DigiMinded

Is New Customer Acquisition Too Expensive in This Environment?

On Tuesday the Wall Street Journal stated that major retailers such as Sears, Target and Gap are refocusing their holiday marketing efforts to encouraging existing customers rather than obtaining new ones.  From a financial perspective, this makes a lot of sense – Marc Fleishhacker from Ogilvy Consulting estimates that acquiring a new customer costs 5 to 7 times as much as maintaining an existing one. Given the level of frugality that this economic environment has exerted on marketers, it is logical that we place extra emphasis on gaining more revenue from loyal customers.

There are a few areas of online marketing that will benefit this strategy:

• Search: It’s no secret that search is already one of the most cost-efficient marketing channels, especially among branded terms. Search marketing offers a targeted method of reaching loyal customers and ensuring that they (a) can reach the site and (b) are given an incentive (read: promotion) for doing so.
• E-mail: Now more than ever it is crucial that marketers understand the strengths and pitfalls of this potentially enormously profitable channel. Companies need to understand what messaging works, how often to send e-mails, and how to differentiate their language and offers by audience. Surprisingly, a recent eMarketer article stated that more than half of US retailers do not currently test e-mail campaign subject lines – this is something that will certainly need to change in order to maximize the profits from this channel.
• Behavioral Retargeting: While they don’t necessarily market to customers who have already purchased, behavioral retargeting campaigns are along the same lines. It’s reasonable to believe that if a user has already been to your website, they are more likely to convert than a consumer who has never clicked on your ad. Many marketers have experienced success with retargeting campaigns, and they tend to have a higher return than a regular display media buy. (Though it is somewhat humorous when I get constantly retargeted by a client on random sites, since I obviously regularly visit their website without purchasing.) Of course, the success of retargeting will depend on the length of the consideration period and other factors that vary among companies.

With this said, it is important that we do not allow ourselves to become stuck in a marketing rut. While focusing on existing customers may prove successful as a survival strategy during the economic crisis, we must not ignore the long-term value of new customer acquisition in the future. As measurement capabilities continue to expand we will gain deeper insight into the way different marketing channels interact. We may find that channels deemed to have a low return when measured by last-click conversion attribution (such as display) perform better than we currently believe.

Let’s do what we need to in order to keep our heads above water right now, but never lose sight of the future.

Insights for Search Proves to Be...Insightful

My current MUNI reading is “Click: What Millions of People Are Doing Online and Why It Matters” by Bill Tancer, and it’s already made its way into my Top Reads for Marketers list. Tancer, who is the general manager of global research at Hitwise, states that you can tell a great deal about who people are and what they’re thinking about by looking at trends in search volume. This thesis falls in line with my own experimentation using Google’s Insights for Search tool.  For example, below is a graph of the search term “economy” from 2005 through this October. The graph is relatively smooth over the first 3 years and then spikes in the past two months, reaching its peak in October. Sounds quite consistent with the trends we've seen in the public media, doesn't it?

If we can use search volume to measure what issues people are thinking about, it also stands to reason that we can gain insights about product trends. Next, let’s look at a graph comparing “dvd” to “youtube.” One would think that the graph would show an inverse correlation, as more people are getting their video fix from sites like YouTube instead of buying DVDs. And that’s exactly what it looks like.  In the chart below the blue line represents “dvd,” while “youtube” is shown by the red line. The search term “dvd,” while still showing regular peaks during the holidays, has gradually declined throughout the period. The term “youtube,” however, has shown a remarkably linear increase in popularity. In October, “dvd” reached its lowest relative search volume index (19) as “youtube” was at its highest point (100). Once again, Google search volume seems to provide a relatively accurate depiction of external trends.

These examples are only a small representation of the ways in which tools such as this one can be used. If we can learn to understand the vast amount of search volume data available to us we will be able to gain much deeper insight into our consumers: who they are, what they are thinking about, what products they are searching for and which brands they prefer.  What does Insights for Search say about your brands and products?

