In traditional direct marketing, we rented or exchanged lists, with the goal being to identify new audiences that are receptive to our message. We paid an intermediary (Millard, MeritDirect, Abacus) a sum of money for the opportunity to push a message.
In traditional online marketing, we pay for clicks. We pay an intermediary (Google, Yahoo!, MSN) a sum of money for the opportunity to allow the customer to pull content from us.
Financially, the two models are nearly the same.
| Paid Search | ||
| Clicks | 10,000 | |
| Conversion Rate | 1.5% | |
| Buyers | 150 | |
| AOV | $100.00 | |
| Demand | $15,000 | |
| Net Sales | 80.0% | $12,000 |
| Gross Margin | 55.0% | $6,600 |
| Less Ad Cost | $0.52 | $5,200 |
| Less Pick/Pack/Ship | 11.5% | $1,380 |
| Variable Profit | $20 | |
| % of Net Sales | 0.2% | |
| Ad to Sales Ratio | 43.3% | |
| Dollar per Click | $1.50 | |
| List Rental/Exchange | ||
| Households | 10,000 | |
| Response Rate | 1.5% | |
| Buyers | 150 | |
| AOV | $100.00 | |
| Demand | $15,000 | |
| Net Sales | 80.0% | $12,000 |
| Gross Margin | 55.0% | $6,600 |
| Less Ad Cost | $0.52 | $5,200 |
| Less Pick/Pack/Ship | 11.5% | $1,380 |
| Variable Profit | $20 | |
| % of Net Sales | 0.2% | |
| Ad to Sales Ratio | 43.3% | |
| Dollar Per Book | $1.50 |
These days, innumerable pundits tell us that both models are irrelevant in a social media world. Of course, the pundits cannot even identify what form of social media is relevant (2005 = Blogs, 2006 = Facebook, 2007 = Twitter, 2008 = Friendfeed & Plurk), they just tell us we're dodo birds headed for extinction. Still other pundits say that print-based marketing is harmful to the environment, demanding that consumers be in control of how they are marketed to (as a proxy for protecting the environment).
My talk will go in a different direction, not leaning toward social media pap, not focusing on traditional direct mail or pay-per-click marketing or multichannel approaches to success or putting the customer in charge.
My talk will focus on how we can derive intelligence from our online marketing activities, transforming that intelligence into the fuel needed to find new customers at almost zero cost.
"Financially, the two models are nearly the same."
ReplyDeleteThe scenarios provided look more a bit more similar than "nearly"!
:)
Beyond the financials, paid search is a pull medium -- it cannot create demand (like a catalog can) -- for the searcher has to be looking for what you sell.
Alan
Yup! I have to make that point that, outside of the distinction you make (completely valid), we view the two techniques from a direct marketing standpoint, similar P&L, similar number of new customers, similar $/Click or $/Book.
ReplyDeleteThey want me to talk about things that you probably do with your blog. For instance, I write an article about Netflix and a five year sales trajectory for their business --- and then two months later, I have a CEO of a subscription startup send me an e-mail asking me to do a project for him, because he read the article via a Google search. Some would call that SEO, but to me, it is much more strategic that SEO. I'll have fifty minutes to figure out how to articulate the difference.
I am wondering whether it is the same because as a experience direct marketer you are selecting opportunities based your response experience and on a defined breakeven model?
ReplyDeleteFor a less experienced person without a model, renting a block of names would obviously seem to be of higher risk.
From your illustration the argument would be that to achieve a reasonable test size, the financial may be about the same....for try your luck approach which so many small businesses are doing, it may be different.
I guess that make sense as in the longer run the different media must must adjust their rates to be cost competitive to survive. It was the same experience for me in telemarketing and direct mail.
The purpose of printing two p&ls that are essentially identical is to explain that from a strategic standpoint, there really isn't a difference in the models --- sure, one's a pull method, one a push method, but they are essentially evaluated the same with essentially the same metrics.
ReplyDelete