September 20, 2010

Are We Marketers Just Plain Stupid?

There's a reasonable chance that you or somebody you know is attending Shop.org's annual Summit next week. And you'll ask me ... "Why aren't you attending?" ... or ... "Why don't they ever invite you to speak?"

The latter question comes up all of the time ... "Why don't the big US-based conferences ever invite you to speak?"

I've been consulting for three-and-a-half years now, and there's one thing I've learned that is a "best practice" if you want to be invited to speak at US-based conferences.
  • "Follow the storyline."
The storyline is the script that folks want you to follow. And the more we follow the storyline, the less we pay attention to what really matters.

Remember, the storyline is designed to maximize the return on investment for those who host conferences.

The storyline fails us, over and over and over again, because the storyline isn't designed to maximize our return on investment.

Honestly ... go poll 100 companies that are similar to yours. How many of the 100 companies generate 10% of their sales via Social Media? Seriously, go poll 100 companies that are similar to yours ... you'll find fewer than five of one hundred that generate at least 10% of their sales via Social Media. So if Social Media is where all the cool kids hang out and is so vitally important, then why isn't Social Media a vehicle that drives sales on a consistent basis for all but a few retailers?

Now go check out the conference agenda for your favorite industry conference, and you'll find a buffet of Social Media topics ... "Eight ways to reap the rewards of employee blogging" or ... "The future of location-based micro-services" or ... "Nine tips for success on Facebook and Twitter from a panel of industry experts."

Fortunately, Social Media is harmless ... it costs nothing, so there's no risk to it ... you should experiment in low-cost endeavors, right?

The worst fraud perpetrated on us this year is Groupon. This is not a low-cost endeavor.

Groupon represents "the smartest men and women marketers in the room". They truly are. We, on the other hand, are just plain stupid.

Where else but in marketing would one cut the price of an item by 50%, then share half of what is left with a company that does a great job of driving traffic? Groupon gets $5 to spread across the cost of driving traffic, while you are left with a curious math problem ... how do I generate profit when I have $5 and I have to pay for the $10 cost of goods sold?

It's sort of like what happens when you make $4,800 a month in salary and you have to pay $9,600 a month in mortgage payments and other expenses. Would you run your personal life that way?

Go ask the merchant who is responsible for the sales of widgets what happens to her if she generates negative gross margin dollars ... SHE LOSES HER JOB!

But in marketing, WE CELEBRATE THIS OUTCOME AS A SUCCESS! Seriously, in what profession other than Wall St. or Marketing is losing money considered a success? Maybe the average Chief Marketing Officer keeps his job for only twenty-three months because, as a marketing community, we follow the storyline, constantly giving up profit dollars in order to adhere to the storyline.

The storyline offers us a lot of low-probability routes to profitability ... enticing us with tantalizing treats that work for some, but seldom for the masses.

Social Media is always part of the storyline, but is more like a roulette wheel, generating significant sales and profit for maybe 3% of participants. As one popular Social Media consultant recently said ... "It's where the cool kids hang out." You want to generate profit, you don't want to be a cool kid ... right?

Mobile may be really important in a few years, but it sure isn't going to be the key factor that determines Holiday sales effectiveness ... YOUR MERCHANDISE will be the key factor that determines your Holiday sales effectiveness, it has always been about YOUR MERCHANDISE! Are you focusing on an iPad app, or are you focusing on how to sell merchandise on an iPad app?

E-mail was promised to be the "best return-on-investment" of any marketing vehicle. And yet, I keep analyzing e-mail campaigns that deliver $0.08 or $0.12 net sales per e-mail delivered, yielding $0.03 profit. That's awful, pitiful, just plain lousy ... and yet we're told that e-mail and social media are like peanut butter and jelly ... yup, they sure are ... they're like a teaspoon of peanut butter and jelly when what we really need is a full sandwich to satisfy our hunger.

The men and women at Groupon are the smartest marketers in the room.

We, however, are just plain stupid. We willingly give up profit in exchange for traffic that is loyal to Groupon, traffic not loyal to us. And if you don't agree with me, then go find a dataset of actual customer purchase transactions from a real retailer or online brand, and prove to all of us that you'll make up what you lose on the Groupon transaction in long-term profit (or even short-term profit). Go get the data, and present your analysis for all to see ... I'll even publish your results here on this blog if you can prove to me that you have actual customer data from a real retailer or online merchant that validates your result.

The storyline is leading us astray.

