Want to see the answers to previous questions?  Here’s the blog archive; the pre-blog newsletter archives are here.

Q: First off, I very much appreciate you sharing all this wonderful content on your blog and conferences such as eMetrics.

A: Thanks for that!

Q: My question is a simple one, but I think the answer may be hard: When does a visitor “need” a coupon?  *Need* defined as: visitor would not have placed an order unless presented with the coupon.

A: Hmmm…methinks we’re going to have to define a few concepts and be clear on the goals to make sure we are nailing this down… visitor versus customer, sales versus profit, etc.  In other words, answer is not hard, but could be complex without defining context.

Q: It’s still a mystery to me why so many retailers seem more than willing to hand over all their margins to Groupon or give coupons to basically all visitors.  I am curious whether you would approach this question using  observational data (eg web analytics) or experiments (eg AB testing), or both.

A: Right – is a mystery to me too!

There are certain situations where this approach might be appropriate, but the problem with much web “marketing” (which often is really just advertising without much thought about marketing) is often there is success in a narrow or special situation.  Then the pundits jump on and say “if you’re not doing this you are stupid”, regardless of the business situation and / or without recognizing the special circumstances that are driving success.  This is all the real Marketing stuff people leave out; understanding why it works, under what circumstances, for which segments, involving which products.

When you don’t really understand what is happening and why, no learning takes place.  When no learning takes place, everything is a “new idea” and people are surprised when the outcome is different.

So, for example, if I was launching a brand new service business (restaurant) or a new product that is complex and won’t sell without trial (like yogurt that “naturally regulates your digestive system”), Groupon might be a slam dunk for a product launch.  No surprise here; coupons are often used to drive trial in product launches because the need is to reduce price resistance and drive sampling.

On the other hand, if my product or company is well known and I have tons of loyal customers, Groupon could generally be a financial disaster if you care about profits.  But if all you care about is response to the coupon, it could be a great success!  Because tons of people who would have bought at full price anyway get a huge discount and you get to sell the product below cost.  Awesome!

What do I mean by this, how can you have high response and low or negative profits?

Here is what I have seen over the years: whenever response rates are abnormally high, it means you have a high percentage of responders who would have bought anyway without the coupon.  This is seen over and over in database marketing, online and offline.  From a financial perspective, it means you have probably given up the coupon value with no benefit, a so called “subsidy cost”.

How do you prove this is happening in a promotion?  If you want to really look into and prove these effects, first examine the percentage of response that is from current customers.  If it’s high, that’s the first clue the discount is cannibalistic, not incremental.

If you want to quantify this subsidy cost a bit more is a relatively simple way, take the customer redeemers as a group and look at their average sales for a few months prior to the coupon promotion, during the promotion, and a few months after the promotion.  Often what  you will see is their spending behavior changed very little during the promotion.

For example, let’s say the coupon is 50% off.  The monthly net spending sequence over time might look similar to this:

2 months prior: $100
1 month prior: $100
Promotion month: $50
1 month after: $100
2 months after: $100

This shows the customers redeeming the 50% off coupon did not change their behavior at all; they simply took the discount and bought what they would buy anyway.  Meaning, the coupon cost is a real cost to the bottom line with no offsetting incremental profit.

Bottom line, for every response you lost $50 in sales plus the cost of the campaign, even though you had tons of responses and sales from those responses.  If it was a large campaign, your overall sales for the month net of discounts probably dropped.  Financially, if your cost of goods is 50%, you gave up $25 in profit for every response, minus the per response cost of the campaign.

And, the above behavior is most likely to occur with best, most active customers!  Across all redeemers, you might get $60 or so instead of $50 during the promotion month, but you are still losing money on every redemption – the higher the response, the more money is lost!

This is one big difference between Advertising and Marketing.  Marketing goes beyond Advertising, wants to understand the relationship of specific products to segments of customers, how pricing and modes of distribution affect this relationship, and the profitability of the relationship.

So, with that backdrop, let’s try the question:

Q: When does a visitor “need” a coupon?

A: If I take your question literally, there is a concept in Marketing called coupon proneness, and it’s the classic definition of “needs a coupon”.  Essentially, it means the more coupons you give people the less likely they are to buy without one. If you can imagine what this looks like over time, it’s margin erosion hell.  It’s taking the example above, where no incremental profits were generated, and ensuring it will happen time and time again.

From a Brand perspective, always offering coupons means you are teaching people your prices are too high, or there is a tangible reason your company has to “beg” for sales (implies poor service or quality).  Either way, the outcome is not so good for Brand trust and any evangelism that might result.

The exception to the above is among the “never pay full price” segment, who don’t buy anything without a discount / coupon.  From this segment, you get the benefit (?) of your coupon offers being spread all over the web, attracting many other “never pay full price” customers who generally have negative net values to the company.  Great, huh?

The end result of this pattern is horrible customer loyalty, margin erosion among current customers, and lots of new customers that are 1x buyers.  This means you have to spend *even more* on Advertising to constantly chase new 1x customers, while at the same time your margins in the current customer base are being consistently eroded.

Certainly not an optimized system!

Some people will argue the “extra sales” they get are worth the price of encouraging the above behavior.  But there are not too many businesses that put sales in the bank, what they put in the bank are profits.  So this is very short-term thinking and in fact, you find a lot of businesses that follow this model perform very poorly financially.

