When Marketing Channels Die

Remember your homework assignment from last week?

In 1998, 35,000,000 people would watch a Thursday night episode of Seinfeld. 24,000,000 would stick around to watch the dreck known as "Veronica's Closet" that appeared after Seinfeld.

Yeah, network television was a blockbuster marketing channel.

And then?

Not.

It was already dying back then, to be fair. Once cable television existed and you could watch the World Wrestling Federation on USA or see Larry King interview Donald Trump where he considered running for President in the 90s (click here), why watch Veronica's Closet?

If your marketing dollars were invested in network television (like Total Hair Fitness for example, click here) and you lose that bucket of opportunity, what do you do?

Advertising generally follows a law of diminishing returns.

One of the problems with the law of diminishing returns is that when a channel begins to die, performance gets worse, but the costs associated with the channel frequently remain constant or increase for a period of time ... by the time the economics of the channel force costs down, marketing effectiveness gets even worse. Example:

• 1998:  20,000,000 viewers. Spend $1,000,000, get $3,000,000 in sales at a 40% profit factor = $3,000,000 * 0.40 - $1,000,000 = $200,000 profit.
• 2012:   8,000,000 viewers.  Spend $600,000, get $1,200,000 in sales at a 40% profit factor = $1,200,000 * 0.40 - $600,000 = ($120,000) profit.
• 2025:   4,000,000 viewers.  Spend $500,000, get $600,000 in sales at a 40% profit factor = $600,000 * 0.40 - $500,000 = ($260,000) profit.

Diminishing returns continue, unabated ... but the death of the channel overrides diminishing returns. As viewers disappear, advertisers demand the absolute best prices and smaller advertisers are pushed out. Smaller advertisers go elsewhere ... they head into the digital wilderness where costs on Facebook / Google increase while response decreases (seems like a common theme), chasing advertisers elsewhere.

I worked with a company that doubled merchandise productivity over the course of a decade. That's one important way to overcome what happens when channels die ... as a channel dies, you find ways to get customers to spend more, offsetting channel death (for awhile).

If you're going to go down the "channel optimization path" where (as described in the document at the start of this post) you focus on short-term ROAS, you have to have a plan to account for channel death. Yes, especially for digital marketers. What the heck do you do when Google becomes untenable, as will most certainly happen?

• Answering that question takes you to the "balancing direct response and brand" section of the document, FYI.
• "Balancing Direct Response and Brand" ... FYI, is a difficult proposition.
• By the end of the week, I'll share where that balance is happening ... in what I call Customer Media Marketing ... a shift away from endless variable costs that yield clicks ... a shift to something different.