How many potential customers do you have in the market at any given time? The research shows that only a small percentage is open to purchasing at any given time, compared to the vast majority of your addressable market. This is an important concept to consider when deciding on the type of marketing efforts to focus your resources on, especially during times of market uncertainty. Following the first digital marketing tip for small business - the 60:40 rule - we take a look at the next marketing concept worth considering for every small brand.
The 95:5 rule in marketing
Your total addressable market (TAM) is the total amount of potential customers that could purchase your product or service. Knowing your TAM and segmenting this market into like minded values or attributes, is a way to focus your marketing resources on the largest, most profitable audiences.
But what portion of this market is really ready to hear your business message and buy from you? According to the Ehrenberg-Bass and LinkedIn B2B institute, not many. The 95:5 rule tells us that the vast majority of your audiences are not ready to buy at any given time. Specifically:
5% of your market is ready to buy at any one given time.
95% of your market is not ready to buy your goods and services.
This rule of thumb is not designed to be exact for every industry and business size. It represents a truth that carries across all markets: when most people are not ready to buy, use brand building to prime your business in their memory.
The impact on small business marketing
This rule should fundamentally shape your marketing budgets. If only a small percentage of your market is ready to buy, spending most of your budget on bottom-funnel, performance focused initiatives (selling) will connect with the interested 5% but will not effectively grow your potential with the 95% majority.
To attract the latter, your marketing investments are better focused on brand building objectives that target the top of the funnel (awareness and consideration). Instead of driving actions like making a purchase, brand building is designed to register your brand in memory. And you need to be noticed to be remembered. Your brand needs to leave an impression. Here are some brand building examples:
Videos that highlight your brand identity.
Content marketing like blogs that educate/entertain/inform prospects without selling.
Organic social media showing your company at work.
Influencer marketing to endorse your brand.
It’s important to note that the 95:5 rule supports our first rule, 60:40. By focusing on brand (60%), you’re focused on priming the market majority who aren't ready to buy. You are making people aware that you exist and reinforcing your brand in memory. How they register this memory - on a spectrum of positive to negative - all depends on the effectiveness of your brand building.
The strength of your messages, identifiable logo, and other distinctive brand assets will determine the cut through of your brand, bringing people into your marketing funnel so they can trickle down to sales.
If your marketing efforts only focus on the bottom funnel (selling), you’re delivering messages that generate little consideration with the rest of your market. Essentially, you neglect the masses and leave money on the table.
The 99:1 rule: recession marketing
When times are tough, this rule exacerbates even further. Small businesses are facing the same macroeconomic factors that their big counterparts are, and often feel the impacts even more. During uncertain economic times, even more of your market is not ready to buy, making your focus on bottom-funnel less effective.
However, a recession can be an opportunity for businesses that maintain brand building during this time. Professor Mark Ritson recommends that a recession is a great opportunity to get ahead of competitors by maintaining or increasing brand building marketing efforts.
In many cases when budgets are getting cut, its brand building efforts that are harder to track an ROI against and are cut first. This, as professor Mark Ritson states, is a mistake. While competitors slow down on advertising, maintaining your brand presence will build memory and positive associations with your market. When the recession begins to lift, you have maintained a presence in the market's mind while competitors have lagged, leaving you front of mind when they're in a position to buy.
Long beats short, for both long and short
In the case for brand building, more research has discovered that brand building activities outpace short in terms of long term effectiveness on both sides.
When you create a bottom-funnel performance ad (i.e. ‘buy copywriting services from me now’), this targets the 5% audience. It does little for generating consideration with the 95% mass and lodging your brand in their memory.
On the other hand, top-funnel brand building ads (i.e. ‘how website copy enhances your brand’) is more likely to drive positive consideration with the 95% mass and immediate bottom-funnel sales. Brand building can have positive impacts for both ends of the funnel, making it more effective in terms of positive sentiment.
Professor Mark Ritson summarises this here:
"Marketers should continue to invest in short-term sales activation because it shifts more units, usually with splendid efficiency and ROI. For those reasons, the short of it will always have a place in every marketer’s armoury. But the danger of overinvesting or only investing in short-term tactical activation now becomes all the more apparent, given the general inability of this kind of advertising investment to build brand for future sales. It leaves the brand at risk of ever-decreasing circles of demand while mopping up the current in-market potential.”
What about ads that do both? This question has also been tested and explored. While it can be done, the recommendation is to keep it separate. This allows for more definitive messaging, channel use (in-platform vs owned channels) and objectives (brand building vs leads).
The long game of catching the 95%
The 95:5 rule helps us take a long-term view of marketing for small businesses. If most people aren’t in the market today, businesses need to stay relevant for when they are. This requires physical availability (easy to find) and mental availability (easy to mind/recall in buying situations) - learn more here. This takes time and longevity in advertising on the channels that reach all potential buyers.
The 95:5 rule isn't exact for every industry and product type. Its purpose is to hold up a mirror to your realistic market potential and show your business why bottom-funnel marketing objectives shouldn't be the only focus. In many cases, it should be the lesser focus, especially when your market is facing uncertain economic times.