So, you ask, when would a visitor “not have placed an order unless presented with the coupon”?  The answer is this: when you have “presented” a coupon before, and the more often you have done this, the less likely they are to buy *until* you present one.

Sure, you could use A/B testing, but it’s not hard to guess what you will find – when you present a coupon, more people buy.  Duh, that’s Advertising, right?  But that’s optimizing for conversion, not for profits, and conversion can’t be deposited in the bank any more than Sales can be.  You have to go further.

For example, if you had the capability to recognize purchase or visit patterns among visitors, you could segment by these behaviors and present coupons on the site only when they were likely to have an incremental rather than cannibalistic outcome.  For example:

1. A new visitor who becomes a repeat visitor X times but does not buy

2. A current customer who has not purchased in over X weeks

and so forth.  You could test for “X” and optimize for highest profitability if you also ran a “null” control group  – where if A = coupon, B = no coupon.  Then look for incremental sales  behavior or “lift” from those offered the coupon versus those not offered a coupon, and run out the profit and loss.

Of course there are other scenarios, mainly current customer comes to your site because  you sent them a coupon, as opposed to presented one on the site.  Not sure if you were including that in your question, but I took your meaning literally.

The scenario with subsidy costs when sending customers a coupon is basically the same as the example above, except you control which customers get what coupon values or if they get a coupon at all.  More info on executing and measuring in that scenario for customers here, and for an example of a company putting this approach into practice, see here.  You can really drive higher profits by doing this correctly.

Jim

Have a question on Customer Valuation, Retention, Loyalty, or Defection? Go ahead and send it to me here. If on the topic above, you can leave a comment on the post:

When Does a Visitor Need a Coupon?

When you’re in the business of measuring the effects of Marketing programs, certain patterns begin expressing themselves over and over.  One of the oldest in the contribution to success of various parts of a Marketing effort, sometimes called the 60-30-10 rule:

60 percent of success is determined by the audience quality
30 percent of success is determined by the offer
10 percent of success is determined by the creative

Where do these stats come from?  Continuous improvement testing.  Over the years, if you run a lot of different tests, you just begin to see this pattern.  And the pattern holds across a very wide variety of business models – online and offline.

The key takeaway here: audience quality is the most important component of success in a results-oriented Marketing campaign.  This is why the CPM’s for niche Magazines, for example, are so high.  These Magazines are tremendously efficient marketing vehicles because they have high audience quality, which drives end behavior – results.

And the primary reason the audience quality is so high?

People pay for these Magazines.  When people pay for something, they value it with more Attention. Why? Simple.

In a magazine like Hot Rod or Concrete Decor or Vogue, the percentage of content that is interesting to the niche audience is very high. In fact, the Advertising is viewed as content.

Smaller audience, very high quality. Ads work like gangbusters.

Clearly, there are other ways to run a media model.  At the opposite end of the media spectrum, there is free.

You produce content that appeals to a very wide, least common denominator audience, one where very few people are interested in the Marketer’s product at any particular time.  But because the advertising is so cheap on a CPM basis, this media can be effective for products with extreme distribution and universal demand.

That’s why creative is more important in broadcast.  Because in Broadcast, there’s a very small number in the success formula above where the 60% for audience quality used to be.  All you have to work with is offer and creative, because the audience quality stinks by definition – it’s a broadcast, and Reach is the driving metric, not Quality – you have to turn over a lot of rocks.

Enter the Web.  Just think about it for a second.

Given the two media models above, which model will most likely succeed in an environment like the web? Where the very nature of the usage is defined personally?

I don’t know about you, but the “Broadcast” model on the web just makes no sense to me; it’s anti-consumer behavior. And Behavioral Targeting is the right idea using the wrong tool – we should be creating platforms for customizing content, not advertising delivery. It’s back-asswords.

My old boss Barry Diller thinks a paid model will succeed, one more like magazines. And that makes a lot of sense to me. Not that there won’t be free content.  You will always be able to read free content from:

* People who have opinions about a certain topic, whether very insightful or clueless

* People pitching you to buy something, whether the pitch is overt or “social” in nature

* People who are trying to build a reputation for themselves or a company, deserved or not

The real question for this free segment is, what advertisers will want to reach these audiences?  The answer, if there exist paid content sources with quality audiences, is nobody but the CPA folks.  And that will probably put a lot of the free content operations out of business.

Because the Brand folks, the ones with the big money, will go to where the (paid) audience quality is, because that model works for them. This is not about online or offline, the transmission mode of the content is irrelevant.

It’s about advertisers wanting a quality audience. Just like what happened (over time) with Cable TV versus Broadcast. Smaller, niche audiences dramatically improve advertising performance.

But for this paid content model to work, it will also have to be about people not wanting to waste so much time combing through the crap to look for quality content.  It will be about the Net Meaningful Audience, the people who self-define their interest in a topic by their willingness to pay for it.

Meaning a much smaller, but much, much more profitable audience for many web sites. If the site-centric model survives. Vertical sites and networks seem like the right idea, but in practice people just go buy Reach, so they trash the model, turning it from Cable right back into Broadcast in terms of ads as content.

Or, someone like Google will finally make micropayments work.

