De-averaging your marketing investments and paying close attention to how your incremental marketing investments pay off is a post I've been intending to write for a while now.

The good folks at Rimm-Kaufman group, however, saved me the trouble with yesterday's excellent PPC Averages can Hide Incremental Nightmares.  Please take the time to read it.

As I was reading it, I started to think about applying LTV to the methodology.  When you think about making decisions based on LTV, the story becomes even more clear.  All will be revealed (with a graph!) after the break.

First, I roughly recreated the RKG dataset from visual examination of the graphs.

Then, I developed some hypotheses about how the customers acquired in the original effort would perform.  They included:

1. Incremental Lifetime Sales. The top bucket of customers (acquired with the first $10,000 in ad spend) would generate an additional 80% more sales.  The bottom bucket would generate just 5% more sales.
2. Incremental Lifetime Marketing Investment. The incremental advertising cost to generate the incremental sales (you have to spend money to make money, regardless of what your CFO may want to believe!) ranged from a 7% A/S ratio for the top bucket to 1,000% for the last bucket.

I suspect I've been too conservative in my assumptions of incremental sales for the top bucket and the rest of the A/S assumptions are just estimates for discussion purposes.  I made no additional assumptions for improvements in gross margins and so on.

So what happens when I applied my assumptions? Here's the graph:

The light yellow and light blue lines are essentially the graphs on the original RKG blog.  The orange/dark blue lines show what happens when I try to add in LTV.  What happens?

1. Peak profit (marketing income) shifts leftward. That means that instead of hitting max profit at around $60K of original acquisition ad spend, this model shows it peaking at around $40K of original acquisition ad spend.
2. The profit slope changes. It becomes more steep in the first four buckets of marketing investment and then the rate of change also falls off more rapidly after the peak.

Of note is that I haven't considered overall revenue and other factors (economies of scale) that may impact marketing investment decisions.  You may, for example, want to be slightly less efficient on the margins for revenue volume purposes or to maintain volumes if you have costs that operate as step functions.

What does this mean as you look at incremental marketing investments?

1. It's even more important than Rimm-Kaufman indicates when you look at investment on an LTV basis.  The mistakes on the margin are not as gradually dilutive to your profit, when you consider LTV.
2. It's important to get up the experience curve. Given that the slope of profit rises pretty quickly, you're leaving money on the table if you don't (or can't) bucket the marketing investments and quickly march up that curve--by investing more in marketing, smartly.

How do you analyze the incremental performance of your PPC campaigns and other marketing investments?  What challenges do you face when trying to build models to maximize your marketing performance while delivering against volume or revenue constraints?

Update, August 6th--Graph above was updated due to some missing data.  All comments above still hold.  The original graph uploaded this morning is available here for review.

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A recent article in the New York Times got me thinking about the psychology of marketing again, and how some basic principles are used or under-used in social media marketing.

"Warning: Habits May Be Good for You" explores how an anthropologist turned to marketing experts from CPG companies like Procter & Gamble to help increase the incidence of hand-washing with soap after using the toilet in the nation of Ghana to improve the health of children.  Obviously, this was an important effort and I was encouraged to see marketing practitioners as instrumental in helping achieve success in this endeavor.

As I was reading the article, it struck me that many of the techniques used are found in Robert B. Cialdini's classic Influence: The Psychology of Persuasion. I'd lent out my copy a few years ago and, thankfully, had to buy a new version which includes an epilogue written by Dr. Cialdini in 2007.  My re-read then triggered a few thoughts on social media.

If the social media crowd can stop navel-gazing long enough to do some quick research and scientific work, boy will money be made. [More after the jump.]

Dr. Cialdini's research caused him to identify six key weapons of influence:

1. Reciprocation
2. Consistency
3. Social Proof
4. Liking
5. Authority
6. Scarcity

Many of his examples focused on face-to-face selling or just plain interactions with others.  When I first read the book (originally published in 1984) for the first time in 1995 or so, I was struck by the fact that my company at the time was using all six of those principles, but in various offline direct response channels.

We didn't intend to use Cialdini's principles; rather, we evolved into using them through years of scientific univariate tests.

Which of the six principles is most important to a social media startup? From what I can see, it's the concept of Social Proof.  Jason Calacanis becomes a Twitter advocate and, because several of his followers also pick up on Twitter, it soon provides proof to a certain circle that Twitter is a good thing.  Boom, the product takes off.

What's the problem with the concept of Social Proof in growing social media? Try this:  Ask anybody over 40 who's not a regular reader of Alley Insider, Valleywag or Paid Content what Twitter is.  My bet is you get a blank stare two out of three times.

