Marketing Libero

Don't be fooled no one knows anything...

 

At the start of my last year at Uni our Tutor articulated a hope for his students. He hoped by now, with our exposure to the subject matter (Human Geography - should you be interested!), that we would realise how little we actually knew.

Far from being depressing this was in fact liberating. It was OK not to know everything.

I had a similar feeling reading Russell Davies in Campaign today. In relation to trying to work out the elusive new model of marketing he quotes Frank Chimero:

"We break stuff before we know what replaces it, and we invent things before we know what they're for"

Like Davies I find this liberating and exciting. With no disrespect intended I am fed-up with Old-Guard creatives from the 70's crap-on about the golden days of television - when that was the best time to be in the industry.

I don't agree this has to be the best time - we have broken all kinds of models from communication to business - it's up to us to work out what replaces them.

Allied to this has been the press coverage of Forresters latest report (Refine Your Marketing Innovation Strategy) from their marketing and strategy research panel. The report calls for CMO's to lead the innovation within their organisations and find ways of adapting their marketing methods to accomodate future customer engagement methods.

All things considered I'm pretty excited about the next 10-years...

The Loyalty Paradox

 

Trawling through some client research I am struck by how consistent customers are in their definition of loyalty.

It would seem for the majority of customers it is about longevity of relationship.

However, for most brands loyalty (and hence rewards) is about intensity of relationship, or in other words - spend levels. The more you spend the more cash you get back or the more points you accrue.

I accept that many marketing practitioners would wish to split the assumption that a competent reward scheme equals a loyal customer base, wishing to focus instead on creating magic moments with the brand and driving up the holy grail of loyalty metrics - net promoter score (NPS).

(The uncomfortable truth for many service brands is that their NPS scores are mostly negative, put simply they have more customers who would not recommend them than customers who would).

But nonetheless this sets up a classic loyalty paradox between customers and brands.

There are some excellent reward schemes out there undoubtedly helping with customer retention (a very different thing to loyalty) and I accept / even extol the CRM 101 pragmatism of focusing your resources on your most valuable customers.

I have blogged previously about the holy trinity of loyalty; structural, emotional and rational. There must be a way to resolve this paradox using this important and consistent customer insight on the definition of loyalty.

As practitioners we surely now have the data & CRM capability to build longevity, as another dimension to value, into both our reward schemes and our customer service policies.

Evidence Based Marketing

 One of the trends I like to follow is how marketing is changing as a profession. 

The rise of digital with its clear measurability and the recessionary climate has dragged everyone's attention back to accountability.

I believe we are seeing unswerving adherence to practitioner expertise, particularly around the art of branding, starting to give way to a more evidenced based approach. This is also evident in other professions, most notably medicine. (See Ian Avers excellent book - Super Crunchers).

Of course the very best marketers have always used customer intelligence in all its guises but in my experience these kinds of practitioners are the rare exception.

In support of my belief Marketing Week's recent article Marketers make intelligence choice makes reassuring reading. The piece sites a recent Forrester report which claims that the future ranks of chief marketing officers will come from the "customer intelligence" division of the business.

Faster, Faster, Faster?

Yesterday the government produced its report dubbed Digital Britain. One of the key points attracting most attention was the promise to ensure that every home in the UK can get 2Mbps broadband by 2012.

In the age of 50Mbps super-fast fibre-optic broadband this doesn't seem like much of a commitment - although the graphic below shows that you can do most things with your 2Mbps.

On reflection - and whilst we all want to have fun - this seems a very trivial list of activities. In Japan which tops the high-speed list they are beginning to ask what can be done with all this bandwidth.

For me where it gets interesting is when the infrastructure starts to facilitate real social change such as workable telecommuting (with usable video-conferencing) and remote interaction with public services such as healthcare. 

The Law of Disruption curve below shows that all elements of society lag considerably behind technological advancement - with the political sphere bringing up the rear.

For me a government serious about a Digital Britain would have been more ambitious - 50Mbps fibre-optic broadband for every household by 2012 is more like it. For that it might have been worth paying a levy.

Walking the Data Talk

Tesco's recent announcement that it intends to relaunch and further invest in its Clubcard confirms its position as the number-1 company that gets data is the future.

The card has always been more than just simply about loyalty (Nectar are you paying attention?). The points / vouchers are positioned as a "Thank You" rather than as a reward for custom. Most importantly it's core purpose is to remove the anonymity of transactions by collecting customer data. (You can read more about the Clubcard story in this book).

The latest manifestation of its data driven strategy is the announcement that they will be opening as a bank offering current accounts from 30-branches. (previously they sold only secondary financial products). 

