing. Study this principle as much as you can because this my friend the 8 biggest wonder of the world is compound interest than the 9th biggest wonder of the world is batch processing. I learned this from my customers back in 2007 – 2008, When I Consulting manufacturing companies in Pimpri Chinchwad who were essential making auto parts and things like that and if they got a big order you know what they would do? They would Run 3 shifts Sunday. The factory would be running 24x7x365 and why not? Because the factory 60% of the cost was infrastructure cost. 20%, 30% of the cost is product cost.
These 70 rupees 30% of the cost was material raw material cost, and labor cost for let’s say 30% of labor. So, there are three ships instead of 1, let’s say their overall cost of getting the product out was not 70 in this case a 100. Then if they run 3 shifts only, things would triple. But infrastructure cost would remain the same then price the same. So, you talking about three pieces instead of one piece coming for 60 + 90 + 30 which is 180 and 180/3 = 60. So, the total price of the product to get into the hands of the customer is not a hundred anymore but 60. You just reduced the price to the customer simply by tripling your production. How do you triple your production? You just market more, you will get more orders that can triple your production. So, You need to understand this because if you cannot invest in your marketing, you wasting your time and you will be out of the business guaranteed.
Because every individual today can go to maybe social media for want of a better word of probably has a graphics and branding done for cheaper than the court area and probably produce videos and run the more the 200 MBPS internet the day have access to today that did not have access to two years of five years back. They are taking away your customers as you sit around with quilling thumbs and wind wondering you know how to improve your sale sitting in a little cubby hole and waiting for the word of mouth to communicate not a good strategy will go out of business batch processing will bring the price down over a period of time.
This is why if you see a relative to Income growth which has improved 20 times in the last five to eight years. The price of products and services are not grown which gives a lot more disposable income to customers today than they did back in 2000 than back in 1980. Compare the prices rise the salary rise from your parents to you it has increased almost 100 times or probably, even more, a thousand times. The price of products and services increased only five-time or ten times you know something like that. So lot more disposable income why because increased batch processing has reduced the effective rate of every product and service on the market.
That’s what people like Steve Jobs and Bill Gates counted on when they said I am gonna build a computer so small and so affordable that every desk will have a computer. Not only in the office but also in the home. In times when the computer is to cost a million dollars and would fill up an entire room. Batch processing the second thing is product packaging you want to get more profit. You say I am gonna increase the overall price then my competitors charge lower and they are gonna take away all the customers anyway. So, what’s you do is something called product packaging. All successful products today which have competitional marketer sold as a package. You think about health services. You can compare doctors depending on their consultation rates throwing on their annual healthcare package, will do 40 tests and will do your thyroid and cholesterol and sugar and then will throw a diet plan, etc.
Then over across the whole product portfolio, the profit remains constant. Think about insurance services, why don’t people just come and tell you we have you know you want to book yourself for a 50-lakh rupee cover any cost 15000 rupees a year that’s it. If you wanna book it yourself for a 50 Lakh rupee cover will cost you 15000 rupees a year. But why do they charge you 50000? They say, hey man you know you can also get your money back. So there is another component in there which is basically going straight into the mutual fund on which the company makes a 2% brokerage every time they switched the trade which you never come to know about because they never send you a letter every time they do that. So, they package it. The package the money back along with the insurance security along with a bunch of locking, etc. Then they give you this beautiful picture which can work for some people who don’t wanna apply the brain.
You know the average customer said that is it I am getting everything I will pay you 50 grand instead of 15. So you do product packaging over across the entire portfolio of products, your profit will remain constant and may even increase. The third thing my friend is total lifetime value if you have a bunch of different products and services that help a customer solve one problem and one problem only. You will quickly grow outside of competition regardless of who charging more whose charging less. Think Apple again, would you agree with me if I told you that regardless of whether you come 6 ft near an apple watch an Apple iPhone, or an Apple iMac, or an iPad, or whatever it is. Whichever level of the devices is described, try them once or you borrowed from your friend or somebody gift your device are you buy one for yourself.
If you buy only even one of these devices today, in the next five years you would have spent a minimum of 300000 Rupees with the same company again and again for the other devices. Why because they provide so much value to the average consumer that once you get into the iCloud you don’t want to come back to Windows you don’t come back to Android and keep buying these devices each of which is price more than their counterparts in Android and Windows. But by the end of you get into the Apple environment and become an apple person. You would spend 3 lacs, 4 lacs, 5 lacs. You know the total lifetime of your relationship which could be many many years. So, that is the entry point. If you get me an Apple device which is why I am scared because I know I am gonna do it, which is why I am staying away from Apple.
Because I know the moment I start using the iPod am gonna want to get the iPhone the moment I get the iPhone I want to get the iPad. You know no holds barred. So, the total lifetime value of a customer for Apple is roughly rupees 10 lakh rupees. Compare that with Nokia compare that with any Android device or any Windows device. You get by one laptop on Windows you can I use it for three years then probably you gonna get another one you can I use it for another three years. In 10 years you will spend no more than 1.2 lakh Rupees with Windows. But in 5 years you will spend up to maybe 6 lacs or 8 lacs, 10 lacs.
The total lifetime value of the customer will increase if you are a better marketer you get it into the hands of more people. You supply them with better need launch more products and served them better across a wider range on this planet. Your footprint is wider across this planet. You will be more valuable by virtue of the law of industry or the law of business. It’s a Universal law. You know people are not a one versus the other situation. Companies that charge more provide more value guaranteed.
So I hope this opens some window in your brain, which might have been closed and which might have some junk and some of you guys probably need some like a wake-up call. So, I am just kind of being very honest upfront for a short 5, 7 mins video. Whatever your takeaways from this, whatever your questions put it in the comment section. And I will be sure to answer them. If you want to send me an email it’s rajat@startupfrat.com. I will be sure to answer your emails.