Free - Digital Marketing Economics

Chris Anderson, Wired Magazine, has just published "Free: The Future of a Radical Price" suggesting that the declining cost of technology will drives digital products to be free because the marginal cost of product approached zero. The application of Moore's law, which suggests that the amount of memory delivered for a given cost will double every two years (a rough statement of the law, not a quote), to the cost of delivering digital products is one of the foundations for the suggestion that pricing will go to zero because the cost to deliver approaches zero.

It's interesting, because the cost appoaches zero but never acheives zero. Therefore, someone must still pay for the cost of delivering the product. Facebook is free, but the servers that house the data cost money. Google is free, but the it costs money to run the search bots, store and serve the data. The marginal cost of a Google search may approach zero, but it is not zero?

So what is the model? If free to oonsumers, there appear to be only one alternative - third party party payment. Third party payment to cover costs and provide profit margin can come from advertisers (the media model), or from a subset of the consuming market. This subset might be fees to subscribers for premium services. In other words, in order to be free to most a few must pay for a premium offering. A second version might be the blades/razor model, the content is free (or near free) but you must purchase the player/iPod/iPhone/Kindle. In the end, "Free" isn't really free, it's the ability to allocate product to a broad population by charging a few or charging in another manner. What do you think?

eMail Marketing ROI resource

If you are interested in maximizing the return on your e-mail marketing investment, take a look at the latest email marketing metrics report from MailerMail. They've been publsihing this report for several years and there are many fact-based finding that will improve your marketng ROI, such as optimizing the day of week, he subject line length, etc. Other excellent e-mail marketing sources: Constant Contact, Vertical Response, MarketVolt.

Denny's Grand Slam a Home Run?

With all the discussion about the best Super Bowl spots, I wonder which ones really generated the greatest return on investment. Some, like the Doritos spots, were wonderfully creative, but you have to push a lot of retail displays and pull a lot of consmer sales to generate a return on a $2.5-$3MM investment. Some, like Go Daddy, may not have creative that you appreciate but have an immediate call to action that allows measurable results (how many new domains sold this week versus the week prior?).

So what about Denny's? Free Grand Slam breakfasts on Tuesday after the Super Bowl. Postive ROI? One news report suggested that $2MM in free breakfasts were served. I don't have their data, but I suspect the cash cost was far less that the retail value of the free breakfasts. Even if it was $1MM, bringing the total cost of the ad plus meals t $3.5-$4MM, did the exposure and trial generation create enough new customers? I don't think so. When I drove past the local Denny's on Tuesday morning there was a line down the sidewalk (in 15 degree weather, too!). I can't imagine that the dining experience was very pleasurable with the hectic environment, crush of visitors and a burdened kitchen. Would that make you a loyal customer? Not me. (Not that I would wait in line for a free pancake...)

So, was the Grand Slam a Home Run? Let me know what you think.

Future of local news

I came across an excellent article by Sean Carlton on CLickZ discussing the future of newspapers and print media in the digital age. Much has been written on this topic over the past few years, but this article provided the most concise summary of the comparative strengths of each media source. Local news will thrive. Print will be a part of the communication, but digital offers incredible opportunities to innovate the delivery of local content. Ad supported online local news will likely be part of the solution and this directly relevant content will become a source of ROI for marketers seeking to reach consumers on a local level.

Richard Branson interviewed by Seth Godin

For the small business person aspiring to grow, it is inspirational to see Richard Branson on Open Forum speak about checking the bills monthly when his business was still small. Note that the interviewer here is none other than marketing guru Seth Godin. Any business seeking to validate return on marketing investment needs to understand how the money is being spent. In larger marketing organizations brand managers don't always see the actual invoices. It's a good practice to be sure marketers see the invoices if they are to held accountable.

2008 Marketing predictions and 2009 trends

Last year, I suggested watching these trends in 2008. No, I did not predict the recession, nor did I predict that the primaries and election politics would be so engaging.

10. Mobile Marketing. i said we are still in the experimentation mode. I think this is still true, although the footprint is expanding. The U.S. still lags Asia. Look for more advanced promotional marketing, and movement beyond the test and learn stage in '09

9. Green. Still a hot topic as the year ends, but the discussion seems to have wanted as economic anxiety has risen. It will stay on the radar in '09.