If you can think past the tool to the behavior, I bet you might see why this could ultimately be the best idea for Display – essentially, the aggregation of a personal Magazine you pay for, article by article. A magazine like Hot Rod or Concrete Decor or Vogue. One where you get the best content on your topic from any source and you want to read every bit of it.

One where the Ads become content. Like they are in Search.

Kind of like the way people buy songs instead of albums, and create a personal collection of only songs they like?

Look, I know content wants to be free and all that.

The problem is, most of that content is worth very little from an advertising perspective, it lacks audience quality. And let’s face it, most of the real investigative reporting and expert commentary is generated by the offline media, which online simply passes on.

And that’s fine too, but this work has to be paid for somehow.

If online ever expects to get “its share” of the media budgets out there, what’s needed is a second tier for Display to pay for this work, whether the work is done by an offline or online entity.

One like Cable on top of Broadcast. One where you get access to high quality content before anybody else. One with a focused, high value audience advertisers will drool over.

One where people expect the ads and read them like content.

Then the market will bifurcate, just like Cable and Broadcast, and you choose which online tier to use based on your business model.

Micropayments are not just about paying for content, folks.

They’re about delivering a high quality audience that won’t have the slightest problems with also viewing ads – because for virtually the first time on the web, the ads will be content.

Have a question on Customer Valuation, Retention, Loyalty, or Defection? Go ahead and send it to me here. If on the topic above, you can leave a comment on the post:

Net Meaningful Audience

What if what the media / agency complex has been telling you all along about online advertising is not really true.  What if Advertising  – from the end user (visitor) perspective – performs a fundamentally different job online than it does offline?  What if the entire game is different than you think it is?  Might that explain why it’s so difficult to get any agreement on the value of online advertising?

Please bear with me; see if this makes any sense to you.

Offline, it’s important that you remember an ad.  That’s because you are rarely in a position to take advantage of or act on the ad when you are exposed to it – unless you are sitting in front of a computer.  Awareness, Recall, all those nice measurements the offliners do are important for offline Advertising, because the job of offline Advertising is get you to remember it so you can Act on the Advertising when you are in a position to do so.

Online, you can immediately investigate the products or services advertised, get 3rd party opinions, and so forth.  You can convert Awareness to Intent and Desire in a matter of moments, if not take Action as well -  if you are interested in what is being Advertised.

The fundamental answer to every question you have about online advertising might be really simple, if you think this way:

Online Ads are Navigation

They are not Advertising, in the traditional sense of offline Advertising.

Content sources serve the role of traditional Advertising online.

Not the ad itself.

Online, the Web Site is the Ad.

Offline, Advertising sets up Awareness but it doesn’t have much to do with fulfilling Intent or Desire.  That’s why you need tremendous weight (GRP’s) with offline ads.  You have to pound messages into people’s heads so that when they are standing in the grocery aisle, or thinking about credit fraud, or whatever it is, they remember your offering.  “Ah”, you say.  “I’m Aware of a proposed solution to my problem.”  Now you can move down the road to Intent and Desire through examining the offerings, doing some research, asking friends or co-workers, etc.

If you are on the web and see an Ad, you have immediate access to “the answers” to any question you might have about the subject of the ad.  So the ad is just Navigation.  The Ad doesn’t have to be remembered, so is promptly forgotten.  If it’s relevant, it will be pursued.  If not, nothing.

If you think about it, this is the underlying reason why Frequency capping became popular in Display.  Online ads simply don’t carry any “weight” with them – if you’ve seen the ad 5x and you still don’t care, then you just don’t.  This is not true offline, because chances are you never had the opportunity to follow through with Intent and Desire like you can online.  So offline campaigns can run and run and still deliver incremental behavior, because there is such a lag in the Action phase.

Not so online.  If you are interested, you simply Navigate though the ad and it’s over.  There’s no reason to remember the ad.  If you do, that’s nice, but it doesn’t really matter.

And that’s why all the traditional measurements of offline advertising are meaningless online.  Because unlike any other Advertising out there, Online Ads are Navigation.

Stick with me for a story.

In the early days of ads on the web, click-through rates on Display ads were very high.  Display ads were pronounced to “work” and it was off to the races.

But here’s the thing.  This was before there was anything like a functional search engine.  So, ask yourself this question: Was the functional utility of this early display advertising for the user actually Advertising, or is it possible the true utility was Navigation?

In other words, the “value promise” of the ads was not the message of the ad as much as “Hey you, there’s a web site over here you might not know about”.  Recall, this was the age of “surfing” the Internet.  Discovery was the driver; people would click from one site to the other based on ads or links just to see what was out there.

Fast forward to the age of Search.  As search rises, click-through rates on display advertising begin to plummet.  And this should be no surprise, if online Ads are really Navigation.

A Search engine more closely aligns with the web medium where Navigation is a critical functionality.  Surfers found it much more rewarding to Search for what they were specifically interested in rather than “surfing” a random chain of sites.  It’s much more efficient, wastes less time, gets better results.

Later, you have the addition of Pay-Per-Click advertising, which you could argue is really not Advertising at all in the traditional sense; it’s Supplemental Navigation.  PPC ads say, “Here’s another site you might be interested in based on your search phrase“.  In that way, PPC ads are just like the early Display ads.  Except they provide more Value to the end user.  They work better.

