What is the value of an ad not seen? Worse yet, what is the value of an ad seen but not acted upon? For years we as marketers have worked hard to turn the Internet into a place where ads are proactively blocked, filtered, and ignored. Agencies are paid to increase list size, not list quality. Rather than put time into properly segmenting our prospects and compiling an offering that is relevant, we collect information in any way possible and blast emails to everyone. This is because we choose quantity over quality thinking we’re getting the best bang for our buck. We’re not.
The economics of increasing list size.
Agencies are paid to increase the size of lists, increase club memberships, and collect prospect information in any way possible. They do this in all sorts of “creative” ways from refusing to filter out known dead leads (can’t decrease the list size) to collecting information on prospects that have no interest in the product Just the other day I was at the NJ State Fair and I was approached to sign up to win a smart car. All I had to do to enter was give them all my contact information. But what did they think they were going to do with this information once they had it? Beyond showing the increasing aggregate list counts to clients, I don’t think they cared. The scary part is some client out there might actually think the contest was a success.
Lets take a second to analyze this. It’s possible that the agency in charge of the smart car contest made the connection that if I wanted a smart car for free, I might have an interest in buying one? Maybe? Could that be the leap in logic? The other option is that they are just going to sell my information to a random client, which is worse, so let’s go with option one for now. If instead of a car they were it was a pile of money, say $16k (the value of the smart car), and they offered it to me for free, would I take it? Sure. Would I pay more than I thought it was worth for it? Umm, no. This is because it comes down to creating value for the consumer, which they made no effort to do. The fact is before I was asked if I would take the car for free I never considered purchasing one. And, after someone offered it to me for free, I still never considered purchasing one. I commute on NJ highways and I value my life, sorry.
However, if, for instance, the same group of people had a smart car tent with information and they did there homework, it might have been an entirely different experience. They could have shown me a big list of all the ways the smart car could benefit me financially. They could have touted the benefit to the future of the environment for my son, whom I had with me. They could have shown me statistics and safety ratings for the car’s steel passenger cage. They could have done a lot of things. Maybe then I would have been interested. It is at this point, only after I had a legitimate interest in the product, they could have asked if I wanted enter the smart car contest and collected my information. The difference here is they’ve laid the foundation for a relationship first. If they were really good they could have noticed I had my young son and wife with me and noted it. They could have casually collected information on where I work and deduced or even asked about my commute. They could have found out I travel a lot. They could have found out what was valuable to me and catered to it when they used the information they collected to market to me later. And when they do, I might not ignore them. They could have, but they did not.
The value of a shirt not worn — why arbitrary list generation doesn’t work.
Those who know me know I like nice shirts. Nice shirts cost money. I’ve been known to pay more than others consider a reasonable amount for a single shirt, but here’s why. I’m all about marginal utility. When I find something I like I ask myself, “is this better then everything else I already own?”. In fact, price means less to me than you might think. Marketing to me on price alone won’t work. If I buy one shirt at Express or Guess it might cost me between $30 – $50 (or more). For that, I’ve heard, I could buy ten shirts at Walmart. Here’s the trick: I don’t want ten Walmart shirts. All ten of those shirts would hang in my closet for years until I cleaned them out and donated them in like-new condition. In the mean time I’d probably continue wearing my old shirts. So now I’ve spent good money on ten shirts I didn’t wear which would be made abundantly clear when I complain to my wife that I have nothing to wear. Of course it no longer makes sense for me to buy a new shirt since I have ten I don’t wear.
See what happened there? The reason for not purchasing a nice shirt has become I don’t wear the shirts I have. Given my history, it makes sense. It would be a waste of money for me to spend more money on a single expensive shirt because I can’t afford for me not to wear it. It’s a vicious circle of self-fulfilling prophecies. But what if I would wear the nice shirt? What then is the value of the one expensive shirt vs. the ten less expensive? This is the loop we’ve gotten ourselves into with marketing.
Enter the Internet and mass marketing.
CPM is the cost of touching 1000 prospects. It is the traditional means of normalizing ad purchases for comparison. C is cost, and M is the Roman numeral for 1000. So, by lowering the cost we lower the CPM. But there is another factor. Traditional mass marketing seeks to increase the total number of customers reached for the least amount of money. Since M is always 1000 in this ratio we seek out media that gives us lots of M’s and a low C. This is where the Internet comes in.
Early marketers saw the Internet as a combination of an extremely low variable cost, nearly $0 (low C), and a seemingly limitless supply of potential customers (lots of M’s). Given such a low CPM, it made sense to take traditional advertising online with banners and mass emails. The result was a flood of online advertisement and subsequently the CAN SPAM Act of 2003. CAN SPAM is an acronym for Controlling the Assault of Non-Solicited Pornography And Marketing. We sold a lot of inexpensive shirts to a lot of people who were not going to wear them, and we called it marketing. You know how taxes are on par with death? Our marketing tactics and CAN SPAM put us at the moral level of unsolicited pornography. Not good.
Customer Relationship Cultivation (CRC):
That was yesterday. Today’s new media rich environment is very different. Sure there are those who still use mass advertising to prey on individuals, but that’s not new media marketing (despite the actual media used). Today we’ve collected a lot more information on our customers and we’re learning how to use it right. We’re learning to create value for them, not for us at their expense. We still talk about CPM, but we don’t live by it. Even click-through rates (CPC — cost per click) are becoming an antiquated statistic. Today’s marketing is about behavior. It’s about action. We understand that customers act first and purchase based on behavior, not the other way around. And we use new media to leverage this idea. Let me explain with two great examples from Zain Raj’s Behavior First blog:
- Say you are a property and casualty insurer. And, say you want to increase your footprint in the home insurance market. Based on your data you can identify customers that have not had any claims, they take care of their homes and are likely to stay there for a while. Because of this they are very profitable customers but possibly vulnerable. What if you mailed them a check to invest in their homes? Would this make them more loyal? Would this be compelling for others? When was the last time an insurance company sent you a check?
- Say you are a wireless phone company. You have data on your customer usage of the various services. Based on this data you will see a group of customers who don’t use what they pay for. They buy 1,000 minutes but only use 600. What if you sent a note telling the customer that based on their usage, you are either willing to reduce their monthly charge or they can apply the difference to other services. Experience shows that most of the customers will apply it to other services and their loyalty and spend with you will increase.
CRC can make this happen. It’s the perfect storm of marketing. Think about it. First, a customer you retain is much less expensive and much more profitable than a customer you acquire. Second, you already have data on your most profitable customers. Third, great experiences stand out in the mind of customers. A great customer experience in itself is marketing — recommendation marketing. And a good recommendation goes a long way.