Whilst the Big Banks may not yet be quaking in their boots, with Tesco's ability to disproportionately amplify its proposition compounded with post credit crunch consumer sentiment and their ability to execute, the Old-Guard should be very concerned.

They "walk-the-walk" whilst other brands just talk, talk, talk.

Big Brother or Marketing People Want?

The news that the BBC is to use behavioural targeting on its global websites outside the UK (Marketing Week 27.04.09) is an important milestone for this (relatively) new and highly controversial technology for 2-reasons...

1. It is seen as a key enabler to commercialising their websites
2. If the ultra-cautious BBC are happy to adopt it should your company be doing the same?  

  
Behavioural targeting uses knowledge of the websites you visit to serve you more relevant online advertising. It is seen as a crucial technology for both ISPs and web owners to monetise their sites, and to revitalise online display advertising.

It's controversial because of privacy - do you want your web-surfing habits to be tracked and used in this way? The answer is of course - it depends! If it is genuinely useful then yes. There is a distinct generation gap in the attitude of those consumers (often younger and social-networking literate) who understand the value of sharing their personal information.

BT got is spectacularly wrong last year in its test on the Phorm behavioural targeting platform. Rather than invite customers to participate in a beta-test (Google style) it picked customers randomly. Whilst their anonymity was assured the customers in the trial did not appreciate being selected without permission.

Online display advertising is at a bit of a crossroads - despite comprising 19% of online advertising expenditure in 2008 (IAB) the effectiveness of this media is coming under intense scrutiny. Network buys have become the norm where you pay for impressions but are blind to the web sites you might end up on with the organisational risk and wastage that entails.

On a more positive note the combination of behavioural targeting and the interactive display formats that are increasingly available promise greater customer relevancy and a better branded experience - potentially moving from the interruptive to the genuinely engaging.

If this sounds to you a bit like the cookie debate of 5-years or so ago - you'd be right - using much the same technology. Whilst consumers are beginning to accept that cookies are useful for improving their internet experience there is a way to go to win the debate on highly targeted advertising. 

Brand and digital media owners need to demonstrate to consumers that they can use behavioural targeting responsibly to genuinely deliver marketing people want. The IAB's good practice guide is an excellent place to start.

How to cheat at direct marketing ROI

Calculating how to measure direct marketing ROI (return on investment) is fairly simple:

Sales X Value / Cost = ROI

Below is a guide as to how you can improve your ROI in 5 simple steps...

1. Measure response at the GROSS level

Rather than count only incremental sales (target cell sales minus control cell sales) from your campaign simply count all the sales.

Control cells can be tricky to set-up so why bother?

Further measuring incremental response can be hazardous to your business case as for most campaigns it is only 20-40% of gross response. This is particularly true for brands which have other sales channels such as a retail network.

2. Massage your value

If the sums are getting tricky simply inflate the value of the product or service.

Don't think seriously about whether you should use a 1,3 or 5-year NPV (net present value) just use the highest one! Never mind that to achieve the higher 5-year value might involve further customer investment.

Whatever you do don't look back 6-months later at the actual NPV of the customers your campaign acquired and re-adjust your ROI expectations for the next campaign. This so called Total Value Management approach can make any business case dead in the water.

3. Drive down your pack cost

Yet another way to make that business case is to drive down the cost of the communication. For a letter and A5-leaflet it is perfectly possible to get something produced for 24p including postage.

This is about economies of scale. Just mail a huge volume well past the point of customer relevancy (see step 5) and get the stuff printed in Eastern Europe.

Don't let the allure of the agency brains trust fool you into buying any of that expensive strategy & planning stuff.

Just ignore those brand communications or CRM guys who insist that direct marketing has a role to play not only as a highly optimised sales channel but one that can build relationships too.

4. Don't do test and learn

It just drags down your overall ROI.

It's tricky to set-up. If you want to learn anything worthwhile you have to really think hard about it. Plus it takes ages to get results back.

5. Evaluate the campaign at an overall level

I have left the most important tip till last. Make sure you present your results at the highest aggregate level - blended results can hide many sins.

For example, don't look at the results disaggregated by response decile. Whilst you can get positive ROI on mailing the top-6 deciles (60% of the base) it is very inconvenient that the top-2 deciles only create all the profit whilst the next 2 only break even and the next 2 have negative ROI.

Don't let anyone see (especially those finance guys) that by mailing half the volume you could achieve c85% of the sales, 95% of the profit and double your ROI.

You never know what might happen - they could halve your budget and give it to those web freaks!