Simply relying on Social Proof can get you pigeonholed within a very select segment of people.  Now, for companies that provide great services to that limited target audience, it can be very good business indeed. (See how Rafat Ali made out with Paid Content.)

The key is how to use the concept of Social Proof to expand beyond that initial, lucrative target audience and become more ubiquitous.

Summary and key takeaways

1. What's "old" is new again. Go back and do your research.  Classics of marketing and psychology are relevant today, just as the concepts they cover were 10,000 years ago.  Plus, with Amazon, it's now cheap to really build your library of information!
2. Consider how humans are hard-wired. When building products, services and delivery methods for those products, think about basic human infrastructure and how you can find the path of least resistance to your ideas.
3. Remember that great psychology can't overcome a bad product. You can certainly fool some of the people some of the time using some of Dr. Cialdini's "click, whirr" discoveries.  But that's still only going to take you so far.  Start with great products.

I'll look at more of Dr. Cialdini's concepts in the future.

In the meantime, how have you applied psychology in your marketing?  Or, when have you seen good (or clumsy) attempts been applied to you?

photo credit: HeffTech

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How many of us will be able to make that claim?

Well, the classic Claude Hopkins book Scientific Advertising is still a must-read.  It's a slim 56 pages, but blows just about every advertising book ever written out of the water.

No less than David Ogilvy said that everybody should read it seven times, and that it changed his life.

Good enough for you? Download an open-source PDF file here.  Read it at lunch.

Then go forth and do likewise.

photo credit: gds

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What's the value placed on a social media marketing campaign by the marketers that develop the campaign?  It's hard to tell, because one typically can't get access to the key metrics associated with the campaign, particularly sales attributed to the effort and ROI.

I was intrigued by a new social push by Sony Ericsson for the Z750a flip phone, created by their agency, Iris.  The campaign is titled "Bringing Purple Back."

Well, neither Sony Ericsson nor Iris would give me any objectives for the campaign.  Neither was any information or speculation found on unofficial Sony Ericsson blog sites about the campaign.

Being an inquisitive guy, I decided to use the crude but effective research technique of following the money to learn more.

Smart marketers tend to invest more dollars where volumes are high and margins are high, and less when the expected outcome is otherwise. 

I tend to think of Sony Ericsson as a fairly smart marketer, based on my hypothesis that they're focused on the consumer--they've got a great assortment of cell phones and get generally very good reviews for the products, which are eye-catching and (to my mind, anyway) competitive with anything out there.

So how much is Sony spending on the Bringing Purple Back campaign?  Not much.

Let's take a look at what I've found this morning:

1. Prizes of just $2,393.  Six lousy free cell phones and one grand prize of a $599 gift card, positioned as a free pair of designer shoes. (Why not a phone and a free year of AT&T service?  But I digress.)  No million dollar sweeps.  Not even a free phone a day.  Six over the course of a six week promotion.
2. Short promotion length.  Six weeks.  Unless something is absolutely crazily viral, it takes a couple of weeks at minimum to get a campaign off the ground.  By the time things are up and running, it's game over.  The excessively short time frame smells of a budget compromise.
3. PPC buys of $0.  Go to Google and Yahoo and try to search for "Sony Ericsson 750a".  While I don't expect the Bringing Purple Back website to pop, why no PPC spend?  (I tried a number of different KW searches including the obvious "Purple Cell Phone" and came up snake eyes.)

Say the agency fees for the planning and site were $300K.  Sony Ericsson spent over $88 million just a couple of years ago to sponsor the WTA women's tennis tour.  What do you think gets daily attention back at HQ?

In conclusion, I have to believe that either this social effort is either:

1. Not worth much to Sony Ericsson and given an appropriate amount of investment and care.
2. A botched effort, due to poor planning and low budget (see the PPC buy screw-up above).
3. A test.

If it's got the right amount of effort associated with it, given the expected ROI, then OK.  (I still have to believe that some PPC, particularly at the kickoff when you might get some search attempts, makes sense.)

If it's a botch, then I hope there's a good campaign debrief on the calendar for Sony Ericsson and Iris to review execution against objectives and so forth.

What do you think of the effort? Might it work?  Could purple be the new black?  Do you like the Z750a phone?

photo credit: Marco Gomes

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How can you tell if an offer is good, i.e., is a strong consumer offer that makes money?

The answer is when the organization making the offer continues to use the offer.  The case in point is Chrysler's "Let's Refuel America" $2.99/gallon gasoline offer, which I wrote about recently.

The offer was supposed to expire in early June, but based on early results--including 25% more web traffic and a 34% increase in Internet leads--the promotion has been extended through July 7th.

