I was driving down the highway last night on the way home from a conference and my mind started to wonder. All along the side of the highway I saw billboards for all kinds of different companies and services. What really caught my mind was a billboard advertising Diet Coke. I’m not sure why it caught my eye from all of the other signs but maybe it is because I own shares of Coke and I’m always thinking of my best financial interest. The thing that got me to start thinking was “why did Coke choose this location to advertise?”
The first thing that came to mind was “they have a huge budget and want to get as much exposure as possible so why here?” I would understand if they bought the side of a building in Times Square to advertise because that is the most expensive advertising real estate in the country. Then I started thinking that Times square will cost 100 times more to advertise in but they will get 100 times or more exposure from their advertising. So maybe everything is proportional and it doesn’t matter where you advertise because if you use the same budget then you will get different amounts of space but the same exposure to the same amount of people.
At that point I recalled a conversation that I had a while back with a business associate who was trying to sell a strip mall that he owned. He told me that he set a price for the property and had many people respond to the offer. He signed an initial agreement with one person who said that he just wanted to do his due diligence and do some research and if everything checks out, he will buy the property in 30 days.
At the end of the 30 days, the person came back to my business associate and said that his researched came back and he was willing to pay an amount which was 20% lower than the asking price. My business associate turned him down since he had many other people interested in the property.
The exact same thing happened with the next two potential buyers and they both offered almost exactly the same price as the first person. My business associate couldn’t believe that every single person gave him the same number so he asked the third potential buyer how he came up with that number and the person explained it to him. He filled in a formula which included all sorts of elements such as how much traffic was in the area and how much income the property would produce. When filling in a formula, there is almost no thinking involved, you plug in the numbers and in spits out the maximum price to pay that will be profitable.
Professional real estate investors do this for every property that they go to. They don’t really care about the location. They just care about the bottom line. If one deal doesn’t work out, there are plenty of other deals just waiting for them.
The same thing goes for billboard advertising. Large companies such as Coke do not randomly choose locations to advertise. They have teams of analysts looking for the locations that will fit into their formula. Their final decision on where to advertise is based on how much it will cost them per view. They have a set price that they are willing to pay and if the location fits, the go for it. There are many other factors such as where their target market lives but all of the elements fit into their equation.
Some people may look at the billboards and think that Coke just plugs advertising in wherever there is an opening and hopes for the best. Those are the same people who don’t know the difference between “chance” and “luck”. Lucky people know that to get lucky, you must put in the work beforehand. Business, advertising and pretty much anything else are not risky if you know what you are doing. That is why the more experienced people are usually better at their experience related tasks. If you want to get lucky, your only task is to get experience and know what you are doing.