Of course if you want to measure your direct marketing properly you'd do the opposite of this guide but then that involves doing communications that genuinely engage your customers creating additional demand, rather than simply hoovering-up sales you would have got anyway through other channels.

Death of a Salesman

It is rumoured that Capital One the credit card company is to drop direct mail from its acquisition marketing mix in 2009.

The company spent c£6m in 07 (14m items) with 86% directed at acquisition, placing it mid way in the Top 100 direct mailers according to Marketing Magazine. In 06 they were ranked number 2.

(As an aside another credit card provider, MBNA headed the charts in 07 spending £35m to send 78m pieces 63% of which were focused on acquisition. However, even this is a 22% decline on 06)

Why are Capital One pulling out of DM for acquisition activity? Sadly I suspect the reason is less to do with corporate responsibility regarding the environment or the public's intense irritation with junkmail of this kind but instead a simple commercial calculation - it simply no longer pays to do it.

Does this mean the death of acquisition direct mail, a reliable cold-call salesman for the last 20-years? I think it does but direct selling couldn't be healthier. The direct battle for customers has simply shifted from the door mat to the Google search box with the direct marketing budgets following.

Again from Marketing Magazine's 2008 review Capital One were ranked 4th in the "Top 100 online advertisers" spending c£14.7m in 07 up from 39th the year before.

The Internet Advertising Bureau's analysis supports this. In the first half of 07 internet advertising spend increased by 41.3%, whilst direct mail declined by 6.3%.

If acquisition direct mail is to survive it needs to be integrated far more effectively - driving customers online.

Sound obvious? Maybe. But in my experience your average marketing department struggles with the organisational alignment to achieve this as well as the holistic measurement required.

Free Phone

Mobile phones have been threatening to emerge as a serious personal advertising platform for sometime. Unlike your TV and PC you carry your phone with you at all times, usually switched on, and at least 95% of us have one. However, it wasn't until the iPhone and its contemporaries that the mobile internet was really shown to be a viable consumer experience.

"Push" strategies are relying on targeting mobile advertising by amalgamating demographics and location data. Therefore, you can push a BMW advert to a man, over-35 within 2-miles of the Twickenham dealership. Inevitably such push activity comes with the usual concerns over privacy.

The opportunities for 'pull" strategies are much more powerful in creating real customer engagement and word of mouth. The iPhone's ability to download apps and the open-source nature of these has facilitated viral marketing such as Carling's iPint which turns your iPhone into a virtual pint.

Now we have Blyk, a free mobile phone network for 16-24 year olds. For allowing advertising Blyk users can obtain free text messages and calls. For someone who has worked in the telco sector within the last 10-years it takes a while to get your mind round the fact that the business model can be subverted in this way. Yet even a year or so ago you would have been laughed at for giving away a PC (even the basic spec e-books from the likes of 3) with a mobile broadband contract. Clearly it pays to be open-minded!

My question is this. We know consumers are getting even more expert at filtering out unwanted advertising messages. With a advertising models like Blyk will its users simply learn to screen out the advertising as a necessary encumbrance to accessing the services they want? Sounds familiar doesn't it? Whereas with the model exemplified by the Carling app the opportunity for true consumer engagement and word of mouth is much greater. We just need to figure out how to measure their impact on the bottom line of the businesses we support.

The Genius of Genius

The recently launched Genius Playlists application in iTunes is a great example of the marketing as a service movement, and perhaps the kind of new stuff that advertising agencies should be producing.

Play a song, click the Genius button, and iTunes creates a playlist of other songs from your library that go great together. Then in the Genius sidebar it recommends songs that you’ll enjoy but don’t already own. Genius.

By providing a service (instant intelligent playlists to suit your mood) it gains permission to sell to you (your recommendations). As we all know the best way to sell anything is to make it feel like a service. No need for an email with all the challenges of marketing permission, personalisation requirements and will it get opened. It has created a direct channel to the customer. Genius.

It also satisfies one of the three key forces of the long tail – “help me find it”. By making it feel like a utility it goes well beyond the current recommendation engine paradigms of sites like Amazon.com.

Many advertising agencies are already waking-up to the fact that the stuff they produce needs to be more than letters, posters or TV-adverts. Why shouldn’t agencies create software with its potentially more lucrative financial licensing model? (See The Agency of the Future p22 and Agency as Entrepreneur p44 in Contagious 12 below).

After all isn’t it about The Idea to be advertised rather than the Advertising Idea? Of course you pure-play Digital Folks already know this.

Welcome to the direct marketing of the future. Genius.

Matt.

Download contagious_extracts_issue_12.pdf