Apparently Chrysler has re-crunched the numbers and found the financial results worth continuing making what's turned out to be a very strong offer.  This is good news for the car buyer looking for a deal, the dealers who like the floor traffic and is good for Chrysler, as far as "moving the metal" goes.  (Overall, though, Chrysler is still in trouble.)

The takeaway is that Chrysler's promotion has, once again, proven the old direct response maxim: If you want to dramatically increase your response, dramatically increase your offer.

When was the last time you looked at your offer? How might you reallocate your offer cost to create a more exciting offer that's a true consumer benefit?
photo credit: epicharmus

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Guy Kawasaki, who is one of my favorite regular blog reads and speakers, is the author of The Art of the Start, which is a quick and worthwhile read for anybody thinking about starting up their own company.

One of the 10 things you should do, according to his book, is "Make Mantra." I absolutely loved this, because it accurately describes what all truly innovative companies are doing and, more tellingly, what a lot of big companies are not doing.

I think that Papa John's has "Made Mantra" with their focus on making it easy for the customer to order.  They've sold over $1 billion of pizza via their online ordering tools.  According to the CNN article, it's just the start of likely dozens of new ways a Papa John's customer can order.

Now that's a mantra--make it easy to order.

So what are you doing to make it easy for your customer to buy more of your products?  Or more often? Or more efficiently?

Guy Kawasaki talking about "Make Mantra" is below.

photo credit: ronnie44052

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Are you using sampling in your marketing efforts?  Ad Age had a quick article on some of the sampling efforts being undertaken by major marketers this summer.

What's old is new again.  Is it better to hit a prospect with 3 to 5 impressions and tell them about your product or is it better to put the product in their mouth or on their skin and show them how great it is?

If you think about it, the Web 2.0 technique of giving away your entire product dates back to the days of the local shopkeeper.  

Back in the day, the general store owner would give you a taste of what was in the barrel to get you to purchase the product.  Now, digital products and services providers allow you to use virtually all of their services free of charge, with the hope that you'll come back repeatedly and purchase the premium (paid) product or generate pageviews to generate advertising revenue.

Sampling's an old marketing technique, but it's taken hold in Web 2.0 products and, with the advent of more granular tracking tools, is becoming more popular with traditional CPG.

As Winston Churchill once said, "The further back I look, the further forward I can see."  What other "old" marketing techniques can you think of that can be resurrected in your marketing efforts?

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I'm not normally one to carry on about my experiences with fast casual dining establishments, even though we frequent them as a by-product of having two children who are connoisseurs of the category. The food quality can be variable, as can the staff attention to the customers.

But that's all changed after Saturday's experience at Famous Dave's restaurant, where I had a terrific customer experience which doubled as a strong CRM effort on the part of the chain.

My wife and I had the luxury of a few minutes without the kids and, while driving by the restaurant, decided we should stop for lunch. We'd never been to the restaurant, although we've driven past the place every weekend for the past several years.

On entry, we were greeted by a smiling young man who welcomed us and held the door. His co-worker, equally welcoming, promptly seated us and informed us that our server would be with us shortly.

The CRM magic started when Chris came by our booth.

As we were welcomed, Chris asked a simple question that we've been asked hundreds of times before. "Have you ever been to Famous Dave's?" A simple qualifying question, but it's one that apparently kicked off a customer activation process after we answered "no."

Midway through our meal, the restaurant manager stopped by to introduce himself. He asked how the meal was, talked about the fact that Famous Dave's can cater just about any gathering at short notice (a strong consumer benefit) and provided some take-home literature which was personally signed, a very nice touch. He also gave us a free 14.5 oz bottle of their signature BBQ sauce to take home.

I was impressed that Famous Dave's saw fit to spend under $1.00--which would be the cost of the bottle of sauce and the printed materials--to welcome us as customers and tell us about the other benefits (quick catering, BBQ sauce) they offered. I was also impressed that the training for the store staff worked as well. The waiter asked us the qualifying question and then relayed that back to the manager quickly for prompt action on his part.

Will we be back? Probably. Did the CRM effort work? Definitely.

Summary and takeaways

1. Are you qualifying your customers? It's easy to identify a new customer. Simply ask them or, if online, check the cookies.
2. Are you making an investment in managing your new customers? It doesn't take much. The cost to setup a new customer welcome program is minimal at best. The cost of a small welcome gift (which isn't always necessary) can be made up quite easily over the customer's lifetime.
3. Are you building a marketing database? Ensure you're capturing as much of that customer's information as makes sense. Use it to enhance the next visit or interaction with the customer.

Have you had an interesting CRM experience recently, good or bad? What organizations do a great job in starting off a customer relationship on the right foot?

