Direct Response vs. Brand Pendulum

Here's USPS marketing mail volume since the fiscal year ending September 2008:

Aside ... when people tell you that #printisback, they fail to realize that every year the USPS publishes facts saying that marketing mail volume is contracting. The facts, publicly shared by the USPS, suggest otherwise.

When a marketing channel dies, costs within the channel disconnect with the reality of the marketing channel. Post-COVID, that is the reality of print ... paper / printing / postage costs escalate, while the effectiveness of the channel erodes. This causes those who use the channel to spend less, which causes service providers to charge more. If you believe this story doesn't end well, trust your instincts.

Those of you paying more for clicks in paid search and paid social ... pay attention to how this story plays out ... your destiny is connected.

Remember your homework assignment?

In some ways, it feels like an era is ending in ecommerce. Now, ecommerce is thriving, don't get me wrong. But an era is ending. The "direct response" era is ending. Is it "ending ending"? No. But it is ending.

Think about ecommerce as a pendulum. On one side is Direct Response. On the other side is Brand Marketing. Neither side gets along. Both sides serve a very different purpose. You don't leverage Direct Response marketing to get a customer to buy a Toyota Highlander. You can leverage Brand Marketing to get a customer to purchase Griot's Garage Speed Shine, though Direct Response is likely more appropriate.

The importance of Brand Marketing becomes painfully apparent when a Direct Response channel either becomes too expensive, unresponsive, or both. All of which is happening in 2025 ... paid search and paid social yield expensive clicks that are less responsive than they used to be. Marketplaces are a logical outcome of expensive clicks ... the Direct Response marketer leverages "somebody else's" traffic from a Marketplace to overcome expensive clicks ... paying a fixed percentage for each order instead of a variable cost for each click. Marketplaces are death, of course ... do you really want to be known as a supplier for Amazon or "that Etsy person with the cute stuff?"

Marketplaces are the digital version of a Mall. 

We all know what happened to Malls.

Your homework assignment should lead you to a realization.

• Direct Response in an optimized state with decaying channels = trouble.
• Brand Marketing is generally wasteful (sometimes due to the incompetence of the marketer employing the tactic ... and yes, I have the receipts).
• Marketplaces in 2025 are the refuge for Direct Response marketers without a Strong Brand. This may well be the right place for a weaker brand to be ... to become an Amazon supplier. Better than not being in business at all, right?
• If your choices follow a pendulum between Direct Response and Brand Marketing, you probably feel like you have an unsatisfying future.

Yes, you should realize, by this point, that there is a different approach you'll need to consider going forward. You're probably not going to like my answer. That's fine. Tomorrow, I'll share an example to get the process started.

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.

Discounts / Promotions / Clicks / Channels: The "Local Maxima"

Let's go back to your homework assignment from last week (click here). Read the green section (Resilient Base of New Customer Contribution $ Via Owned and Organic Traffic) and the red section (% of Revenue on Discount). In particular, focus on the red row ... read the comment in the column titled "The Realization That You Need To Change".

• "The marketing calendar is built around discount events as much as it is around new product launches. Seems like a necessary evil in order to keep growing revenue."

One of my favorite quotes from my time at Eddie Bauer was our CEO saying that we couldn't add a 34th promotional week to the calendar because we had to maintain the integrity of the promotional calendar. Via analysis or gut feel, the hill to die on was at 33 weeks. Imagine being at 31 weeks and somebody says, "yeah, let's add another week, no integrity issue there."

There's this bowl of promotional soup that interacts with direct response ... it always, always works for awhile (ask Macy's). Always. And then, it doesn't work. Years of trying to "make it work again" lead to one of those comments from marketers:

• "Facebook and Google are too expensive and the clicks they send us don't convert as well as they used to convert."

Blame is placed on Facebook and Google ... and oh yeah, they deserve blame.

The brand deserves more blame.

• It shifted from "what" it sells to "how" to sell it (discounts, promos, clicks, channels). This is a familiar transition, one that always looks good in the short term and is harmful in the long term.

This shift maroons a brand on what in math is called a "local maxima".

Look at the peak next to the arrow. That's what happens when a brand shifts to discounts / promos / clicks / channels. Any movement in any direction away from what is "optimal" (which, by the way, is most certainly not optimal) yields a sub-optimal solution, paralyzing the brand.

Where is your business on The Brand Lifecycle image? I have a feeling I know where it is, or you wouldn't be emailing me about the higher costs and lower performance of paid search.

I spent considerable time working on a framework for thinking about "what comes next". On LinkedIn I floated the framework to readers and a thousand people quickly read the argument. What comes next is already here ... I call it "Customer Media Marketing".

Via One of Our Intrepid Readers!

Every once in awhile you run across something compelling. One of our loyal readers forwarded this post on LinkedIn from the Co-Founder of Chubbies (click here). Heck, the writing style is reminiscent of the my days of writing Gliebers Dresses episodes (click here for the Shark Tank edition).