I don't get asked to speak at a lot of mainstream conferences, and for good reason. As you know, we focus on actual customer behavior on this blog, using actual customer data to validate actual profitability. This data, unfortunately, isn't always congruent with the storyline told at mainstream US-based conferences. One wonders if our blind allegiance to the storyline is causing us to become stupid marketers.

15 comments:

  1. Kevin, I cannot argue you. And I LOVE to argue. Ok, I'll try: Blind allegiance to the storyline is over simplifying it.

    No, I don't think stupid. I think the disconnection from outcomes you cite is indicative of:

    1) Marketing culture
    2) The C-suite's failure to expect more
    3) A need to KICK GURUS OUT of our business

    1 is resisting change. Naturally.

    As for 2: People who run businesses (ie. not marketers) have failed to force (because we clearly cannot evolve on our own) marketing itself to move from "clever messages" to "translating need."

    Because that's what the Web should be doing for all of us. (not just your clients)

    Translating customers' evolving need and capturing demand. And in PROVABLE ways. Right?

    THIS is what the Web is doing for the companies I've been studying as part of my book project (ie. Burger King http://bit.ly/9rV8Wz)

    As for 1 and 3...

    Why would a business-minded person value lots of Web “traffic” more than loyal customers? How could anyone be reasonably satisfied with earning “social currency” rather than a clear return on financial investment? Why would a CMO believe Twitter tweets, positive buzz and Facebook friends carry more weight than sales, subscribers or leads? Or that somehow they'll manifest sales without some kind of a plan?

    Because their thoughts and actions have been hijacked. Web marketing gurus are convincing marketing leaders to change their expectations, actions, language and measurements of businesses itself.

    In this bizarre, hype-filled we're told to give away products for free; that word-of-mouth marketing is a radical new idea and “being part of the conversation” supersedes making sales online.

    Kevin, the rules governing our businesses are not radically altered. The “digitization of everything” is part of an exciting evo-lution. The real revolution comes in telling the truth:

    The Web is a servant to business – not the other way around!

    Marketers are translators that discover evolving need and capture sales –
    no longer clever broadcasters.

    Businesses should be hiring direct response-savvy, accountable critical thinkers – not outsourced tacticians.

    I think marketers are ready to step up. But only if they have a "support structure" (are force fed it?)

    And that's why I'm writing the book. Because I don't think that most business owners and CMO types have a process to follow -- a means to make positive change.

    Thanks for considering and fighting the good fight.

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  2. This situation exists because:

    1. Most online bosses are measured on their ability to generate demand, not profit. This has to / will change as systems catch up, e.g. when you allocate returns to the channel they originated in, the web site all of a sudden has drop of 30 - 40% in sales.

    2. So most online Marketing people are not really "4P" Marketers, they are "1P" people - Advertisers. Huge difference. Advertisers care mostly about demand.

    3. This is why these people are not measured on (so don't care about) merchandise / discount performance, segmentation by purchase behavior, etc. - as "4P" Marketing people do. It's why spending $10 to make $5 is (remarkably) OK, why they don't realize the vast majority of customers coming in from Groupon will have negative LTV, etc.

    4. Thus the implications for conferences...

    Kevin, perhaps we should start our own conference? Oh wait, nobody would come...:0

    The *really* interesting question I think is this: with the BI companies acquiring all the web analytics vendors, and the Marketing folks using BI generally being 4P Marketers, what happens when the 4P's and the 1P's are all using the same platform, and sit down in a room to discuss results?

    That will be interesting, to say the least.

    Has this happened to anyone yet?

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  3. Jim...
    Nothing happens. Nothing until the enterprise evolves to embrace BOTH "demand creation" (advertising) and "needs translation + demand capture" (direct response).

    Agree?

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  4. Kevin: Phenomenal post!

    In our (humble) experience, with learnings from thousands of successful conversion optimization tests, there is only one truth: THERE ARE NO GURUS. No one has a crystal ball. Only controlled experiments can yield meaningful answers and what works for some does not work for others.

    However,the reasons so-called Gurus get invited to speak so often are:

    1. They are entertaining to listen to
    2. They present a simplistic solution to complex problems
    3. Marketers (we) want to be entertained plus leave thinking we have tools to solve problems.

    (BTW, I *have* heard you speak at a conference and you were great!)

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  5. Very interesting post. I do have a question- and I don't have the numbers, so it's not useful...