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And sometimes I just shake my head. My apparently never-ending stream of poorly executed direct mail continues, with the latest effort being a shockingly bad example from Marriott's Fairfield Inn and Visa.  It appears to be the result of a co-op promotion, which may account for the execution; nobody at either Marriott or Visa felt they were responsible for the results of the effort, and it shows.

For the record, the family and I are fans of Fairfield Inns and signed up for Marriott's Rewards program as the result of numerous stays at their Hazelton, PA location.  The staff is always great, the rooms clean and cookies and DVD movies are always enthusiastically offered to us when we check in at 9 or 10 pm the Tuesday evening before Thanksgiving.

Now, if only those responsible for their direct response efforts could feel the same enthusiasm.  Rather than rant and rave, here's a PDF file of the quick analysis I've sent to Marriott's marketing team.

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For the first time in a long time I took a few minutes to run through the Valpak co-op mailing I received last week.

After a few minutes of looking at the offers, I came up with a short list of things to consider if you're using Valpak (or other co-ops) as a marketing channel.  The short list is powered by my own past experience and might stimulate you to think of some other ideas.

Before I get started, here's a rundown of what I found inside.  There was a total of 43 inserts inside the envelope (which featured, bizarrely, a promotion for the television program CSI: NY on the OE and which distracted me from the 1:50,000 possibility that there might be a check for $100 inside).  I sorted the inserts into three categories:

1. National advertisers (19, 44% of the total).  These included Netflix, DirecTV, Verizon, Omaha Steaks and others.  Of those, 4 (27%) of the inserts did not use the standard 8 1/4" x 3 1/2" format and instead paid additional for a heavier and/or different stock insert.
2. Regional/franchise (8, 19% of the total).  Included here were ads for the local Gold's Gym, Kaiser Permanente and Molly Maids.  Of these, only 1 (12%) of the inserts deviated from the standard insert.
3. Local advertisers (15, 35% of the total). These ranged from local dentists to home improvement providers to Anthony's, a restaurant down the street--which included some coupons that might finally get me to take the family there!.  Only 1 insert (7%) strayed from the Valpak standard format.

Valpak ran one house insert, promoting an offer of $350 to target 10,000 homes for new advertisers, a CPM of $35.

We can immediately see some ideas, just from this basic sort.

The national advertisers, who have the biggest budgets for testing, are behaving differently than the smaller advertisers.  They are much more likely to use a heavier or different-sized insert than the local advertisers.  This is a great idea, as those ads, including ones from Dunkin' Donuts, Discover Financial Services and Netflix were more likely to fall out and be noticed.  As those ads were also larger, they had more room for promotional and offer copy and, in the case of Discover, provided a full credit card application.

Very smart and our key takeaway from the national advertisers: Don't be afraid to ask for and pay for extra weight and different formats.  In a cluttered environment such as a Valpak envelope, it's critical you stand out because you've only got seconds before the promotion is trashed.

I did see some flaws with the national advertisers.  While Omaha Steaks--a quality direct response marketing-led organization--provided a promotion with strong offer and call to action, Verizon provided a piece completely devoid of an offer. (See my Featured article on Monday to see more about Verizon).

While the local advertisers tended to use the standard Valpak format, I noticed that they were much more likely to have heavy use of offer- and benefit-laden copy.  Words such as "Free" and coupons (complete with dashed lines) featuring the savings amounts were very common.

On the other hand, the local advertisers creative tended to be weaker.  They were somewhat more cluttered and, in some cases, it was difficult to see the offer pop from the page.  This is possibly the case of the advertiser trying to save money on creative by either using a Valpak standard format or using a very inexpensive agency.  The takeway here is don't scrimp on the creative, once you've taken the plunge to buy the media provide a compelling offer.

When was the last time you looked through your co-op mailings or Sunday supplements?  Taking a few minutes to sort through them might help you uncover some interesting new ideas for those media or for others.

Summary and takeaways

1. Vary the stock and size of your promotion when in a competitive environment like a co-op mailing.  While it will cost you more, it's even more important that you stand out in these types of media due to the low open rates.  Check your competition and test what you've seen them do.
2. Don't scrimp on the creative.  Yes, it's a low-response medium, which means that you've got to watch the costs closely, but because of the short attention span it's critical that you don't hide your offer by making it difficult for the prospect to quickly see what you're offering.
3. Test two inserts.  None of the advertisers in this mailing had two pieces, but I've seen strong success by inserting two pieces.  Best of all--if you can manage it--is two inserts of unique size/shape/weight, at the front on either side.  You'll pay significantly more for this trick, but it almost always pays for itself, as you'll got noticed regardless of which side the prospect looks at first.

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