How New Signs Saved a Car Dealer $400,000 in Ad Costs

One small business used signcentric advertising to brand itself

The following article originally appeared in the October 2000 issue of Signs of the Times magazine.

By R. James Claus, PhD, Thomas A. Claus and Susan Claus

After having learned the auto-sales business as an employee, Melvin Tuchez purchased a San Fernando, CA, auto-sales lot and business, Aztec Motors, in 1996. Although three other auto-sales businesses had failed at the same location, Tuchez believed those business failures stemmed from their inferior image, weak management and lack of a vision, not poor location.

To address the first of these business issues – image – Tuchez improved his new property’s appearance. In addition to carefully purchasing and displaying his inventory, he spent $16,000 monthly on select print advertising and on-air media.

In March 1997, a representative from Signtronix (a division of Gulf Industries, Torrance, CA) called upon Tuchez. While conferring with Tuchez about his business image needs, the representative designed two, on-premise signs. Signtronix then fabricated and shipped these signs to Tuchez within a month.

The on-premise signs’ effect was immediately noticeable. Tuchez reports that walk-in traffic increased to a “minimum of 10 new walk-in customers per week, resulting in six additional sales.” He adds, “The signs paid for themselves in less than a month and set us apart from the other auto sales companies in the area. I have also reduced my monthly advertising budget to $4,000 per month.”

Aztec Motors began using the logo from its new signage on sales materials and promotions, but reduced its monthly advertising budget by 75%.

“How did you learn about us?”

Their sign: 50% (1234)
Word of mouth: 33% (820)
Newspaper: 9% (212)
Yellow Pages: 6% (139)
TV: 1% (32)
Radio: 1% (38)
Fig. 2: From 1997-1999, in conjunction with Gulf Industries (Torrance, CA), 165 independent merchants each surveyed 15-30 customers making first-time purchases at their respective businesses. In total, 2,475 customers were surveyed, and each survey was conducted 30-45 days after a merchant installed a new sign. As part of the survey, each merchant asked his customers, “How did you learn about us?”

The advertising principle illustrated by this independent auto-sales business is that of “signcentric advertising.” Franchised businesses benefit from signcentric advertising through an established logo program and varying degrees of standardized regional and/or national advertising. It is a generally accepted rule that to compete with top brands, non-differentiated consumer goods must sell their product for at least 15% less than recognized brands.

Many small businesses do not have the financial ability to develop regional or national “branding” of their business. And cost cutting may not always be an option. Is it possible for a small business to “brand on a budget”?

Signage as a brand aid
For most small businesses, on-premise signage is a blue-chip asset. How should the signage asset be incorporated into the business’s marketing and advertising plan? Effective advertising has four basic principles that must be addressed:

Developing memory: A higher percentage of memory in the public mind equals a larger share of the market. Where 15% to 25% of a market is annually changing, developing a memory for the good, product or service is critical.

Reinforcing memory: “Recall” is the unaided remembering of a commercial message. Unaided recall typically lasts for 48 hours. In a commercially competitive society, memory must be reinforced to be retained.

Capturing the impulse: As consumers drive, they often see a sign, stop at that business and buy on impulse. In fact, in many communities, on-premise signs increase business 15% to 25%. McDonalds, for instance, sells approximately 60% of its product via drive-through windows.

Influencing buyer selection: Changeable message centers (such as readerboards and electronic message centers) provide incentives for a buyer, as they advertise sales and promotions. Point-of-purchase marketing further influences buyer selections. Wal-Mart reports, in some categories, point-of-purchase marketing can influence up to 85% of the sales made.

To ensure vitality, a business’s advertising strategy must address these four principles, but a small business’ small budget limits the advertising mix it can afford. On-premise business signage can help stretch and maximize the utility of advertising budget monies and at the same time provide additional new customers.

In a national survey, Gulf Industries has learned that 48% to 52% of new customers making purchases in non-franchised businesses credited on-premise signage for guiding them to the business (Fig. 2).

Let’s look again at the advertising budget issues from Tuchez at Aztec Motors. Assume the Aztec Motors’ two signs had to be replaced in three years (36 months), at a cost of $15,000 (the estimated/assumed cost of two signs, three years in the future). Deduct one month from those 36 months to compensate for the cost and time it took Tuchez to pay for the new signage. Also assume the cost for signage upkeep is $1200 annually, which slightly offsets the monthly advertising expense savings. By applying a 10% capital rate over the three-year life of the sign, Tuchez has gained a net $466,293 in total advertising expense savings.

The future value of the advertising budget savings accumulates to $481,293. After deducting the reversionary cost for new signage at the end of the three years, the net savings to Tuchez is $466,293.

Let’s assume no interest-rate application to the formula and that, instead, the amount of advertising budget savings was available for use in other parts of the business. In other words, Tuchez doesn’t get a return on the money but merely benefits from the cost savings:

$11,900 net monthly advertising expense savings
x 35 months assumed life of signage before replacement, after subtracting one month to pay for the initial signage
$416,500
– 15,000 reversion assumed for new on-premise signage in 36 months
$401,500 net savings in advertising expenses

Assuming 10% interest, Tuchez’s signage decision will save him $466,293 in three years. At 8% interest, he will have saved $452,357. If he made no interest on the advertising expense savings, Tuchez would still be saving a little more than $400,000. This analysis is conservative. Why? The physical and economic life of on-premise signage is typically much more than 36 months. And savings increase with each passing year.By purchasing on-premise signage, Tuchez converted advertising-expense monies into a blue-chip capital asset for his business.

This analysis is conservative. Why? The physical and economic life of on-premise signage is typically much more than 36 months. And savings increase with each passing year.By purchasing on-premise signage, Tuchez converted advertising-expense monies into a blue-chip capital asset for his business.

By purchasing on-premise signage, Tuchez converted advertising-expense monies into a blue-chip capital asset for his business.¬†Aztec Motors’ signcentric advertising mix allowed the independent small business to “brand on a budget,” attracting new customers, minimizing advertising expense and yielding a profit.

What is the prognosis for Tuchez? He has already expanded and “branded” Aztec Motors into three other locations.

 

Posted in Blog: Rhetorical, Research, Signs' Advertising Value, Uncategorized.