Consumers See Ads through Rose-Colored Glasses

This week the University of Chicago released a fascinating press release on the relationship between brand loyalty and perceptions of advertising. The authors of the study looked at consumers who were very loyal to specific brand-name products, and found that their level of brand loyalty heavily influenced the way they processed advertising.

Let’s use two classic competitors as an example: Coke and Pepsi. When faced with a Pepsi ad, a loyal Coke buyer immediately searches for the dissimilarities in the ad. They focus on the differences that indicate that the competitor brand (Pepsi) is inferior to their chosen brand (Coke), thus perpetually justifying their purchase decisions. This makes it challenging for Pepsi to "steal" this customer from Coke.  A consumer who is less loyal to Coke, however, will see the same ad in a completely different way. They will search for the similarities between Pepsi and Coke, thus making the brands seem alike and making it easy to switch between them with minimal thought. The latter is obviously not an ideal situation for either Coke or Pepsi.

The good news is that the authors were eventually able to change the perceptions of both low and high-loyalty participants “by asking them to shift their focus from dissimilarities to similarities, or vice versa.”

The full study, which will be published in the February 2009 edition of the Journal of Consumer Research, may have some interesting implications for how we create online advertising. Traffic and conversions generated from non-branded content are typically regarded as having a high percentage of new customer acquisition. However, the content of the advertisement and the brand loyalty of the consumers undoubtedly has an effect on how likely the users are to buy. A marketer who can learn to leverage this notion and create advertising which focuses on the appropriate similarities or dissimilarities just might have the key to significantly expanding his customer base.

Thank You, Google: The Search-Based Keyword Tool Rocks (Mostly)

Last night Google announced the release of a new AdWords keyword tool called the Search-Based Keyword Tool, which can be accessed from this link. There are a number of aspects that make this tool a step up from the existing keyword tool found in the UI. The new tool scrapes the website you enter into the field and combines the website content with Google’s search volume data to create a list of terms that, theoretically, should both be relevant to your site and drive traffic. (Unfortunately there will still be some completely irrelevant terms included in this list.) The Search-Based Keyword Tool (hereby abbreviated as SBKT – did Google have to choose a name that was such a mouthful?) also allows us to view keywords by search volume for various categories, which are surprisingly granular – for example, the Apparel category goes all the way down to Business Dresses and Occasion Dresses. Finally, the SBKT also contains a field labeled as Ad/Search Share, which is especially cool. If you are logged into your AdWords account, the tool will show you the percentage of time that you are ranked on the first page in both paid and organic listings for that particular term. This is the first time Google has really integrated the relationship between paid and natural rankings into one of its AdWords tools, and it gives me hope for seeing more of this sort of thing in other parts of the UI.

There are several potential uses for this tool, including:

• Keyword building: This is obviously the intended use of the tool, which by combining multiple sources of data should help to produce a more relevant and robust keyword list than the previous tool. Based on the results I’ve seen while playing with it, it should also help in adding plenty of negative keywords (perhaps more so than adding regular keywords).
• Optimization of current terms: By viewing the search tool without logging in to your AdWords account, your results will include all potential terms, including ones that already exist in your account. This gives you an opportunity to look at terms that could potentially drive a large amount of orders based on their Google traffic and make sure that you are bidding on them accordingly (if they're relevant, of course). 
• Insight into both paid and natural search ranking: The Ad/Search Share column shows you the current Ad Share and Search Share for each potential term, which will give you an idea of how well you are covered by your current broad match paid search keywords and your SEO efforts. There are limitations as to where Google will give you this data (you have to be logged in, and it will only show it for your domain), and it would be more useful if it was given for terms already in the account, but it’s a step in the right direction. This tool may also be useful for webmasters who aren’t necessarily running an AdWords campaign, but are looking for a list of keywords they should optimize their website towards.
• Product opportunity analysis and competitive intelligence: By looking at the terms generated for your particular category, you’ll be able to see if there are any particularly popular products that you are not currently offering. For example, if you sell cotton t-shirts you would notice that the term “organic cotton” generates approximately 12,000 searches per month. You may also find some interesting competitive insights by looking at the results for your competitors’ websites.
• Linguistic analysis: As I will discuss in greater detail in a future blog entry, tools that show us actual search queries are incredibly useful in understanding consumers and the way they think about products.