    I have a friend who has a restaurant here in Portland. He used Groupon- and his experience is that people who come in once to the restaurant love it so much they come back. He said groupon brought in a bunch of first-timers.

    I don't have the numbers... but I find it hard to believe that if you can bring in say 60 new people at a loss, but 15 people come back in 4-6 times over the next year that you wouldn't end up having made a profit? And in the following year(s) it's all gravy.

    So, I'm not quite following your logic with the Groupon thing. Maybe I need to go ask my friend to run the numbers.

    Maybe the thing to do is when someone comes in from Groupon, to host a second event to invite them to that is not a discounted event, but offers some other kind of bonus "free dessert" or special entertainment, that doesn't cost as much?..

    Thinking... thinking...

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  6. Mark, yes, absolutely, some people will have success, everything is a probability, not a certainty.

    I don't have a problem with a local restaurant providing a great experience, so great that people come back over and over again. At that point, of course, it isn't about Groupon, it is about the restaurant being so great that any form of driving traffic could potentially pay off.

    The challenge, of course, is that most businesses, and I do mean 'most' businesses, are not at that level of excellence ... and when you are not at that level of excellence, you don't get the repeat business, and therefore, you are not a smart marketer ... and that's the point of this whole thing ... we're told that the tools and techniques are the reason for success, when in reality, promoting outstanding merchandise (or in your case, outstanding food/service) is really where all of the profit happens.

    It's when you aren't a smart marketer, and you don't have outstanding product, and so you partner with somebody like Groupon, that you become a dumb marketer who takes a gross margin bath.

    It's always about great merchandise (food) or excellent service ... the combination of those two factors make something like Groupon work well. Groupon, when used by average marketers with average product, is a recipe for trouble, further deteriorating the bottom line.

    Like I said, Groupon represents the smartest marketers in the room.

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  7. Jeff / Jim / Raquel --- thanks for the congruent feedback. All of it makes sense. Within a corporate environment, with personalities and conflicting incentives and egos, it all goes out the window ... and no matter how much folks talk about it, it isn't going to change.

    A consultant once told me that 'it is too easy for companies to make money'. That's probably true, and it probably makes it easy to accept losses.

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  8. Kevin,

    Great post. I agree completely especially with your comment about wanting profits instead of being a cool kid. It's been my experience that the cool kids from school rarely become successful business leaders.

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  9. Great article Kevin! I have the same problem in the UK. I've done a lot of presentations that are always popular with the audience but may get the 'hosts' a bit agitated. Last one I did I got "reprimanded" by a sponsor because I had talked about how traditional media advertising is seen by marketers as giving the worst payback. This sponsor (a B2B magazine, surprise, surprise!) ranted at me for talking about this as it would "threaten their business". Seemed irrelevant to them that I was quoting from valid sources,surveys and stats that showed the downturn! Needless to say I haven't been invited back.... but that might because I think they just went out of business.

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  10. Great blog! I disagree that Groupon isn't a brilliant idea ~ I look at it as an advertisement though; people pay thousands of dollars for advertisements that don't necessarily drive sales. Groupon is like an advertisement - it's not meant to make you money. It's meant to attract new customers who will try you product for cheap, hopefully love it (if your product is worthy), and then will repeat buy at full-price and become a lifelong customer. So yes, if you look at this short-term, it looses money; long-term, it's goal is exactly like that of an ad. You just need to change how you view these sorts of flash sale sites to see it as a way of getting your product in front of a huge new audience for a low cost (my company had a large enough markup on its products that it wasn't loosing much money per person and became a very inexpensive way to reach a large audience we wouldn't have gotten in front of another way).

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  11. Hi Sue, thanks for the feedback, it is interesting to hear your story. Sorry that happened to you.

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  12. Can you blame the marketers for trying. I would probably do just the same if I were in there position in this tough business climate. It's not people are misusing tools, they simply don't have the right tools to begin.

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  13. David...
    But there's a difference between trying and being blind to the obvious. Right?

    Kevin...
    Just read this from the WSJ article this week on soc media monitoring. The Gatorade people who staff their monitoring 'mission control' center say...

    "If they're (consumers) directly asking where to buy products, we're going to weigh in... if they want to talk about working out, we let them have that conversation."

    Oh, yes. Because now marketers are in control. They even have a 'mission control' center. Got it!

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  14. Thanks, Jeff ... Gatorade, huh?

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  15. Marketers are not stupid. We are just making the most from our efforts to help and to market a particular thing. We have many options, but this could possibly results in two ways, positive or negative.

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