By now everybody knows the story. Groupon started in 2007 as The Point, then morphed into a group buying site juggernaut with a reported $2 billion run rate (Mashable) that launched an army of 500 clones led by Living Social, which itself, after receiving $175 million in Amazon funding, yesterday sold 1 million vouchers of $20 Amazon gift certificates for $10 each. The question is, why didn’t yellow pages, newspapers, or direct mailers — the original coupon companies — do this first? And how can they be the ones to innovate next time? The answer lies in how traditional media businesses have treated the internet. As Simon Waldman points out in his brilliant book Creative Disruption, before 2000 most media companies doubted the internet would impact their revenues more than 10 percent. Then after the dotcom bust they thought the internet might go away. Then it was an add-on in a bundle. Now, as revenues tumble, traditional media companies are embracing the internet as resellers. They resell Google campaigns, manage Facebook and Twitter campaigns, and even sell other companies’ Groupon clone deals. They are agencies. Maybe innovation is so expensive and risky it only works in a start-up culture. Achieving radical core transformation, like IBM achieved in the 1990s going from mainframes to services, causes massive dislocation and enormous senior level commitment. Others have achieved it almost by accident – the Washington Post luckily back in 1984 acquired the Kaplan education business, whose profits now offset the newspaper’s losses. Traditional media companies feel they must protect their core businesses and so are reluctant to disrupt them. But to thrive they must challenge their core (or make smart bets on start-ups). The next Groupon, whatever it may look like, is being launched right now by 3 kids in a garage somewhere, with no legacy business to protect.
Since the advent of the consumer Internet in the early 1990s, the forces of creative disruption have wreaked havoc on the business models of huge industries and countless companies. The first industries to feel the effects were those where digital media or online search provided a clearly superior or less expensive experience: newspaper classifieds, printed directories, encyclopedias, photographic film, travel agencies, and music and video labels, retail outlets and mail order clubs. I had the vantage point of working in three of those (newspapers, directories, and mail order clubs). This process of creative disruption is far from over. The spread of broadband and the explosion of the mobile internet will render other companies or business models obsolete. Already internet pioneers like AOL are struggling to replace obsolete business models. Who’s next? And how can you reinvent your company to succeed amidst change occurring at light speed? IBM is often cited as a company that reinvented itself successfully (and Eastman Kodak as one that did not). In coming blogs I will focus on companies that reinvented their business models successfully and point out strategies you can use to make sure your company continues to thrive amidst unprecedented change.
As a manager, you only develop new products once you know what return on investment you can expect. You should measure the effectiveness of your marketing spending just as carefully.
Managers often hire marketers or agencies who tell them they must conduct branding campaigns that cannot be effectively measured.
Divide the campaign cost by the number of new customers to get the cost per acquisition (CPA). Then compare the CPA to your marketing allowable to see if the campaign is working.
The marketing allowable is the lifetime spending per customer minus the cost of producing and delivering the product, including required margins. If your CPA exceeds your marketing allowable, your campaign isn’t working.
If you are not a direct response marketer, measure increases in new customers via your sales channels during and immediately following the campaign. The customer count increases should justify the cost of the campaign.
Determine the appropriate time frame to measure. For example, a campaign introducing a new product will take longer to work than a campaign introducing a 1-day sale at a store.
If your marketers say the campaign is about driving traffic to your website, find out the linkage between traffic and orders. Traffic alone doesn’t build a business.
Digital campaigns, including digital branding campaigns such as online display, are often less expensive than offline campaigns, and they are eminently trackable.
With digital marketing, you can often generate a tremendous response at a low cost. Digital news releases, blogs, tweets, and Facebook and LinkedIn pages can be produced for very little since your media costs are low.
Even videos can be shot and uploaded to video sharing sites like Youtube and Vimeo for less than a typical paid media campaign. Blendtec created funny videos of its blenders crushing familiar products like iPhones and generated over 100 million views.
The web has changed the rules of marketing. Offline you must interrupt prospects to get their attention.
But on the web, prospects are looking for your product or service, so you are what you publish. Provide them the detailed information they are seeking and they will find you.
As a small business you may feel like you are a David vs. Goliath when it comes to marketing. You compete against bigger, better funded companies. Your marketing strategy is essentially to hope your friendly customer service will keep you viable.
If that is the case, the web offers you an opportunity to compete as never before. The reason is that until the web became the main way to research a product or service, traditional paid media ruled, and small businesses could always be outspent by bigger ones.
But with the web, you can get noticed on even a small marketing budget, because you can reach your prospects and customers directly without paying an intermediary media filter, e.g. TV, radio, newspapers, yellow pages or even direct mail.