It is important to note that as with any keyword tool, you can’t simply launch the results of it blindly. The lists are based on a computer algorithm looking at website text and search volume, not a human who understands your brand, and the results will reflect that. Make sure you carefully comb the keyword list to scrape out overly broad or irrelevant terms - you'll definitely find quite a few. Some of the search volume also looks a bit questionable and inconsistent with previous estimates, so this data should be taken with a grain of salt.

While not perfect, this is one more step in Google’s gradual progression towards sharing its goldmine of search and user data. Even if this trend continues to raise some concerns about privacy (which I will give my opinion on in a later entry), developments along these lines are excellent for the online marketer. Every tool such as this one gives us greater insight into our consumers, and it is crucial that we leverage this knowledge to make our marketing strategy as effective as possible.

Online Sales are Looking Flat, but the Key to Success Might be Women

The news just keeps getting uglier for online retailers. Today comScore released their e-commerce sales growth numbers for October, and they aren’t pretty. Online spending in October 2008 grew by only 1 percent over October 2007, which is the lowest monthly growth rate seen since comScore began tracking e-commerce in 2001. To put that in perspective, the growth rate in April 2008 was 15%, and the peak was 28% in August 2007. As would be expected, the effect of the economy on online retail sales was particularly apparent among the lowest income earners ($0 to $50K), who saw a 3% decrease in year-over-year online sales. There is good news, however; households with an income over $100K, who make up 35% of total e-commerce dollars spent, increased their year-over-year spending by 14%. This indicates that a marketing strategy geared towards the more affluent members of the population could be quite successful.

Another group of spenders is looking more important than ever this holiday season. They are female and shopping-savvy, and they are taking full advantage of the wealth of discounts and promotions in the marketplace today. In a recent eMarketer survey, 67% of female respondents noted that they were going to try to use more coupons and coupon codes than usual, and another 65% said they would spend more time looking on the Internet for deals. And when you target these shoppers with promotions, you won’t just be reaching them; their friends are likely to see the coupon as well. Nearly 80% of female internet users said they had shared a coupon with a friend during the past three months.

There are two other advantages to the female market:  they begin their holiday shopping earlier (more than 70% begin prior to December 16), and even in the recession they are still susceptible to unplanned purchases (more than three-quarters said they were likely to make impulse buys this season).

Given this information, it is crucial that online retailers continue to generate creative, enticing promotional offers that are likely to appeal to female shoppers throughout the holiday season. Brush up on that messaging, and let’s try to salvage what could otherwise be a very long December.

Google Voice Search: Worth the Wait

After 3 days of delays and a large amount of anger in the blogosphere, Google voice search for the iPhone is finally live in the App Store.  I won’t give an extensive review here (other than to say that I’m quite impressed), since there are already several blog entries that give a full account of its capabilities. However, it did force me to think about how it could change the way we search.

What this voice search application does is remove a barrier.  One of the key pain points of the iPhone (particularly for users who come from Blackberrys or other traditional QWERTY keyboard devices) is the cumbersome keyboard, which is virtually impossible to use one-handed.  Even if the user still has to look  and touch the screen to select their desired search result, the voice search capability combined with location services will make it significantly easier to find the nearest gas station while driving, or the closest sushi place while walking. It’s one more step in the consistent progression of the past two decades: making it easier to find any information we want, when and where we want it.

Given the overwhelming capabilities of devices like the iPhone, sometimes it can be difficult to imagine where we will go next.  Assuming I have a data or WiFi connection, I can already find the answer to any question in minutes, figure out the artist of the song I loved on the radio, find the nearest restaurant based on my preferences, entertain myself on MUNI with a nearly unlimited number of games, and so on.  Yet, it is human nature that as current needs are fulfilled new ones will always arise.  And technology is remarkably good at finding ways to meet our needs – even the ones we didn’t know we had. The release of just one device or application can significantly impact the way we live our lives, how we seek and obtain information, and how we see ourselves.  It makes me wonder: do we define technology, or does technology define us?

