Way back in 2002 (or 2003) The Economist wrote something along the lines of: the marketing department is the only place in the corporation that has not adopted a system to make their job more measurable and efficient. That this was true then was astounding. That it's true today is mind-blowing.
My friend Rob Leathern wrote about a recent frustrating media buying conversation. Why, he essentially asks, do I have to go all or nothing in a buy, hoping that it works? Why can't I buy in realtime, see how it goes and adjust my spend on the fly?
This is starting to happen on the internet, a bit. Search engine marketers certainly do this by integrating planning, buying, and feedback systems. Good, but not good enough.
When I worked at Prodigy (ok, bad example...) we used to track marketing campaigns to determine what the cost of acquiring a customer was compared to the lifetime value of that customer (discounted to the present, of course.) Different marketing campaigns generated customers with different loyalties, different abilities to pay, etc. Memorably, before we strated doing this, Prodigy decided that since their demographic and the demographic of NASCAR overlapped so much, a deal with NASCAR was a really good idea. It wasn't: NASCAR fans did not seem to sign up and if they did, they didn't stay. Bad investment.
Also, memorably, we determined that carpet-bombing the country with sign-up CDs was not a cost-effective marketing technique: the cost of acquiring a customer was some $100, the lifetime value was significantly less. Our explanation for why AOL was doing it? Wall Street was willing to pay $200 per subscriber as a valuation metric. In some variation of the old cliche that in the long run we'll all be owned by a conglomerate, we were right in theory but wrong on company-building. That's the danger of listening to us quants: we're right, but we won't guarantee the time-frame.
What is the dream system? A dashboard that tracks every marketing campaign from spend to lifetime value, gives a real-time ROI for each marketing dollar spent and allows the marketing department to increase or decrease spending on any particular campaign with the push of a button. An ERP system for the marketing department.
Is this doable? In some industries, absolutely. Subscription businesses, where the source of a customer can be linked to a purchase, for instance. A little harder if you're selling $1 cans of fizzy, colored water. But for the vast majority of companies, this type of analysis is probably being done on a spreadsheet kept on the computer of a recent Kellogg grad. That's a little scary.
Great piece, and not just because it references my own blog :-)
ReplyDeleteIt's truly amazing how inefficient things still are - and one becomes acutely aware of a different side of this when dealing with many of the small publishers who are out there, some with very good content trying to make a buck, with all kinds of assorted non-relevant ads showing on their sites from many networks, all with thresholds for payment ... e.g. the $370million estimate of money being held by Google for Adsense Publishers who aren't yet over the $1000 threshold. Interesting stuff. It's an inefficient world at Google but still efficient enough to support a $550 stock price because there's not enough options out there that might be better.