8. Creativity. It's time to get creativity back in our marketing programs. Not just great creative (the art) but creativity as marketers, bringing new approaches and ideas to the market. There's so much untapped potential with the capabilities marketers have today versus just a few short years ago. I said that a year ago and not much has changed. Lots of potential here for marketers!

7. Investment Thinking. I said, "Marketing measurement is ready to hit the mainstream and move beyond lip service...it's not that creativity doesn't matter - it matters a lot. But as a means to an end, and the end must be measurable." Result for 2008 - it's still true and some progress was made in '08. Look for increased accountability in 2009 as budets tighten and accountability increases.

6. Mass Is Dead. I said, "We've all heard it. It's true. The writer's strike, if it lasts, will be the proof. No one will miss network or even major cable shows after a while." Result" On target. Does anyone really miss Lost or American Idol?? Targeted media is the trend. SBTV.com for examle, :)

5. Direct is Alive. Online. The ability to converse with your customer in a 1:1 opt-in world is like finding a haystack full of needles. Still true.

4. Integrate. I said, "Integration of marketing processes into the selling process. Integration of all marketing element from strategy through execution, across media, web, promotion, packaging, etc.. It's all about marketing systems. Connect the dots so it all makes sense, then measure every step." Marketers are trying, although not many have solved it.

3. Narrowcast. Such a cool trend. "Micro-media networks are like micro-breweries. You may not always like the taste, but you have to experience them. Look for targeted messaging to grow rapidly as networks expand and begin to appear in places you've never thought of -- how about your local bank or dry cleaner?" Love this. Still true for '09. More to come!

What, no #2 or #1? I told you I'd try to keep it short. And leaving out #1 and #2 might spark your own creativity. What else will happen in 2009?

Marketing Ins & Outs in Down Economy

Outs: Conspicuous Consumption, Indulgent Foods, Exotics (unless healthy), Spas, McMansions, Exuberant Expectations, Hummers,

Ins: Cocooning, Family, Home and Hearth, Home-baked, Safety, Value, Steadfast, Trusted, Reassuring, American, Security, Education, Self-Reliance, Heroes, Home Repair, DIY

Is your brand message aligned?

Tale of 2 Books - Marketing Metrics

I read two books this month, both focused on metric marketing issues. The first was "Return on Marketing Investment" by Guy Powell. The second book was "Measure What Matters" by Laura Patterson of Vision Edge Marketing. While both authors share a common goal of guiding CEOs and CMOs to measure marketing more effectively to achieve desired outcomes, the two authors approach the topic in decidedly different manners. Powell argues that marketing investment should be evaluated like any other business investment - calculate the expected return on various marketing investments and compare the returns against defined hurdle rates. Apply high hurdle rates for more risky investments such as advertising versus more known marketing tactics such as direct marketing. While Powell's approach is logical and the quantitative model mathematically correct, he fails to fully address an effective way to set hurdle rates or how to effectivey define expected returns on new marketing efforts, other than to say that the hurdle should be higher for higher risk or less known programs.

In comparison, Patterson breaks the role of marketing into three core performance areas that link to business objectives: acquisition, retention, and monetization. She then proceeds to offer specific marketing metrics for each area that can be measured to determine how marketing programs contribute to these fundamental objectives. I particularly like her reference to those metrics that measure business output versus those that measure marketing activity. See my earlier comments about process v. results marketing metrics.

Both share the goal of linking marketing to business results. Patterson's book is an easier read and will be more palatable to most marketers. Powell's book is more academic and by it's very nature feels more like your Finance 101 text, yet offers relevant thinking. Read both and see what you think. Both believe in my favorite line, "Facts Find Funding"(sm).

How to Ask Naked Questions - Marketing Smarts

Naked Questions. It sounds a bit risque, but it's not. Marketers must always ask the 'naked questions' when formulating marketing strategy if they want to achieve solid marketing ROI. The term comes from Aesop fable in which the emperor wore no clothes. Remember the child who calls out "The emporor isn't wearing any clothes."? For marketers, defining sales and marketing strategies means asking the core questions about the business drivers without making assumptions that management already knows the answers. Often, the business has built a set of assumptions that define the way it operates. Those assumptions become so ingrained that senior management assumes the assumptions are fact based. Marketing ROI cannot be achieved if strategy is based on unproved assumptions. A "Naked Question" asks a fundamental question about the business that exposes management assumptions.

