Monthly Archives: March 2008

Perfect Google-Click World

So, what would a universal cookie across both Display and PPC give us?  What could we look forward to, what’s the wish list of the online “ideal marketing world” we could live in when we really understand how Display and PPC interact

I’ll give it a start, feel free to add to this wish list…

1.  From a macro web advertising perspective, all available Google-Click “space” is capable of being optimized for performance – whatever your definition of “performance” is.  That means an end to the idea of the space being attached to a pricing model – for any given space, you might see either a PPC ad or a Display ad. 

Hopefully, the advertiser would have some control over this allocation, deciding if / when which pricing models are used in which spaces, similar to the controls over pricing model existing in AdSense today.

I realize running Display units in Search inventory may seem counter-intuitive, but the key is pricing control.  The web desperately needs a more effective way to expose people to ideas they have never heard of in context.  Running random display units across opaque networks is not a particularly good way to do this; running targeted display units based on search history – a more advanced form of behavioral targeting – would do the trick.

Likewise, running PPC ads in tightly segmented display spaces can lead to big payoffs, as it did in the Lab Store example.

2.  A real gift would be some cookie-based sense of where the visitor is in the funnel, probably based on the search phrases they are using. 

“Level 1” would be no prior interest, “Level 2” would be “uses single word searches” on the topic, “Level 3” would be “uses multi-word phrases” on the topic, and so forth.  Visitors in the unknowing or shallow knowledge Levels would be exposed to cheap Display units – both in Search and in Display inventory.  Those expressing active interest (Engaged, if you will) would be exposed to PPC units, again, both in Search and in Display inventory.

You’d need some kind of history control on this, because the data set would probably get too huge.  Say for example, trailing 30 days interest, so you make sure the visitor is still Engaged with the topic.  As active searching on the topic dropped off, you’d kill the data off, because it’s no longer relevant.  If it starts up again, so be it, but a restart is a new profile.

Other ideas from the crowd?

Given cross-site tracking already exists for Display, do you think there will be any Privacy problems if Search History was used to target outside of Search?  People are pretty used to seeing ads based on searches in the search space…why not bring that over to Display?

Do you think Google-Click will give us a “universal cookie”, or will they keep the Display side in the dark for the sake of Brand-oriented folks who only care about impressions?


Incremental Value of Gift Cards

Jim answers questions from fellow Drillers
(More questions with answers here, Work Overview here, Index of concepts here)

Q: I found your web site through a Google search on “incremental business” and “gift cards”– but, then again, you probably already know that.  Didn’t find anything specific to “gift cards” on your site, but I’m wondering your opinion of them as CRM tools?

A: Well, as I’m sure you know, they can be used in lots of different ways. From an incremental perspective, some approaches are not so profitable and others quite profitable.

Q: My quest at the moment is to try to help a client “prove” the incrementality of the business produced through gift cards and what avenues of sale might be more profitable than others. Is there a correlation to this quest and information in your book, i.e., marketing model versus financial model, success based not on “response” but on “profit” of the program?

A: That’s pretty much what the entire book is about – how do you set up, test, and measure these kinds of ideas? The marketing model IS the financial model, from my perspective.

Q: By the way, I’m not the only one pondering this in my industry. Might be a topic you want to explore in your future endeavors which would be of interest to a host of us.

A: OK, let’s do some of that. My answers to e-mails like this frequently become newsletter or blog material (and I won’t reveal who asked the question), so perhaps I can both help you and get some writing done!

From a broad perspective, I don’t think there is any way to know the answer to your question without testing using control groups, and the ability of the client to execute on that idea can be limited if they are a mass retailer. Plus, you have not told me anything about your client or how they promote the cards. So we probably have to speculate based on what we know about behavior in general from other sources – loyalty programs and so forth.

In my mind, there’s no question that some portion of the gift card business is incremental.

You start with the breakage – cards not ever redeemed. If I give a gift card to someone who doesn’t use it – $8 billion in gift card sales last year are in this bucket – then as the retailer ISSUER (as opposed to the gift card seller) I have to be in the black on it, from an operational  perspective. I can’t see any way there’s no incremental profit in that idea. Incremental SALES, maybe not, but profits?  Have to be there, industry as a whole.

In case the above is not clear, the issuer would be where the card is redeemed. Originally this point of clarification would not be required but as you know, now there are lots of stores that sell gift cards from other retailers! Whether that kind of operation is incremental to the SELLER of the card is a merchandising issue, but I’m pretty sure it is incremental to the ISSUER – the store where the card is to be redeemed – based on the industry breakage.