In the post, he references a document called "The Brand Lifecycle". Your homework assignment? Please review this link, we'll talk about it next week, ok?

Wanting to Belong

Below is what I originally wrote for today ... then I saw this story and thought that it is important you see the importance of community, of belonging (all of which your company already provides, either formally or most likely informally). Click here for the video from CBS Sunday Morning.

Ok, time for the original post.

The emailer told me he couldn't get access to magazine lists anymore (his magazine lists he rented stopped publishing via print a few years ago) and he told me that Google had become "too expensive". I privately wondered if his customers believed in his business? Did his customers want to belong to the ecosystem his brand was part of? Could his own customers share his story?

I suppose it's always been this way, but for many of you, your customers want to belong to something.

I was at the NASCAR Cup race in Phoenix two months ago. There was a long line at the Busch Light beer stand. I'd frequently hear patrons say how they won't drink Bud Light ("they don't get my money anymore") ... think about that, they won't give their money to one brand but will give their money to a sister brand, which means the customer wants to belong to something and Capitalism wins regardless. Welcome to 2025.

It's no different with the Costco / Target stuff that is going on. You'll harm Target if you don't feel like you belong to their overarching messaging ... if you don't feel like you are welcome anymore. Except there the money isn't flowing to the same parent company ... it's truly going to the competition.

There are, of course, the obvious financial implications of "not belonging". Ask Bud Light and Target.

There are the non-obvious financial implications. In a recent project (numbers dummied up here to protect the innocent), each website visit that didn't deliver a conversion added precisely one dollar to the future value of the customer. Five percent of the 0-48 month file visited the website in a given month, so this $30,000,000 brand generated $200,000 per month ... $2,400,000 per year (8% of annual sales) by simply "engaging" the customer.

Yes, there's a difference between the phony "engagement" created by gimmicks and the community building that causes a customer to want to belong, thereby visiting your website and adding $2.4 million per year because the customer feels like s/he belongs.

Maybe your customer wants to belong to something meaningful.

You likely provide something meaningful to the customer.

Connect the two.

When You Run Out Of Lists And Clicks ...

There's two trends happening ... have been happening for quite some time:

• Old-School brands lamenting that "lists don't work" or that "lists aren't available anymore".
• Ecommerce brands lamenting that "clicks don't work like they used to" ... via Facebook or Google.
  

I've yet to find one of either brand making these statements who have a strong community presence.

Here's an example from drop.com:

I can't express more clearly how much people dislike hearing about communities ... maybe 2 in 3 that I speak with or email with just get grumpy about the topic.

I can't fix the list issue ... those days are over.

I can't fix the click issue ... that entire world/ecosystem is changing.

I can recommend partnering with your own customers and your own visitors.

The Greatest Marketing Analytics Equation of All Time

It's 1992 at Lands' End, and I'm responsible for analyzing mail/holdout tests ... you execute email and/or print mail/holdout tests in 2025, right?

Here's the results of a mail/holdout test.

An average professional doesn't bother with mail/holdout tests.

A smart professional measures profit via the "Increment" line in the table above. The smart professional doesn't overstate results via matchbacks, they leverage the incremental contribution (which likely means they'll spend fewer marketing dollars).

The curious professional notices a relationship.

• 0/3 mailings = $0.
• 2/3 mailings = $8.40.
• 3/3 mailings = $10.50.

The curious professional adjusts the relationship, converting both sides of the relationship to fractions.

• 0.000 mailings = 0.000 spent.
• 0.667 mailings = 0.800 spent.
• 1.000 mailings = 1.000 spent.

The curious professional plots the relationship, then fits a line through the relationship.

The relationship above is fit via what I call a "Power Function". I use CurveExpert software (click here) if you are interested in fitting the equation.

What is the structure of a Power Function?

• Fraction of Demand = a*(Fraction of Mailings) ^ b.

The equation above?

• Fraction of Demand = 1.00 * (Fraction of Mailings) ^ 0.583.

In marketing, your ROAS relationships and/or investment decisions follow a Power Function. Once you see it, you cannot unsee it. In fact, the Power Function is everywhere.

• Price Elasticity.
• The Difference in Customer Segment Performance.
• Paid Social Advertising.
• Product Listing Ad Spend.
• Catalog Mailing Frequency.
• Email Marketing Weekly Contact Frequency.
• Merchandise Assortment Size.
• Creative "Winners" vs. "Experimental Photography".
• Winners vs. Contenders vs. Others within your Assortment.

I could go on and on, for hours.

Power Functions explain most of your investment decisions in marketing. The functions are different ... your Paid Social "b" coefficient is different from your Email Weekly Contact Frequency "b" coefficient.

This is the point in the post where the curious marketer will take the topic further. You're free to email me (kevinh@minethatdata.com) and ask questions. The Power Function is the greatest marketing analytics equation of all time! The equation unlocks the secrets of your business.