Tag Archives: marketing

Direct Marketers are Insane

One of the pop definitions of insanity is doing the same thing over and over again and expecting a different result. One of the pillars of direct marketing is running continuous campaigns that hit the same consumer numerous times. That means any direct mail campaign that does not evolve and adapt over time is insane by definition. Today, I received in the mail my regular dose of United Airline’s credit card campaign–the same exact ugly piece of mail I’ve now shredded every couple of weeks for something like two years. It has *never* changed. I will *never* get a United credit card. People wonder why United is on the rocks? These people couldn’t market their way out of a paper bag.

Marketers love to measure campaign metrics, and every marketer knows that a successful campaign entails multiple impressions, often over many weeks. A good Direct Mail campaign might return conversion rates of only 1% and still be successful, but that rate typically goes up when the marketer adjusts the campaign with different messsages and offers. What marketers often ignore, however, is the equal and opposite measure of conversion. A vulgar but effective name for this might be the Peeing in the Pool metric. For every 1% of the market you convert, you annoy, anger, and alienate some percentage of your potential future market, which makes it more expensive for you to market in the future.

Although few actually track this metric, it’s probably close to the inverse of your rate of conversion on successive campaigns. As the curve of conversion drops, the curve of alienation grows. And I strongly suspect this effect is magnified when the repeated campaign goes on forever unchanged. Each repeated drop of the same message to an unresponsive customer becomes an annoyance associated with your brand. It’s like you’re actually paying to alienate future potential customers. And that is insane.

Return on Customer ROC(SM)

When I went off on a rant the other day about social media metrics, I stepped on some unexpected toes. In casually dismissing all kinds of derivative ROx metrics, I also impugned ROC–the "Return On Customer" metric proposed by Peppers and Rogers. Don Peppers came to set me straight on ROC. He posted a comment defending the integrity of ROC and explaining its value:

"..the Return on Customer (sm) concept is not just a clever way to say "marketing." It is a genuinely different financial metric, based on a common-sense principle that is often overlooked by marketers: Customers are limited in number, and they should be treated as a scarce productive resource."

I couldn’t agree more about the value of customers. And when I read the opening chapter of Return On Customers, I can say that I agree wholeheartedly with the underlying premise that businesses need to take a much longer view of how they create value and how they treat their customers in the process. But there’s a thread that runs through the book that leaves me unsettled. It’s too shiny. Right down to the conspicuous trademark that declares ROC(SM) as intellectual property. It’s evident that ROC isn’t so much a theory open to professional discussion as it is a product, and one designed to generate substantial revenue.

Now don’t get me wrong. If I could figure out a meme that could sell thousands of books and bring business to my door, I’d be ecstatic. Peppers and Rogers have done it not once, but numerous times, with One-to-One marketing, with Managing Customer Relationships (CRM), and now with ROC. Their marketing effectiveness is genius. But that doesn’t mean that ROC as a financial metric stands up the hype. And that’s what I want to explore in more depth, starting out just with the bit that Peppers cites in his comment:

Let’s say you were trying to evaluate which of two possible marketing initiatives to undertake. Initiative A requires you to spend $10 per customer and yields a profit of $5 per customer, for a 50% ROI, while Initiative B requires you to invest $20 per customer and yields $7 in profit, for a 35% ROI.

Any sane person would choose the 50% ROI, right? Wrong. Since both the 35% and the 50% ROI are clearly in excess of your cost of capital, your supply of funds is unlimited, but your supply of customers is not. Suppose you had just that ONE customer? Then Initiative B would create $7 in profit, compared to just $5 for A.

But here’s the punchline: You should still choose Initiative B even if you "only" have a million customers, or 100 million.

We’re not saying that ROI isn’t important. Money does cost money, and you have to pay attention to the return you get on the money you use. But ROI is not sufficient, by itself.

So, while we couldn’t agree more that almost all of the RO[X] ideas out there are not very helpful, we beg to differ when it comes to ROC, which will actually lead to different decisions.

I must be missing something. This is simply capital budgeting. Yes, most marketers need to get up to speed to understand finance, but are you actually saying a CFO wouldn’t be able to figure out such a financial insight without ROC(SM)? Or is ROC just a concept for marketers who don’t understand finance?

The difficulties continue the more you dig into the numbers. A big part of ROC relies on another metric called Customer Equity, which would be a great metric of actual customer value, if mere mortals could actually measure it. But it’s much more difficult than it sounds to match up the theoretical value of concepts like customer equity, or even customer lifetime value, with the practicality of actually measuring it. And that, in the end, is my whole point. The theoretical concept behind ROC(SM) is something many intelligent people have argued from many different angles–companies need to value their customers, they need to measure the value customers generate, and they need to sustain those efforts beyond our quarterly-driven myopia. But supporting those theories with financial constructs opens those metrics up to honest and professional criticism. And I can think of no better way to leverage our emerging social media networks to do just that.  

Measuring Social Media

I want to go a step further in breaking down the dialog over social media metrics, in the wake of the Factiva roundtable. The questions I asked yesterday were what should be measured, why should it be measured, and what will the impact of those measurements be. Let’s start by looking at who wants to measure social media in the first place.

When a social media channel first takes off, the measurements that are important first are those that are relevant to the Content Provider. Take Marketonomy. I want to know what kind of people are reading my blog. I want to know what they find interesting. I want to know how to better target my content to build a better relationship with readers. Currently, those metrics are not very robust. I know how many people subscribe to my RSS feed, but I know next to nothing about them. I know which of my posts get read the most, but with the small ratio of comments to readership, I’m not always certain what drives those posts to the top. The metrics I wish I could get today are demographic. I don’t need to know *who* my readers are personally, but I would like to know have a general profile of their professional background and areas of interest.