If you think of Online Ads as Navigation rather than Advertising, does some of the conflicting information you have seen on the effectiveness of different channels, formats, and creatives become easier to understand?  Would some data help?

So, how can you act on this knowledge?

To me, this all means the most effective way to optimize Marketing Productivity is to think of different media not in terms of reaching different audiences, but in terms of stimulating different behaviors. 

This is the fundamental idea behind my Marketing Bands Model.

Let me know what you think.

Have a question on Customer Valuation, Retention, Loyalty, or Defection? Go ahead and send it to me here. If on the topic above, you can leave a comment on the post:

Online Ads are Navigation

Brand is what you do, not what you say. 

Marketing Alignment.

Here are 3 free webinars you might want to take advantage of.  You might not agree with these opinions, but hey, it’s a good idea to get out of the echo chamber once and awhile, don’t you think?  Try these online sessions for a little brain stretching:

———

Moving Marketing From “The Money Spenders” to The Money MAKERS
April 15, 2009  noon ET    Jonathan Salem Baskin, Jim Sterne, Jim Novo

With 10% of marketing executives being perceived as strategic and influential by the C-suite there’s clearly a crisis of confidence.  I’ve mentioned Jonathan’s blog and book before and here’s a chance to hear a bit of the inside story.  You’ll learn how to exceed expectations of both C-suite executives and customers, neutralize political feuds by organizing cross-departmentally, and how to stop thinking like a reporter and start acting like an advisor

———

Everything They’ve Told You About Marketing Is Wrong
April 21, 2009   1pm ET  Ron Shevlin

Are you sick and tired of reading the same old blah, blah, blah, from the so- called marketing experts who just tell you stuff you already know? Then you need to attend this session as the grumpy old man cuts through the morass of bad advice and introduces you to the must-dos in the new world of marketing.  I know Ron personally (as in offline) and even if you disagree, you will be entertained.

——— 

What Online Marketers Can Teach Offline Colleagues (and vice versa)
May 19, 2009  noon ET     Kevin Hillstrom, Akin Arikan, and Jim Novo

A WAA event, open to both members and non-members.  Web analysts are not the first to grapple with multiple channels.  Traditional marketers have always had to illuminate customer behavior across stores, call center, direct mail, etc.  So, rather than reinventing the wheel in each camp, what proven methods can you teach each other?  Three different but aligned approaches on solving the multichannel puzzle, should be something for everyone here.

———

Take your brain out for some exercise, will ya?

Have a question on Customer Valuation, Retention, Loyalty, or Defection? Go ahead and send it to me here. If on the topic above, you can leave a comment on the post:

Marketing Jump Ball

Want to see the answers to previous questions?  Here’s the blog archive; the pre-blog newsletter archives are here.

Q:  Most CRM experts agree that discount is a terrible way to attract new customers.  They seem to all agree that these “transaction buyers” are money-losing customers and have no loyalty.

A:  I think using discounts profitably for customer acquisition depends a lot on your “Brand Personality” and your business model.  That said, often people screw this up and attract the wrong kind of customer.

Q:  But, I have seen a  lot of different opinions on the use of discounts to increase loyalty and retention among current customers.  I have seen experts contradicting themselves on this subject saying that discount is a terrible way to reward gold customers or to move up customers to a “better segment” and after some time they contradict themselves mentioning a successful discount case study (points are a common method used).  Jim, what is your opinion about using discounts as a weapon in a retention program?

A:  First, we have to define “discount”.  Price discounts have the effect of reducing margins, but so do “better service” ideas like “VIP phone lines” and loyalty programs.  So you can take your discount on the top line or the operational line, the fact is it costs money to provide good service to best customers in hopes of keeping them.  I mean, what’s the $10 million you spent on a CRM system?  Choose your poison, it costs money to retain customers.

The real question is this – can you make money doing it, in any of the above cases.  If by giving a customer a discount I increase their overall profitability, in excess of what I lose on a discount, then I made money.  Same with the costs of a loyalty program, a rebate program, a newsletter, a special room, a lead management system, etc.

End of story. Whatever you do, it has to make more money, or it’s silly.

Problem is, most people don’t know how to *measure* any of this properly.  This is the topic of the Chapter in the book “Expense and Revenue You May Not Be Capturing” (Ch 29).

Discounts aren’t bad by themselves.  What screws people up is not offering them at the right time to the right customers with the right value of the discount or operational expense.

Discounting to best customers can be very dangerous – something most people don’t know, let alone measure correctly.  You can lose money very, very quickly.  I often rail against this; you have to understand subsidy costs and how to measure them or you get burnt very quickly.  I got burnt for over $1 million in a single promotion doing this – and it was the exact same promotion I made over $1 million on 6 months earlier.  Difference?  LifeCycle stage of the customer.  Or, if you prefer, the process of dis-engagement.

Here’s a real world example.  *ACTIVE* (engaged) HSN customers spent about $320 a month, buying 8 $40 items.  If I send them a coupon for $10 off, they spend $310 buying 7 items at $40 and one $40 item at $30, so I lose $10 *plus* the cost of the promotion.

This is subsidy cost.  They would have bought anyway, and I let them do it for $10 less.  Said another way, this is the “Pull” effect – some people will buy without any Marketing at all.  These folks are overwhelmingly active best customers, those who are “engaged” and have interacted with you Recently.

