June 17, 2015

Mega-Trend #3: Will We Avoid Paying Tolls To Mobile/Social/Digital/Offline Parasites?

That's the toll collector, folks ... and it's a thorny topic for those of us who have a relationship with customers and prospects.

Want an update, a refresher about the latest attempt to collect tolls? Click here.

Let's use the catalog world as an example. Let's say you work with a leading catalog merge/purge house that is owned by a big data conglomerate, and you pay $20 per thousand in fees to process prospects. You rent 10,000 names (never mind the $60 per thousand you pay those folks to achieve tepid results that need to be 40% better just to be viable), and you pay this $20 per thousand fee that virtually nobody can demonstrate creates value. You acquire 100 new customers out of the 10,000 you rented.

What impact does this $20 per thousand fee have on the 100 new customers, you ask?
  • (($20 / 1000) * 10,000) / (100 new customers) = $2.00 each.
You just paid a toll ... $2.00 per new buyer. You didn't pay $20 per thousand, which seems almost free ... you paid $2.00 per new buyer for a running charge that nobody can demonstrate adds value. It's a fee that covers vendor fixed costs ... and vendor most certainly need to cover fixed costs. But your competition finds ways to obtain new customers without having to cover vendor fixed costs ... they find names for free ... this allows your competition to outperform you.

Same thing happens on Google. You pay $0.50 for a click. Cheap!  But then, you observe a lousy 2% conversion rate (if you're lucky) ... which means that you didn't pay $0.50 per click, but instead, you paid ($0.50) / (0.02) = $25.00 per order.

You paid $25.00. Per order. To Google!

Do you pay your marketing team $25.00 when they generate an order? Your creative team? Your merchants? Have you ever calculated what you pay those folks, per order?

$25.00 per order is a steep toll, don't you think? If you have a $100.00 average order value, meaning you collect $100.00 from the customer, you immediately give Google $25.00, right off the top. Then you give your vendors $50.00 for the cost of goods sold to the customer. Of the $50.00 of gross margin you earned, half went to Google. And then you'll thank all your in-house employees by freezing salary increases at 2%. You give Google all that money and you stiff your own employees. People notice this stuff, folks.

Is it any wonder Google wants to prove that in-store purchases happen because of Google searches? Is it any wonder Facebook wants to communicate to your customer in your own retail store?

Facebook / Instagram / Pinterest / Twitter / Google / Verizon / Apple / Microsoft / AT&T / Comcast ... they're all lining up to collect tolls. If you do the hard work of actually convincing a customer to get into a car and drive to your store, and the customer actually walks into your store, Facebook would like to step between you and the customer and advertise ... and in the process ... Facebook wants to collect a toll. What did Facebook do to deserve a cut?

Our job, then, is to have a strategy to avoid tolls.

I know, that sounds impossible.

I know, Google and Facebook will tell you to ignore me! So will your boutique agency and large data behemoth that runs merge/purge for you. 

If I were to ask 100 marketers what their customer acquisition strategy is to avoid paying hefty tolls, maybe 5 could give a credible answer. The other 95 stare at you like you are an alien, they think I'm the problem.

I'm not the problem.

Every one of us runs a business that has customers who care about us. Those customers pay us, and they would continue to pay us if we didn't advertise at all. That's the goal. That's the customer we want. They're out there. We ignore them, instead chasing customers who respond via toll collection.

The mobile / social / digital / offline parasites are our problem. We need a strategy to find new customers at a low cost (better at no cost), or we're going to generate low volumes of profit while funding the mobile / social / digital / offline ecosystem in the process.

Can you articulate your low-cost customer acquisition strategy in one sentence, and then demonstrate via metrics that your strategy works? If not, it's time for a July Executive Offsite meeting (JEO) to develop a strategy.