Once a social media channel has some traffic, new measurements come into play. If you want to bring on advertisers or sponsors, you need to demonstrate the value of your channel over others. In print, you point to subscription demographics and circulation numbers to justify ad pricing. On the Web, you’ve got traffic. Of course, these metrics are open to gaming. Publications find creative new ways to inflate their circ numbers, just like Web sites find creative ways to inflate traffic. Content providers package pretty numbers to push up ad prices, and ad buyers poke holes in those numbers to push the price down, and the same game will certainly develop with social media.

Just like the current dialog in Social Media circles, traditional media has mounted periodic campaigns to introduce new metrics that justify more ad spending. I once worked for a magazine that tried to measure pass-along rates, and I’ve put the same concept into play with email campaigns using source codes. But these metrics are usually a sign that the provider doesn’t have leverage with buyers, which means they probably don’t have high demand. Just as traffic/circulation has been the bottom-line metric for traditional channels, I would argue that it’s going to remain the primary metric for most social media channels too–the more traffic you have, the more demand there will be to reach your audience, the less granular your metrics will need to be, simply because you’ve got waiting buyers.

But the complicating factor in all this is how a channel grows and maintains a robust audience, because once it reaches critical mass, it has a hungry mouth to feed. You’ve got to find worthwhile topics to cover, people to interview, or at least engaging people that will drive dialog and audience participation–and if they’re really that interesting, other people will want them too. That’s where other players in the value chain for delivering content often come into play, and other metrics matter to them. Whether you’re dealing with an interview prospect’s secretary, or an executive’s PR rep, or even if you’re relying on users creating content, the question is: Why should anyone bother driving content into your channel? The answer is that there must be some value they can derive from it, and one of two metrics will demonstrate that value.

For anyone actually engaging in social media, the important metric is likely Participation. The more people are engaged, the more people I have to talk with, or at least listen to. For anyone interested in getting content in front of your audience, like a company or PR group, the important metric beyond raw traffic is likely Influence–which is the power to impact the opinions, attitudes and behaviors of a target audience. In Social Media, traffic, participation and influence are certainly related, although the relationship doesn’t seem all that clear yet. You can have high traffic and low participation, and still have signficant influence–just as the Wall Street Journal has for generations. You can generate influence with low traffic and high participation–just as my former job at the CMO Council did with programs engaging a small group of leading marketing executives.

I’ll dig into the dynamics of influence more next time. For now, I’ll just repeat the argument that if you have significant traffic, you’re going to have high demand to reach your audience. More granular metrics will help you raise the value of reaching your audience, or compensate for a lower traffic numbers than competitors.

Engineering Upselling Opportunities

I have a theory about Starbucks. For being the world’s most successful coffee shop, they sell the worst coffee in the world. How is that possible? Have you ever tasted Starbuck’s coffee? I’m not talking about all the flavor-laced Dope-accino drinks, but the coffee. That burned and bitter sludge you have to drown with milk and sugar just to choke down. It’s awful. But through the brilliance of Starbucks’ marketing, it’s also guaranteed to be the closest caffeine fix to anywhere you happen to be in the world at any given moment.

For years I’ve stayed loyal to the neighborhood roasters with good coffee, and limited my Starbucks visits to those times when I was away from home. And it would annoy the hell out of me every time. You can’t order a "medium" coffee. It has to be "Grande". And it’s not just some pre-career Goth taking your change, it’s a Barrista. I’d stand there in line listening to all those abbreviated insider codes "double-quad-nowhip-mocha, extrahot", convinced I was on the fringes of some cult. The dependency. The special language. The willingness to donate handfuls of cash with a vacant happy stare. I finally realized the bad coffee was a way to separate the skeptics from the true believers.

When a Starbucks opened right next to my office, I found myself buying more of their crappy coffee, and then upgrading more frequently to a Latte just to avoid the torture. When I finally graduated completely from coffee to the poodle drinks, it struck me: Crappy coffee is an upselling opportunity. It’s what everyone initially comes for, it’s the cheapest thing on the menu, and it sucks. But for just a few dollars more, you get flavor. Any flavor you want. Any combination. And once you make the initial leap, a banquet of delights appears before you. Add a little chocolate, a little orange, a little cinnamon and whipped cream. It’s just money. And once you buy a Starbucks’ loyalty card, you won’t even tally up the transactions any more. Just dump some cash on the card every payday and you’re good to go.

I thought it was an amusing little theory–Starbucks makes its coffee undrinkable to migrate customers to a better tasting, more expensive beverage–a little marketing conspiracy theory to kill time in line with a client. But then I heard one of my friends talking about a recent experience with Salesforce.com, and I started to wonder.

If you haven’t heard, Salesforce had a few hiccups in its service over the past few weeks. One of my friends runs a company that relies heavily on Salesforce.com, routing its lead generation streams through the application. It turns out the outage wasn’t so much a blackout as it was a brownout. The system was continuously going up and down over the course of a week. Every time it went down, my friend’s IT team had to divert their prospecting feed away from Salesforce, and then restore the connection when it went back online. A little annoying to say the least. Finally they called the Salesforce support team and said, hey, why can’t you send us an alert when the system goes down and when it comes back up, so we can stay on top of this problem?

Are you ready for the response? Sure, Salesforce said, we can send you an alert, but that’s a service included in our Platinum Support Package. Would you like to upgrade?

When I heard the story, I had visions of a Salesforce executive standing behind a row of servers with a plug dangling from his hand watching the Platinum Support Upgrade Dashboard. Drinking a double caramel macchiato.