Perhaps you have put brand new products up on your web site and found they are selling even before you promote them at all?  This would be evidence of engaged customers, and the value of those sales is the tangible result of the “Brand  Engagement” your company has created (at least for the week or month).

So, the $10 per customer sale loss represents a devaluation of the Pull value embodied in your Brand, Service, Products, and Execution.  It literally is equal to the amount of loss you sustain by “over-Marketing” to a customer who is loyal and already engaged.

I suspect it is this issue – known as subsidy cost – that draws the ire of the experts who are saying “discounts are a terrible way to reward gold customers”.  They are correct.

The best – meaning most profitable – way to reward loyal customers is with non-discount aspirational offers that drive loyalty.  These offers could be anything from simply thanking them for their business (surprising how well this can work if done correctly) to highly specialized services or access to the company.

Now, if I take this same group of HSN customers and send them a coupon for $10 off any purchase over $50, they spend $400 for the month, and increase of $80 from the average of $320.  Why?  Because on that coupon transaction, the average transaction value is $120 – 3x higher than the average without a coupon.  Did I make money on this campaign?  You betcha.  At an average 30% operationally loaded margin, I spent $10 to make $24 ($80 increase x 30%) – a profit of $14 on the transaction before promotional costs.

The same discount of $10 to the same customer segment can generate completely different behaviors.  The trick is to understand  these behaviors through careful testing and measurement using control groups to measure the real net lift in profits.

So now, let’s change customer segments, move later in the LifeCycle to Lapsing customers, those who are on their way to defecting.  These are customers who have stopped visiting or purchasing and have not had interactions with you Recently.

Lapsing HSN customers don’t respond well to $10 off $50 coupons – it’s too late in the LifeCycle, average price falls over time and they won’t “buy up”, the average purchase price won’t rocket to $120 from $40 like it will with active customers. 

But if you look at what they like to buy (category affinity), and send them a $10 off coupon for a specific category, and tell them when you’re going to have a cool show on that category, you make a ton of money on the promotion.  Why?  Because a huge number of them buy when they wouldn’t have (as demonstrated by the lack of buying behavior in the control group), and a few “restart” as active customers who continue to purchase for several months – the “re-engaged“.

Different segment, different timing, same offer that lost money with active customers generates profits with Lapsing customers.  How do you know when a customer is Lapsing, when you should switch from $10 off $50 to $10 off a specific category?  You test it; a Recency analysis and test is a great place to start with this idea, full story here.

You can also take advantage of known LifeCycle purchase transition behaviors.  Many best customers start out buying in one category and then switch to another; you can run a simple analysis to discover these patterns.  Many moderate value customers simply never make the transition.  But if you know there is a “likelihood” of the transition and help it along a bit, you can turn a moderate customer into a best customer with a well-timed category discount.

At HSN, a 60 day old “average customer” who started buying in jewelry, if sent a $10 off jewelry coupon, loses you money.  Why?  They already have enough jewelry, response is low, they are at the end of the LifeCycle for the category.  You net no “lift” – they just spend $10 less that month.  But if you send them a 20% off fashion coupon, you make a ton of money over the next 90 days.  Why?

Because if you study HSN best customer buyer behavior, you find they start in jewelry and migrate themselves to fashion.  So what you are doing here is taking a moderate buyer and “helping” them to discover a category with a high likelihood of long-term satisfaction.

You’re modifying the LifeCycle.  Instead of defecting, a portion of them become heavy fashion buyers – the longest LifeCycle, highest margin customers.  You may lose money on the first fashion purchase.  But you end up converting a bunch of them to a new higher margin product line where they will continue to purchase for years.

Over time, you continue to refines segments and discounts until you optimize the entire system for maximum profitability; you are using the LifeCycle to manage margins by applying discounts very precisely.  Example of this can be found here: The Discount Ladder.

Every business I have done marketing / customer analytics for works the same way.  But for interactive, these effects are amplified and become very significant.  This is one reason why interactive is different, and why it’s a bad idea to treat interactive like offline – say, by blasting out the same e-mail to every customer.

So yes, discounts can be bad.  But they can be very good.  They are the ultimate motivator, and so are very effective.  You just have to know the who, when, and what of using them.

Jim

Have a question on Customer Valuation, Retention, Loyalty, or Defection? Go ahead and send it to me here. If on the topic above, you can leave a comment on the post:

Use Discounts for Customer Retention?

First, you have one of the largest Ad Agencies in the world admitting their business model is broken, because agencies are not in charge of the fundamentals of Branding – service, innovation, engagement, and execution.  I would add the same thing could often be said of the client side; MarCom people spend way too much time on ”Com” and not enough on ”Mar” – is it time for a realignment?

Then, in an even more spectacularly unexpected move, you have C-Level folks at 2 gargantuan Advertising Agencies (though both part of WPP) co-writing an article declaring that Brand and Response are the Same.  Here’s the opener: “the value that brands bring to a company’s total business value is exaggerated.”

Holy Branding Batman, that’s one heck of a thing to say for an Ad Agency, know what I mean?  But they are absolutely right, the nature of a Brand has changed, this ain’t the 1960’s.