What are some of the "Naked Questions" that marketing strategy should ask? The basics might include: How does the company make money? How does the company generate positive cash flow? Who are the key stakeholders in the business and what defines their success?

My favorite is to ask what business the compnay is really in. Traditional banks and credit unions are in the financial services business, but today many will tell you they are in retail. Are the airlines in the transportation business or are they in a customer experience business? Dell may be in the computer hardware business, but they thrive on being a retail service business. Ad agencies are traditionally in the business of creating advertising and placing the advertising in the media (and earning repeated income from the ad based on promoting higher media spending). That model is largely a dinosaur. Ad agencies (who still call themselves that) are in the marketing strategy business and increasingly focus on adding value by helping clients define marketing strategies will deliver sales and marketing ROI. (Note that in the old model the ad agencies didn't focus on sales measurement so much as they focused on media spend levels to drive cash flow).

So....always look for and ask the Naked Questions. It's fun, and you might learn something about the business.

Marketing Performance and Sales Incentives Should Relate

It may be just as important for marketing programs to provide measurable incentives to sales teams and employees as is it is to have measurable metrics for consumer response to promotional programs. Does the sales team know what is expected for effective implementation of a program or how proper product placement at retail will be evaluated? Is the compensation system set up to reward the proper behavior? The sales team will respond when they understand the objectives in a clearly communicated manner, and understand WIIFM (what's in it for me). They will respond more rapidly and effectively when there is a clear line of site between their day to day performance metrics and the promotion objectives.

The obejctives and metrics for the implementation team, usually a sales team, must be clear and measurable. Even better if the incentive compensation, either cash or non-cash, is immediate. By immediate, this means that the award for the behavior is linked as closely in time to the performance. Think about it, wouldn't you like to be paid for a job well done as soon after the task is performed as possible, rather than waiting for a possible year end bonus?

Marketers sometime fail to integrate their metrics with the internal processes of the organization, especially the selling systems and procedures. By coordinating with the internal processes the marketing team can generate greater overall support, be viewed as team players, and more readily achieve their business objectives.

Marketing as Art and Science

An analogy that I've used with younger marketers is one that is worth considering.

I love art, especially painting and sculpture. Marketers love to debate whether marketing is an art or a science. The pendulum seems to swing back and forth over time. Ultimately, I suggest that marketing is both art and science. Science measures the impact of the art. Scientific thinking also guides the rigor of marketers as they apply a defined process, and iterate learning cycles to fine tune tactics and maximize performance. Art applied gracefully to strategic thinking leads to breakthrough concepts, which can power any strategy to higher levels.

Marketing students often ask how brand marketers today determine which tactics to use. After all, it's become a cluttered consumer environment exploding with consumer messages. A story is often told of Michaelangelo approaching a block of stone and creating a magnificent scultpure (think of the David). Michaelangelo reportedly says he simply removes everything that does not belong in the final creation. Marketers can apply this thinking. The more clear the marketing vision and the more defined the strategy, the clearer the tactical decision becomes. Remove those tactics that do not fit with strategy and the result will be a clear approach to the tactical solutions.

Marketing metrics: Process vs Progress Measures

It is amazing to see how often business owners, salespeople, and marketing professionals confuse process with progress, especially when it comes to evaluating the success of a marketing initiative.

One important distinction in the use of marketing metrics that should always be made clear is the difference between process metrics and progress metrics. What does this mean? Process metrics report on either activity generated by the team (e.g. we’ve spent six weeks building the marketing site for the promotion and the will be ready to launch in five days), or on actual consumer behavior change within the total selling cycle. Think of the latter as progress moving consumers or B2B purchasers through the buying cycle, perhaps from an initial prospect to a qualified prospect. Progress metrics are more tightly tied to the business results, and are generally more readily interpreted by those outside the marketing organization. Inquiries generated, sales produced, number of existing customers cross-purchasing the new product line, are examples.

The line between process and progress metrics is not always perfectly clear. For example, increasing the number of qualified customers may be a process metric when viewed as part of the complete customer relationship cycle. In a business with a clearly defined historical conversion rate, this can be treated as a progress metric (really, qualifications x conversion = sales).

When considering measurement of marketing program results, give consideration to the choice of metric to be used. Both process and progress metrics are valuable tools. It is important to understand the distinction, if only to maintain the rigor of your thinking. The closer you can get to measuring progress versus process, the stronger your evaluation of the program.