September 01, 2006

Survivor, General Motors, and Database Marketing

What the heck do the television show "Survivor", General Motors, and my field, Database Marketing, have in common?

According to a post on the Fast Company Blog, General Motors pulled $14,700,000 of advertising from Survivor, after the show decided to group castaways on the basis of their race.

This is where Database Marketing comes into play. We Database Marketers frequently analyze the profitability of decisions made by our companies. And while General Motors appears to be taking a moral stand on the allocation of participants to teams on the basis of race, there are financial reasons that make this decision appear even more interesting.

According to General Motor's most recent annual 10-K filing, the average car sold by GM costs the consumer about $21,000, of which GM earns about $2,300 of gross profit.

Therefore, in order for General Motors to break even on $14,700,000 of Survivor advertising, they must sell 6,392 cars. It seems possible that GM could sell 6,392 incremental cars because they advertise on a show seen by at least 10,000,000 fans a week.

A few years ago, General Motors did not have to offer as many discounts and rebates to get a customer to purchase a car. A few years ago, General Motors earned about $4,000 on every car they sold. If this level of gross profit existed today, GM would have to sell just 3,675 cars to cover the cost of advertising on Survivor.

In other words, GM must sell 74% more cars in 2006 to cover the cost of their advertising, compared with just two years ago. The quality of the advertising must be 74% better than two years ago, to provide the same return on investment as two years ago.

Obviously, I have no idea why General Motors truly made the decision to pull advertising from the television show "Survivor". But it is clear that their current financial situation influences how precious cash could be spent. And when you have to sell 74% more cars just to cover the cost of advertising, it may seem like a good idea to pocket $14,700,000.

Unfortunately, companies cannot reduce expenses enough to overcome customer apathy. At some point, companies have to keep investing advertising dollars that generate an acceptable return on investment, somehow improve existing products, or develop new products that stimulate customer interest, and truly manage expenses in a wise manner, in order to run a successful business.

And if it were easy to do all of that, you and I would be running our own, highly successful companies.

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