This is how they get to “the singularity”:

“What was once sales is now enhancing the brand expe­rience, because through direct marketing technology and strategies, a brand can reinforce its ability to listen, customize and learn from the consumer. This is not just direct marketing, its direct engagement with every potential customer, sometimes at the moment they’re introduced to the brand.  In fact, in a world of compressed consumer decision-making, direct response is now a potent form of brand­ing.”

I love it when you talk that way.

Let’s be clear on this.

Nobody is saying Brand doesn’t matter; it matters a lot and perhaps more than it ever has.  Nobody is saying that creating Awareness through Advertising is not important; it is.

Here are the two main points:

1.  Brand is what you do, not what you say; it is customer experience that is Brand.  This means everything from packaging to product design to distribution and customer service, and these are the new (for some people) Marketing disciplines that Direct brings to Brand.  Direct has always cared about these experience and execution issues.

2.  Spending money on Advertising that does not move product is a waste of money.  Perhaps you have noticed fast food advertising lately talking about food and price, not about Kings, Subservient Chickens, Chihuahuas, and so forth.  Features and Benefits, not blurry images and associations that are irrelevant.

Just to be crystal clear, there is ”Brand Done Right” advertising around.  How do these folks know it’s done right?  Because they test and measure actions; you don’t need a “call now” ad to get people to buy tons of household items, right?  Do you own a Swiffer?

Here is what I expect to happen as a result of these Off the Marketing Richter Scale events taking place as we speak:

1.  There is an enormous Gap to be filled between the “MarCom” model and Marketing as business Strategy.  The Ogilvy piece is addressing this situation head on.  We are talking about marketing gaining or regaining a Strategic Seat at the C-Level table, which means Marketers on the rise will need to understand the Operations side of the business and take action on customer experience issues.  Or the agencies will gladly do that for you, leaving you to issue press releases and chat on the social networks.

2.  The money to fund these efforts will come from the budget formally wasted on excessive Brand-ing programs found to not generate actions.  It will take a lot of data analysis and some cross-functional business SWAT teams staffed by specialized players to make this merger of Brand and Direct work.  

If you are looking for an example of how this works, it is already happening in many of the cultures driven by web analytics.  Look to how your online unit (if they are using web analytics) is executing and how the cross-functional (Marketing, Service, Finance, IT) teams work.

You might ask, OK, what do I do first? 

One suggestion for each of the Off the Marketing Richter Scale events:

1.  Regarding the Experience as Brand issue, you have to see how this works first hand.  One of the fastest, least expensive, and quite frankly thrilling ways to do this is to Optimize your web site.  You have 2 options here: either join / observe the teams already doing this for your site, or hire resources to do it for you.

For a super fast, inexpensive execution you can be intimately involved in without technical knowledge, I highly recommend taking a look at Future Now’s OnTarget.  This service was designed by Marketers and you will “get it”.  You know what you need to know already – demographics, psychographics, maybe geographics, segments, messaging.  The system documents experience issues and then you are advised by the human staff on ways to improve experience.

Of course, you will need the web team to implement / test changes to the web site, but you will be able to give them solid direction.  I’d even go as far to say even if you don’t implement, this will be the cheapest education (starts at $1,000 a month) you will find on how experience can impact Brand.  Only with a web site, you can actually do something about it for a change.

 Readers, do you agree or disagree with:

 1.  How important these 2 events are?

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Off the Marketing Richter Scale

I mean, here’s a chance to get it right. 

You know who the audience is what the context is of readers on a feed.  But no, once again, the brilliant Social engineers go for Quantity, not Quality, which is the mistake the Web has been making since “Hits”.  Quantity only makes sense if you can get Weight from the media, and the web has no Weight.

Here I am, reading the feed for the Freakonomics blog, and I get a dating ad (click to enlarge):

The Freakonomics blog would be a great advertising environment for so many products, whether you are in the Direct camp or the Brand camp.  But instead, we’re just going to Repeat the Past.

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Feed Advertising Sucks Too

The term Business Analyst has been around for a while, usually referring to a person who is a translator of sorts between Business Units and IT.  These people try to make sure “requirements” from the business side are implemented as desired on the IT side.

Sometimes there are Operational Analysts, who are typically IT folks or Engineers, depending on the business.  This is the world of Six Sigma and process, where the business is trying to improve throughput or cut down on waste.  But we know that just because Operations is Operating Just Fine, we don’t always get the result we would like from a Marketing perspective.

A similar Analyst might be present in Marketing Operations Management.  This is really about the process of Marketing execution though, not Acquisition / Retention / Customer Value.

I don’t think I have ever seen a decent-sized business without Financial Analysts.  These folks look for variances or unusual activity in Financial Reporting and seek to explain why.  Sometimes they actually get involved with Marketing analysis, though usually not for something like “Campaigns”.  Instead, they look for structural problems that manifest as a “problem with Marketing” in the Financial systems.

As a Marketing person, these are the analysts you have to be aware of and build relationships with, because they can really cause you a lot of pain if you’re not paying attention.

For example, let’s say you are spending money to generate subscriptions and these subs have a very high cancel rate.  You may not see these cancels but they are easy to spot in the Financial systems.  A Financial analyst is simply going to ask, why?  Maybe you have a reason to do what on the surface looks like a complete waste of money.  But the question will be asked.