Holiday Shopping Intentions Say More Research, More Internet

Google and OTX recently released the results of a study on consumer shopping intentions during the upcoming holiday season. These insights came from an online survey with over 10,000 respondents across a number of product verticals. While surveys are never a perfect way to assess consumer behavior, this study provides some interesting insights on how shoppers are likely to purchase this season.

• Consumers are starting their research early this year, with 31% beginning before Halloween. Approximately 40% of shoppers will make the majority of their holiday purchases in early to mid December. Only 4% selected Cyber Monday, which is in line with my experience. The retail clients I’ve managed typically see the Monday before the ground shipping cutoff as their biggest day, not the mostly overrated Cyber Monday.
• 43% of consumers say they plan to spend more time shopping for gifts this year due to the state of the economy.
• Shoppers are seeking value through promotions, with 84% taking advantage of price discounts and 75% seeking free shipping offers. This is unsurprising given the current promotional frenzy in the marketplace. (Have you walked into a mall recently? There are so many sale signs that it’s almost as overwhelming as walking down the Las Vegas Strip at night.)
• The internet plays an important role in holiday shopping, even for offline purchases. 86% of shoppers will use the internet in their product research, and 54% are likely to research online and then go to the store to purchase. (Granted, this survey was conducted online, and therefore its respondents are likely to be more internet-savvy than the general population.)
• More people are shopping online this year – 40%, up from 34% last year.
• Consumers are as likely to pay attention to online ads as they are to TV commercials. This is interesting, but typically people have a hard time accurately assessing the amount of attention they give to things.
• Search is expected to drive 16% of online retail sales, up from 12% last year. Use of comparison shopping sites is also expected to increase significantly. These numbers are likely affected by the fact that other channels are being hit harder by the current economic crisis than search and comp shopping.

Overall, it seems as if the economy is definitely having an effect on the way consumers shop this year (not shocking), and the internet is playing an increasingly important role in the buying process. One thing is certain: it’s bound to be an interesting holiday season for online retailers and marketers.

Becoming Digital-Minded: Beyond the Metrics

The marketing world is in a near state of panic. Online Q4 sales growth is projected to be smaller or negative, depending on the analyst – not good in the historically overachieving online world. Layoffs are abundant, Google’s stock is at its lowest price in 3 years, and the Consumer Confidence Index is at an all-time low. Given this economic environment, it is more imperative than ever that we start to understand our consumers at a deeper level – and learn how to leverage that data in creating the most effective online campaigns possible.

The greatest advantage and pitfall of internet marketing is that it is measurable at a depth that is historically unprecedented. The amount and complexity of data that is available today is enough to overwhelm even the most sophisticated database marketers. We know who you are, where you are, where you’re going, what you’re doing, what you’re searching for, where you’re clicking, what you’re buying, and so forth. And we’re learning more each day, thanks to sources such as the Big G gradually become less secretive.

In the face of this mountain of data, we fall back on what seems to be the logical way of dealing with it: math. We calculate clickthrough rates, conversion rates, viewthroughs, and other key metrics and then call it a day. While the metrics are absolutely essential to an effective digital marketing campaign (and the key selling point to clients, who are starting to realize that they don’t have a clue whether the person who saw that TV ad even remembered their brand name, let alone purchased), metrics are not and will never be the entire picture. Every single one of those numbers represents individual people, and human behavior is far more complex and unpredictable than what can be expressed by tables and graphs. Therefore, to be truly digital-minded we must learn to understand the driving force behind all of those clicks and conversions: the human brain.

While this is a general online marketing blog, and will comment on the various issues that our industry faces, the focal point is combining the historically technical-oriented viewpoint with that of broader branding and consumer behavior theories. By understanding our consumers, we can bring greater value to our clients and customers. And there has never been a time where doing so has been so important.