So, if your client is a retailer, an ISSUER that sells their own cards, either through their own store or other stores, than I’m pretty sure there is incremental business there. If they are a seller of other store’s cards, or a processor of some kind, then I’m not sure.

But let’s say 100% of cards are redeemed. Now it’s a little more tricky, you have to look at the incremental cost of the cards / processing versus the “float” on the money. This is a pretty simple equation. The costs are whatever premium may be charged for the creation / processing of the cards versus the interest on the money taken in from the sale of the cards.

For example, if the average “days to redemption” of a card is 90 days, and the average value of a card is $100, and the interest I can get on that $100 is 4%, then I make $1 ($100 x 4% / 1/4 of a year) for every $100 card I sell just on the “float”. If the incremental costs (say, versus a regular credit card transaction) to issue and redeem this card is less than $1, then as the Issuing retailer I am making the difference as incremental profit – even if there is 100% redemption, which for sure is not the case.

Now, if the retailer is doing something else with these cards – using them as rewards, store of value, etc. – the story could be different. For example, “buy $100 worth of merchandise and we will give you a $5 gift card” or “redeem your loyalty points for a gift card”.

That’s a different story, now the card is not a “product” it’s a transactional device / store of value and that changes the dynamics. In this case, the card is no different than issuing coupons and you get into problems because these kinds of promotions tend to attract best customers, and their purchases using the card may not be incremental.

As far as incremental profit goes, now you stand a good chance of being in the hole, at least with the best customer segment. And since frequently the volume of losses in this “best” segment for promotions like this will dwarf any gains from these promotions on any other segments, you end up in the hole with incremental profit.

Put another way, the best, most engaged customers are highly likely to purchase anyway and giving them a discount changes nothing about their spend, they simply buy the same amount at a discount. This aggregate discount is usually greater than the aggregate incremental profit on not-so-best customers, so the entire promotion operates at a loss.

The good news is this: the actual incremental profit of programs like these is simpler to measure, because you have all the transactional data and you can control / put parameters around the issuance. Typically in a scenario like this you would  set issuance rules that threshold above the average spend rate of the customer segment.

So, for example, let’s say the average monthly spend of a best customer is $80 or $960 a year. The correct promotion then looks like this: buy $100 worth of merchandise **this month** and we will give you a $5 gift card. Hopefully, at minimum you would see a total spend of $980 that year – $20 more than average. You would be on your way to incremental profits at this point, depending on what margins are in the business.

What you *do not* want to see is the customer spend $100 during the promo month and then spend $60 the month after, which is a typical thing that happens with best customers. This is a sign you are not driving incremental sales, you are simply moving the existing spend around and giving up $5 in profit as you do it. Not good.

For more on setting up these kinds of tests and measuring these types of effects, see this article. Hope that gives you – and the rest of your industry – a starting place!

(Follow-up Question)

Q: You have however validated my thinking that we can’t measure incrementality without creating control groups. In asking the question, I was second guessing myself and wondering if there was something I was missing. I think to some degree we can use existing sales data to measure uplift (either over the value of the card itself or over the client’s average transaction) for the current purpose which would move them to the next phase of specifically measuring incrementality. For this, I’m sure your book will be helpful and I shall use it accordingly.

A: Yes. Along those lines, in the “threshold” example, we have seen a $10 off $50 generate an average sale of $120.  Given the customer segment had an average purchase of $45 – hence the $10 off $50 – it would be safe to assume there’s some incremental in there, and long as the customer segment spend doesn’t tank by $70 or so over the next several months, you could assume pretty safely you have incremental profit.

“Proof” is another thing, but if you’re dealing with pure retail, proof is a matter of degree, you take what you can get.

(Follow-up Question)

Q: P.S. Your point about the promotional use of cards, this company has separate business units which are their own P&L centers. So, while the promotional use of cards might be incremental to the business unit which runs gift cards, it’s only incremental to the company to the degree that it produced new business or “stole” it from a competitor less than value of the gift cards it took to produce.  Again, greatly value your time and input.

A: Yes, well, that’s quite another matter, and gift cards are not the “root cause”, if you know what I mean. There is a long tradition of “intra-company sales theft” between divisions that seemingly goes unchecked. A lot of direct marketing companies are sensitive to this issue, but that’s because they can measure the effects.Even then, there are only a few who have really unlocked the riddle of how much / where / when it happens, especially relative to web sites versus catalogs and retail stores. Segmentation of Recent customer buying patterns is the key.