Or, let’s say a Financial analyst finds a product with a very high return rate, and questions why the product should even be offered.  From the buyer the analyst learns this product is often featured in Marketing promotions, because “the response rate is so high”.  Hmm.  Again, maybe you have a reason to be reckless with demand generation.  But the question will be asked.

Another example is Service Load.  Let’s say on average, the company experiences 1 customer service interaction for every 5 monetary transactions processed.  Now comes your campaign, and the Service load generated is 1 customer service interactions for every 2.5 monetary transactions processed – double the average rate.  A stat like that is a classic bell-ringer for a Financial Analyst, and the question will be asked – why?

At some point, as the level of attention a company pays to analysis continues to grow, these kinds of issues will start to pop up a lot.  Management starts to question the value of all the “front end” analysis coming from Marketing out of web sites and other demand systems, because “response” is only half (or maybe a third) of the Financial story.

And they can prove it.

It ends up the real story is often in the back end.  What is the result ”Net Net”, after all the dust has settled?  ”Net Net” is typically about 90 days out from the initial transaction (unless you run a 6 month trial or similar idea), to allow for the various types of slippage that can occur in the final results – posting delays, credit card cycles, returns processing, and so forth.

Here’s an old direct marketing truism: for any two similar campaigns, the one with the higher response rate likely generates the lower quality customer.  “Low quality” in this case means (relative to the other campaign) high return rates, high cancel rates, high levels of Service Load, etc.

So if you are Optimizing purely against response, you may be shooting your company (and yourself) in the foot.

A Marketing Productivity Analyst, who likely would be a former Financial Analyst, could be an investment that would really be worth your time and effort, on several different levels.

Here is the fundamental issue.

All of the above “Low Quality Customer” issues - high return rates, high cancel rates, high levels of Service Load – are typically not really ”Customer” problems.  Low Quality Customers are the end result, not the Root Cause.  The Root Cause usually lies somewhere in Marketing, Product, or Service.

And nobody is responsible for addressing these problems proactively, before they become large enough to cause Financial pain or even Social pain.  So how about you, Marketer or Marketing Analyst?

Is there any other silo where these issues potentially have a greater negative impact on true Net Financial performance?  Think about it.

Customer Service is reactive, they respond.  It’s not their job to be proactive, they take care of problems after occurence.  Further, does it make sense to continue generating problems they have to respond to?

Financial Analysts are also reactive, and typically work on much longer time frames.  In other words, by the time a Financial Analyst discovers a problem in Marketing, Product, or Service it’s probably a big problem.  And a big problem in Marketing, Product, or Service is a problem that undoubtedly has been released already to the Social / PR world.

Which in the end, just makes the Marketing job much more difficult, doesn’t it?  Doing battle with negative buzz in every campaign?

What is needed is a cross-silo analyst (like Financial Analysts typically are) with a shoter-term, more focused perspective (like Web Analysts typically have).  A cross-breed, bridging this open gap in the system.

If you’re not going to take this proactive stance, who will?

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Marketing Productivity Analysts

If you’re not familiar with the Liu Xiang and his injury, see here.

In a brilliant, and stunningly swift move for a large org, Nike has managed to get full page “Just Do It” print ads into this morning’s China papers supporting Liu Xiang.  The “Love” treatment, which you can see more on here, has this copy (translated from the Mandarin):

——————

Love competition.
Love risking your pride.
Love winning it back.
Love giving it everything you’ve got.
Love the glory. Love the pain.
Love sport even when it breaks your heart.

Just Do It.

——————–

Given some of the cultural issues surrounding China’s hosting of the Olympics, this is just a fantastic local response by the Brand.  Otherwise, razor sharp with the Brand ID, and certainly Social link bait.

Wonder if the campaign will go worldwide?

Any downside to this approach for Nike?
 

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Nike Optimizes Liu Xiang Situation

I wonder how many of today’s online marketers, and particularly the evangelists in Social, have read Permission Marketing by Seth Godin (1999) or The Engaged Customer by Hans Peter Brondmo (2002).  Why?  Because these two books tell you why Interactive is different, explain how it is different, and provide the background you need to be successful at it.  For example, they explain how Social works before Social even existed in its current form.

How could these books predict the current climate?  Because “Social” - the Interactive behavior and psychology that drives it - is what happens when you create Interactivity.  These ideas are fundamental to Interactivity, they exist regardless of the tools to enable them.

Social, the tools and applications, are simply software iterations around these fundamentals.  Software continues to morph and evolve.  But the emotions and behavior driving today’s Social activity are fundamentally no different from the emotions and behavior that drove the proper use of interactivity for Marketing in CompuServe or discussion boards or e-mail discussion lists.  Community.  Sharing.  The rules and etiquette of good Interactive relationships.

What I’ve come to realize after a lot of discussions and thought is this:

Hardly anyone understood the fundamentals of Interactivity from a Marketing perspective in 1999, despite a lot of input from people like Godin & Brondmo or me with my background in pre-online interactive.

Marketers and enablers like Agencies simply imported all their offline, Broadcast, one-way, “shouting” ideas to the web.  Despite the two-way, listening and sharing nature fundamental to an Interactive relationship, a relationship that thrives on relevance, what techniques became the most prevalent for online communication?

