Spiral Marketing: The More You Know, The More You Can Know

January 31, 2009

Acquisition or Loyalty?

I was asked recently whether, in this economy, one should focus on retaining existing customers or acquiring new ones.  If you are in a forced-choice situation, you should choose loyalty – there have been many studies across many industries that validate the fact that a follow-on sale from an existing customer is 5 to 11 TIMES more profitable than the first order from a new customer.

Ideally, though, you wouldn’t have to choose, because if you want to estimate the lifetime value of a customer, over time you will almost always find that a decent, close-enough estimate for lifetime value is 3 to 4.5 times annual profit earned from that customer.   Therefore, not pursuing acquisitions for too long a period of time will start to erode your profitability.

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January 25, 2009

Social Shopping Centers

A question came up recently concerning social shopping sites such as Kanoodle, and how an ecommerce site gets traction on these “social shopping centers.”  I think the metaphor underlying these sites is the “online shopping mall” we saw in early internet companies in the mid-90s.  The problem with this metaphor is that the shopping mall was created because of a physical imperative, rather than an informational imperative – with the move out of large cities with a heavy density of retail options within walking distance of where one lived, and the rise of the suburban “bedroom communities,” people didn’t want to drive all over town to get their shopping done; thus, the rise of shopping malls.

Contrast that with the internet, where there are no physical barriers in moving from one site to the next, which leads me to question the need for the aggregation of ecommerce sites into a single portal.  I think there are a couple of arguments for such sites: 1) they aggregate multiple shops selling a certain item at a single point – but I suspect this will become more and more the province of search engines; and 2) they provide a congregating point for shoppers to share information and reviews / recommendations.  I think there is legitimacy there, and certainly there is plenty of evidence that reviews and recommendations from friends can increase conversion rates, average cart value, etc.  But I also think that more and more this functionality is being included in individual ecommerce sites, and the search engines will continue to co-opt and aggregate that information.  I also question whether an individual ecommerce site will or should, in effect, choose to compete with many other sites that sell similar merchandise in a straight up comparison, which in most cases will devolve into a price war: it should be no surprise that of those “online shopping mall” sites of the mid- to late-90s, the functionality most used on those that have survived is a price comparison feature.

So the real flaw in this concept, in my opinion, is that for this model to be effective, each of these sites has to become its own social network, get and keep its own audience, and compete with every other social network.  I think that this compartmentalization of interests is bound to fail beyond one’s “personal” social network and “professional” social network, because we don’t compartmentalize our interests to that degree in social intercourse.

These sites won’t go away completely – I just think we will see, as we did in the past, that those sites in virtual space predicated on metaphors that evolved from physical world constraints ultimately will have a much more limited reach than one would think based upon looking at the reach of personal or professional social networks.

I think, therefore, that it is up each ecommerce site to develop its own social content – primarily reviews and recommendations – and then determine how to place that content on the broader social networks (and you still can’t ignore the search engines) to draft off of their much larger, much more active user base.

My two cents worth . . .

Kevin

January 24, 2009

Is email losing it’s effectiveness? Uh . . . Yeah?

Posted in response to the question on LinkedIn:

I don’t know how you define “effective,” but email marketing, in my opinion, is definitely losing its effectiveness.   I think any discussion of effectiveness is relative to other media – that doesn’t mean email is more effective; it rather means email is losing traction less quickly than alternative techniques.  For instance, DMNews, in a recent article (http://preview.tinyurl.com/4qleog), tried to rationalize the promise of email for the future (consider the source . . .) with the statistic that the main reason people acces the internet is to use email.  This, side by side with the statistic that the younger demographic are more likely to use social networks, rather than email, seems a bit “optimistic.”

Also, the justification itself is a false analog – DKNews discusses this statistic – that the internet is primarily used for email – as though, QED, that validates email as a marketing technique, when in fact, the more relevant statistic is that people are finding alternative means of communicating, devoid of all the commercial email “noise.”   Across the board prices are down for email lists, response rates are down, etc. etc.   They just aren’t down as far as other means of mass marketing – that becomes a real conundrum, because if all we are faced with is a set of bad choices, of which we can only choose to select the least bad, then we are in trouble.

Someone also made the point that the party is being ruined for “legitimate” marketers by spammers – I think it is tough to have anything but a subjective discussion on that point, relevant to whether you are talking about your email blasts, or someone else’s.   The real issue is that marketers as a group tend to spoil their own parties before they start – they do so honestly – they are trying to do the right thing for their companies.  With a lack of viable mass marketing options, though, marketers create so much noise in aggregate that they dilute the effect of their own messages, as well as everyone else’s.   I suspect the same will rapidly occur for SMS-based campaigns, or any other emerging mass-marketing, “push” technique.

That becomes a tough row to hoe – you have to meet your goals with your marketing campaigns, but the ground has moved beneath everyone’s feet, and I am not sure anyone has a real handle on what “mass marketing” means in this new terrain.

I also believe that email service poviders do not help their case when they make claims devoid of any rational basis; one individual claimed the ROI for email is $57 for every dollar spent, vs $22 for non-email online marketing dollars; in other words he was suggesting the ROI for email marketing is 5,700%, compared to an ROI for non-email online marketing of 2,200%.  Put another way, this statistic suggests a payback period for your entire annual marketing budget – assuming a 24/7 business – using email is a little over 6 days! I certainly think that meets my hurdle rate requirements; I’d be interested in this individuals source for these figures, and how “ROI” is being calculated in this case.  The broader issue, however, is that – to me, at least – such claims propagate because of a sense that in this brave new world, nothing works the way it used to, and marketers are looking for answers in the heart of a maelstrom.  Through a combination of hope and factoids  based in psuedo-science, I sense that mass market service providers seek to create an arbitrage opportunity for themselves.

Unfortunately, in this “brave new world” (thanks, Aldous), I suspect the real answers are going to be quite a few orders of magnitude more difficult than we would like . . .

More on this later.  In the meantime, hold on to your hats – it’s going to be a hell of a ride!

K

The More You Know, The More You Can Know

Filed under: social marketing — kboulas @ 10:42 pm
Tags: , ,

The marketing landscape has changed under the business world’s feet – it seems that virtually every existing form of mass-marketing is drastically declining in effectiveness, to the point where the core fundamentals of traditional mass marketing have changed, and no one knows quite how to operate in this new landscape.

There seems to be the thought, though, that Social Media is the new mass media – we’ll explore questions related to this sea-change in the marketing landscape in this blog.

Enjoy, and I hope you find this a useful discussion.

Kevin

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