Anyway, this is a “governance” question (strategic), not a marketing / gift card question (tactical). If a company really wants to measure channibalization, they can by setting up specific tests and using control groups to measure outcomes.

The question is, do they really want to know the answer?


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“Social Media” that Works

So what kind of social media really works for display advertising?  I have 2 examples.  They’re not poke-me, friend-me, follow-me kind of apps, so perhaps some will tell me they are not “social media”.  But they are successful in a Wiki way, and have some interesting lessons to teach us, I think.

Wisdom of Crowds

Angie’s List is an interesting example using multiple revenue models.  Over 600,000 members pay (yes, pay) about $50 a year (differs by city) to belong to a community of people looking to hire the best service companies in their area.  Members post their experiences with every local company from plumbers to auto repair shops into a database searchable by anyone who is a member.  Companies are graded and ranked by their performance, with testimonials (no, make that UGC) posted by each user (sorry, customer).  There’s a few more twist ands turns, but you get the idea.

On top of that, they send a very nice slim-jim monthly magazine to all members, which if you think about it is an super-targeted local ad vehicle for these service shops.  I talked to one guy I hired (re-modeler) who said 1 year of advertising in that Angie’s List mag generated more closed sales for him than 5 years in the Yellow Pages – and a year costs 1/20 of what an annual Yellow Page ad costs for the same size.  Yikes. 

That’s display advertising done right.  All you have to do is look up the company in the Angie’s magazine ad on Angie’s List.  The companies with Ratings of “A” and lots of glowing testimonials say their magazine ads work like gangbusters.  I imagine companies with “C” ratings and UGC horror stories say their magazine ads suck.

Go figure.

Then the companies who fall to a “C” get barred from advertising in the main part of the magazine any more due to poor ratings on the list.  New companies not on the list can attract Attention to themselves by advertising in the back “classifieds” section, in hopes of getting “A” ratings and the opportunity to advertise tin the main part of the mag.

Self-policing, continuous quality improvement.  The Attention improves in quality over time.  Sure, “ratings” are very e-Bay-like.  But the online / offline approach to maximizing Marketing Productivity for all sides is fully integrated and just very smart Marketing, they are working the model to full potential.

This community, though small by MySpace standards (that is, if all those MySpace members are active), has a very valuable, tangible reason to be working together on this shared database.  And because they put so much value on this relationship (they pay to participate), there is a lot of value in the relationship. 

You see this same pattern time and time again in display media; the more people are willing to pay for the content surrounding the media, the more valuable advertising in the media is.  It’s that fashion magazine thing again, the ads are part of the content

We know how much people are willing to pay for a membership to MySpace or FaceBook…

Offline Front End

Moms Tampa Bay is a very basic chat board idea – mothers in the Tampa Bay, FL area post questions and provide answers on family and child care issues.  It was built by a local TV station and soft launched in May of 2007, currently at 2700 members or so.  Just recently, they have started heavier promotion of the board on the TV station itself.

Now, it’s not hard to understand the display advertising opportunities on a site like this, this display model is a proven one because the members have well-defined interests and needs.  They’re paying Attention.  The fact they are all local people drives further targeting capability and some unique social opportunities.

For example, the TV station is going to launch an “issues show” based on the topics discussed in the community, with members from the community as the talent.  This kind of exposure is sure to cement the relationships and drive further participation.  YouTube local on real broadcast TV. 

“Mabel, I could be a staaahhhh…”

The station / members could do all kind of things to expand on this core idea – publish guidebooks, produce educational videos, hold events – all of it sure to attract advertising dollars. 

No brainer for many categories.

Now, TV is not known for being very good at one-to-one, and this board is far from perfect.  There are risks the station could screw this up by pushing the group too hard or far, and I’d bet they would benefit from an experienced online community manager / more resources.  But they seem to be doing pretty well at it so far, and to me, it’s quite ironic to see the old broadcast model going vertical using online, just as the onliners are trying to do broadcast…

Both sides can’t be right.  My bet is the media itself defines what you can so with it successfully, and you can’t simply decide to “break the rules” and get the result you want.  FaceBook and MySpace are devoted to people who want to create a free media platform for themselves.  Just like GeoCities and Tripod. 

With similar results on the display ad side.

I want to make it clear I’m not dumping on MySpace or FaceBook as being “useful” or even essential to certain groups of people for specific purposes.  What I am saying is while the utility to the user might be extremely high, the value of the space surrounding this content is quite low for display advertising purposes.

Other than display ads targeted to the specific needs of people in that group with those media platform goals, there is no reason to believe general display advertising will ever be successful in that environment. 

There’s No Attention to spare.