Penny Stock Market Strategy and Results - dummies

Penny Stock Market Strategy and Results

By Peter Leeds

Any penny stock business that intends to engage in marketing, which can consist of things like ads, public relations, press releases, or media interviews, should have a single, thoughtful, and carefully monitored strategy.

Ask the company you’re interested in for a copy of its marketing strategy. It may not provide you with it, but it does not hurt to ask. At least discuss its plans and results with the company’s investor relations contact.

You want to ascertain

  • The percentage of expenses represented by marketing: This will give you an idea of how aggressive the marketing plan is and whether it represents a realistic portion of overall expenses. Depending on the industry, marketing generally should be between 5 and 20 percent of total costs, but there are no rules set in stone.

  • The effectiveness of its efforts: Is the business spending money and time on an average campaign with mediocre results? Ideally, the marketing efforts of a company will augment sales or at least improve positive brand awareness among consumers.

  • Future plans and expectations: Find out the company’s marketing plans for down the road. And after it undertakes those new efforts, ask what sort of results it anticipates achieving.

Marketing isn’t about spending a dollar to make a dollar or more. Many aspects of advertising are actually expected to produce a loss. For example, a company may be using its marketing efforts to block out a competitor or to put its brand name in the forefront of people’s minds, or even just to test a new marketing message.

Poor marketing is bottomless

A company can burn up millions of marketing dollars very quickly and have nothing to show for it. Advertisements can be extremely costly, and even some superior strategies don’t always come close to covering the time and expense involved.

The reality is that the majority of people don’t initially see or pay attention to commercials. Generally, consumers need to see an advertisement several times before they even consider taking any action.

If a company spends $1 on advertisements, it can just as easily spend $500 million. When management of a penny stock puts too much faith into the power of commercials, they’re likely to dramatically overextend themselves. Ads that fail to translate into equivalent revenues can sink a company with unrealistic marketing goals.

Marketing has a place, as long as it is

  • Part of an overall strategy: Strong marketing involves public relations, media coverage, word of mouth, advertisements, and product experience. Any approach that relies exclusively on only one of these aspects is doomed to failure.

  • Profitable: Marketing involves many expenses beyond the obvious. For example, when considering reinventing a brand, companies should factor in the cost of producing new ads that feature the new brand identity, a new presence, and the time and salary involved with replacing any use of the former brand.

  • Tracked: Any marketing strategy needs to have realistic goals so the company knows what success looks like. In terms of commercials, for example, expenses and results should be tracked for every individual ad, in terms of placement and time.

  • Adjusted: The best marketing plans involve dropping ineffective strategies immediately, while increasing spending on those aspects that are effective. For example, if improved customer service is helping sales, while changes to the product seems to be detrimental to sales, the marketing approach should put more resources into the former and less into the latter.

  • Within budget: Companies that keep their marketing expenses within a strict and realistic budget will have the best results.

Any business can spend millions on marketing, but only a few will actually generate those millions back.

Marketing is hard to track with penny stocks

Many smaller businesses don’t track the results of their marketing strategy. This failure to pay attention to what works and what doesn’t makes it nearly impossible to ascertain costs of various advertising channels, the effectiveness of particular types of marketing, and results from each method.

Even those penny stocks that do closely observe and detail their marketing efforts may not want to share that information with the public. In some cases, they may be trying to prevent their competitors from acquiring the details, while in others they may not yet have the information.

With advertising spending on commercials, there is a major delay between when (and even if) a spot runs and when the company receives the results. That delay is usually weeks, but can often be a month or more, depending on the media-buying agency the company is working with.

In terms of other marketing channels, such as social media efforts, word-of-mouth conversations, and branding efforts, the companies themselves typically track them — if they’re tracked at all. Ideally, each company provides details about its marketing efforts, and the results derived, with their quarterly financial results. Unfortunately, penny stock companies rarely provide these details, which increases the amount of work for the investor conducting due diligence.

Often, the best way to track the marketing results of penny stocks is to speak with the investor relations contact. Also, keep an eye on any press releases or management statements for clues.