Let’s look at some examples.
Twitter: Setting up a Twitter account is free, and while “Follow us on Twitter” signs are everywhere, few companies really Tweet regularly. When they do, it is to shout a promotion. But what consumers want is knowledge. If you provide timely advice on your website or blog, a Tweet can call attention to that information and drive prospects to your site.
Press Release: Press releases were once designed only for the press. But on the web, press releases are findable by consumers looking for products and services on Google. Write press releases announcing your new products and services. Use the targeted keywords used by your consumers in their searches (brand names, models, features) and provide links to your site.
Coupons: Without spending marketing money upfront, you can offer prospects a coupon via group buying sites like Groupon or one of its competitors . These companies do the marketing for you in return for a cut of the discount. Price your offer so you can handle a lot of orders and still break even (you will make money when customers buy more or return).
If you doubt these tactics work, consider Barack Obama. Regardless of your politics, look at how Obama used the web to win the election of ’08. When he started out, he was less known and less well funded than Hillary Clinton and John McCain. While those candidates relied on traditional media, Obama used the web. 13 million people signed up for his e-mail list, 5 million “friended” him on Facebook, 2 million joined his online organizing site MyBO, and 1 million subscribed to his campaign text messages. He used the web to beat better funded Goliaths. You can too.
For small businesses without big marketing budgets or staffs, developing and executing an online strategy presents unique challenges. Where do I get the funding? How do I generate content? Here are a few recommendations to get you started.
If you are spending money on Traditional Media (newspapers, direct mail, yellow pages, TV, radio), track effectiveness using a direct response device (unique phone #, p.o. box, etc.). If you can’t prove you are getting an adequate return, move the money into a New Media testing budget.
Next, if you don’t have a website, create a simple one so you can be found online. Companies such as Intuit.com let you build and host a site for about $25 per month. You can create a Facebook Page and Google Places profile for free! This lets prospects and customers find you on the web.
You are what you publish online, so create specific, personalized content for your site and pages. Use language from existing materials such as your brochures to begin populating your pages. Use the language your consumers use. This helps you get found by consumers doing Google searches.
Next, keep it fresh and have fun. Upload photos of your store or office. Create a video (or use a paid service like TurnHere). Post the video on video sharing sites like Youtube and Vimeo and link to it from your site. The more rich content you post, the more easily you will be found on Google.
Ask your customers for their e-mail addresses. Then use a company like Constant Contact to build an e-mail newsletter (fees start around $15). Focus on offering insights highlighting your expertise (e.g. how to insulate your home in winter) not discounts or promotions (the insulation you sell).
Now use your savings from Traditional Media to gauge the effectiveness of paid New Media. You can build a paid Google campaign to generate guaranteed clicks or have one built for you by companies like Yellowbook or ReachLocal. Test effectiveness by counting calls, not just clicks.
Many other opportunities exist to grow your business online. Online coupons for local businesses have become a popular topic with the rise of group buying sites like Groupon and Living Social. We will explore the pros and cons in upcoming blogs.
As you begin 2011, look back and measure the effectiveness of your 2010 customer acquisition campaigns. Did they work? How do you know? Too many marketers are trapped in the old paradigm of “I know that half of my advertising dollars are wasted, I just don’t know which half.”
If this sounds familiar, you likely are spending too much money on Old Media. Old Media means non-trackable mass advertising in which you hope, by spraying enough advertising messages, that you will gain new customers and grow your business.
Many ad agencies disguise non-trackable mass advertising as “brand advertising”. The truth is, if you don’t know the ROI, you probably shouldn’t have done it. The only way to measure the effectiveness of Old Media is to use a dedicated phone number, p.o. box, URL, e-mail address, or other direct response device so you know exactly who responded to your message.
With usage rates falling on Old Media, your ROI on that spending is very likely negative. In contrast, usage rates on New Media are increasing. New Media means trackable targeted (usually digital) marketing. But don’t think of New Media as just better paid advertising, i.e. Google or Facebook advertising instead of TV, radio, newspapers or yellow pages.
New Media includes unpaid media – blogs, e-mail, SEO, social media (YouTube, Twitter, Facebook), online news releases, etc. The beauty of New Media is that the Media Filter – the Media Establishment – is disappearing. Now you can communicate directly with your prospects and customers free through the Internet without paying an intermediary to aggregate eyeballs for you.
The key is that you must segment your customer base into definable niches, determine who you are targeting with each campaign, develop the appropriate compelling content, use the most effective New Media tool to reach that segment – and measure the outcome. Ultimately the way you measure effectiveness likely begins with a click and ends with a phone call or purchase.