February 08, 2009

CEO Questions About Online Marketing And Profitability

There are two hot CEO topics in 2009, based on my e-mail inbox:
  1. Help me reduce advertising expense without a drop in sales.
  2. Help me calculate the true profitability of my online marketing efforts.
Online marketing experts ... your fifteen year run of management by conversion rate is coming to an end. And that's a good thing!

The discussions are different than they used to be. Lately, the online marketing employee is being considered a scarce resource. Allocation of scarce resources is becoming a trendy topic ... and it should be, given the scarcity of employees after layoffs.

One individual asked it if was ok to add the human costs associated with managing a blog and maintaining a presence on Twitter to the variable costs associated with the website traffic generated by those activities, and then link those costs to the variable costs associated with picking, packing, and shipping merchandise generated by those activities.

Another individual wanted to know if she could calculate the incremental variable cost of each website visit, and then allocate that expense against visitors that browse the website on a frequent basis, calculating the true profitability of "best" customers.

A CEO wanted to allocate the cost of all website visits driven by an e-mail marketing campaign back to the e-mail campaign that caused the visits to happen --- holding e-mail marketing accountable for the 19 of 20 visits that did not result in a conversion but did chew up website expense.

So the scarcity of employees is causing a renewal of focus on activities that generate profit over buzz.

Ten years ago, the catalog industry went through a transformation. All expenses were carefully monitored, and all revenues were carefully tied to the catalog marketing effort that may have been responsible for generating the sales. This was the genesis of the matchback algorithm. The popping of the internet bubble resulted in a new era of accountability.

Today, the online / e-commerce industry is about to go through a similar transformation. The popping of the housing bubble is leading us to a new era of accountability.