Irrelevant, barely targeted Display advertising and e-mail “blasting”

Because of this, the current Social movement seems like a Revolution to many people involved, a brand new thing.  But fundamentally, it’s not a brand new thing.  No, the current Social movement is simply about a lot of people realizing those before them had Interactive wrong from the beginning, and now the next gen is trying to fix that.

For recognizing this situation, and getting people to do something about it, we should be grateful to the current Social movement.   

However, let’s hope this generation of Socials doesn’t make the same mistakes over again, if by chance they still don’t understand why Interactive is different from a Business perspective.   And just to be clear, I’m not commenting on the personal productivity or enjoyment people get from using Social tools, or use of these tools for marketing Social-specific products.  What I am commenting on is the value of these environments from a broad Marketing perspective.

Take Social business models based on Display ads, for example.  There’s that problem with fundamentals again.  Or Social as a “mass media” model when smaller means more relevant, or if mass is important to the model (?), ignorance of Search as the Interactive enabler of scale.  Software, not business, often still rules the web.

Recently, more people than ever have used the word Strategy in their writings on Social (example).  If one really means Strategy (a whole other discussion, a Tool or Channel is not a Strategy) then that’s a good thing, because it means people are moving to the next step after this realization they’re not using Interactive optimally.

There is a larger idea at work here for those interested, one that affects Offline as well.  It manifests in ideas like “customer centric” and “authentic” and “relevant” but is fundamentally about the nature of Brand morphing from an “image or feeling” to an “experience”, which I have covered in depth before here.

In other words, what you “say” about your Brand carries a lot less weight than what you do - the experience surrrounding Brand - and how you react to problems with your Brand, if any. 

Said another way, (and I mean this from a media and planning perspective, not as some kind of a Tactical war cry) the web, enabled by these new Social tools, is now able to amplify word of mouth to the point where the weight (TRP’s) of Social Content can rival any media weight you can buy against it.  This structural change is largely due to word of mouth being a behavioral segment and media weight being a demographic construct; WOM is much more targeted to end product users, so more efficient than any media you could possibly buy.

This doesn’t mean the “customer is in control”, it means customers can take control if you give it to them.  This choice is literally yours.

Are WOM and Social over-hyped?  Sure.  I’m just trying to point to a tangible, plannable, industry standard reason you might want to start caring about Social beyond the breathless BS.  Social will not be a successful “media” in terms of non-Social Display Advertising (search-driven ads might work) and should not be treated like media, it just is what it is – relevant Content that will be spidered and Searched. 

But Social can have a lot of Public Relations power and you can create influence through planning - an Evolution, not a Revolution.  Unless your product or company is Social, if you want to “do something” about Social, you might want to start with an analysis of  Customer Service.  Then, once you know what you will be likely to run into, and having a plan for acting on or reacting to the community, start the conversation.

Does the GRP-matching potential of Social Content mean the end of traditional media and Brand campaigns?  Of course not.  What these changes, including the rise of Social, do imply are:

1.  A further specialization of media to task if you want to increase spend effectiveness and Optimize the Marketing ecosystem, and

2.  The expansion of what Marketing people could (should?) contribute to a Brand beyond “Advertising” campaigns – call it Service Empathy

Media Specialization

The function, and therefore the content of Brand / mass advertising, needs to recognize much of Interest and Desire will often come from the web, and mass media advertising should facilitate this. 

Some Brands are actually doing a good job with this right now, but for the most part, the efforts tying the Awareness of mass campaigns to Interest and Desire on the web are weak.  If you’re looking for an offline analogy, the direct integration of TV and Magazine campaigns is a similar idea functionally.

At the same time, efforts to generate Awareness on the web through Display Advertising should be evaluated and potentially reallocated towards creating Interest and Desire.  These are the jobs the web does most efficiently dollar for dollar - not Awareness.

Awareness though GRP’s, Interest through Search, Desire though Content, Social or otherwise.  Each to the job it does most efficiently.

Service Empathy

“Service” in a broad sense is now more a part of Brand than ever.  Some companies in CPG get this, and since a “relationship” or Service is a stretch in their world, are doing a great job reinventing Service for themselves at the point of use – Design and Packaging.  You also often see companies working very hard on Usability, including efforts like re-writing instruction manuals from product speak to user speak.

The challenge with this Path is Institutional – how to we get Marketing more involved with Design, Usability, and Service?  What kind of people are required?  How are budgets allocated?  For example, if you thought improving Service could deliver more bottom-line impact than increased Awareness, how would you go about shifting Marketing budgets and people towards addressing Service?

Conclusions and Action Steps

Some of you might choose to name the general idea above Integrated Marketing, and that’s fine with me, though to me Integration is simply the executional end of it.  I prefer to think of this approach as the more structured and accountable Strategy known as Relationship Marketing (RM), because RM requires an Interactive plan for all communications, and is very sensitive to Service issues as integral to the Brand.

If you’re the kind of person who is more comfortable with a Strategic Model you can use to build out this idea for your company, see Framework for Engagement.  If you’re more of a Tactical thinker, an executional map I have found useful – online and offline – is to think in terms of Marketing Bands.

Comments on the above?  I’m not really asking you to comment on my solution (RM), though please feel free to.  Rather, I think it would be more helpful to the widest audience to discuss my description of the situation.  Have I managed to integrate all of the chaos going on in Marketing right now in a way that makes sense to you?    Where am I right, wrong, or misdirected?

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