Lairig Marketing

The Business Revolution Will Not Be Digitized

Reading marketing blogs (other than Lairig Marketing, of course) would lead a person to think every communications process and means of distribution had been fully digitized. The recent “Minding Your Digital Business” report from McKinsey will bring such people back to reality.

One of the many questions for McKinsey’s study group of nearly 1500 global “C-level” execs was how big a priority “Big Data” is (a faux phenomenon we covered in depth here). Only 25% put it in the top three (which sounds to us to be twice what you’d expect).

That means we’ll see another million “Big Data” articles over the next two years until the C-suite gets the memo.

Oddly, only 39% said they were using Big Data for “Budgeting, Forecasting & Planning.” More oddly, budgeting was the only one of nine survey options that showed a lower number for ideal usage. Translation: execs believe they are currently using TOO MUCH data for setting budgets!!!

Metaphorically, we presume, a finger in the wind counts as “digital.”

Half of the execs said they would be investing less than 2% of their company‘s total COST base on digital initiatives. (Perhaps the percentage spent would be higher if they used Big Data for budgeting, but we digress). A mere 25% will spend more than 3%.

Yet, unbelievably, a full 35% expect they will realize better than 10% improvement in operating income as a direct result of their digital programs. That’s an ROI of more than 300%, folks.

When McKinsey asked what the biggest hurdles to digital success are, for the millionth time in a row 50% of the surveyed execs said “lack of quality data” and “poor IT infrastructure and systems.” Still and forever, stuck in the proverbial digital first gear.

Back to the future.

Procter & Gamble Gambles On Digital

This one has taken on a bit of the old “telephone” game (way before we had the Internet, kids). The last whisper in the chain has been garbled as “P&G has laid off everyone in marketing and will now use only social media, which it says is free.” Not exactly.

Here is what CEO Robert McDonald said on P&G’s Q2 earnings call, as he defended a reduction in ad spend as a percentage of sales:

“In the digital space, with things like Facebook and Google and others, we find that the return on investment of the advertising, when properly designed, when the big idea is there, can be much more efficient.”

Because McDonald used the word “efficient” rather than “effective,” the world can only assume he said what he meant. Is that really P&G's challenge vis-à-vis social media marketing?

Let’s use Tide detergent as an example. Symphony IRI (and many other researchers) claim the brand has U.S. market share north of 40%. Let’s adjust that for heavy users – such as households with six or more kids – and estimate that Tide has 20% penetration.

That would be the rough equivalent of 23.7 million U.S. households. Now, let’s check Tide on the “Big 3 Social Media Thingamajigs”:

• Facebook – 2.7 million “likes”
• Twitter – 20,000 followers
• YouTube – 167 subscribers

If we assume they are all from different households of current Tide users, P&G's social media "pivot" (buzzword of the year!) looks to be a little over 20 million short. And, of course, if you think about the challenge to acquire NEW Tide users via social media, then we are short by somewhere between one and 94.9 million households.

All that pressure on Tide’s 2.7 million Facebook fans. The Old Spice Guy might be pressed into service as the Old Tide Guy.

All in the name of efficiency.

PerkStreet Rewrites The Laws Of Perks

One of the simplest marketing segmentation schemes uses the notion of customer value. For businesses that sell off-the-shelf goods or services to a lot of people, and can identify buyers by name during every transaction, dividing the customer base into three or so different levels of annual sales (or profits) can help prioritize marketing spending.

Most companies that do this find the top-most layer is disproportionately small, and tends to follow Pareto’s 20/80 rule – 20% of your customers deliver 80% of your sales. Inversely, at the bottom you see a whole raft of customers who don’t contribute a whole hell of a lot to your business.

Yet too many marketers treat all customers the same, with the same level of effort. This is particularly common among newer companies, who believe their best use of resources is to “scale up” the business.

Case in point, PerkStreet Financial, featured in a small story in the Saturday New York Times business section. The article seemed to want to throw one more credit/debit card company under the proverbial bus, by exposing PerkStreet’s recent halving of its rebate award (from 2% to 1%) for its debit card users.

“PerkStreet has rolled back that 2% rebate it gave to anyone who maintained a $5,000 average balance in one of the checking accounts it offers…I was particularly interested in how the chief executive, Dan O’Malley, would explain all of this.”

The writer then unknowingly exposes O’Malley’s lack of marketing savvy.

“As nice as the 2% offer appears, less than 10% of his customers were qualifying for it. ‘I can’t feel good about advertising my primary benefit of the product as something that nobody gets.’ “

Um, that’s because you are treating everyone the same.

Right in front of our eyes is a Pareto-like example. Ten percent of PerkStreet’s customers are at the $5000 balance level, and we’d guess that makes them the most profitable to PerkStreet. But now they lose out, because O’Malley is worried about “massing up” the other 90%.

“…[O’Malley] said, it was purely the desire to give more to more people, even it meant giving a whole lot less to many of the people who were drawn to his company in the first place.”

Classic. A focus on more customers, not more revenues.

Vilfredo Pareto must be spinning in his grave.

Flurry’s Flurry of Bullsh&t Data

With all the outcry over SOPA and PIPA, we continue to be amazed that no one (other than Lairig Marketing) – NO ONE – has bemoaned the privacy risks associated with online analytics vendors. Companies such as Flurry, who explains itself thusly:

“…the world's leading mobile application analytics and data-powered advertising platform, with more ground breaking [sic] services in development.”

No idea what that means, but we eagerly await the promised earthquake (sorry for the reference, El Cerrito).

Here is an example of what Flurry has access to:

“…[we take] a sample of 60,000 daily active users on iOS, from among a total group of 6 million for whom we have demographic data…”

Flurry knows who you are and follows you all around every single place you go on your smartphone, all day long. And there are dozens more similar companies. You either don’t know or you don’t care. Potentially a much bigger story than Google and Safari, but we digress.

Flurry has been able to parlay all this snooping into two large helpings of marketing analytics catnip. The trade press and blogarrhea live for headlines like this:

1. “Flurry finds mobile apps usage dominates Web.”
2. “Flurry finds time spent in mobile far outpaces ad spending.”

Let’s take the first one, um, first. There was something else Flurry found out in that study that no one mentions, ever: half of the 90 minutes a day an average that a smartphone user spends on apps is – drumroll – PLAYING GAMES.

All these people you see coming straight at you, heads down, on the sidewalk? Playing Pac-Man. Or whatever. (Still wondering why there is high unemployment?)

The next 30% of “apps time” is spent on social networking (read: Facebook – still wondering why there is high unemployment?).

And so you have one reason from Flurry’s first “finding” as to why its second finding is nonsense – ad spend is low on mobile because the apps people are using are not suited to it.

But that’s just a sliver. In fact, Lairig Marketing wrote about this “underspending” topic – BACK IN MARCH 2008 – when data pundits of that period were wailing about how online ad spend allocation wasn’t aligned with people’s time on the Web.

Here is a summary of what we said then, and still say now. Four years later, the % allocated to online spend is still lower than the % of users’ time on the Web – and therefore mobile will always be “under” – because:

• Cost of ad production is infinitely lower than TV or print
• Cost of online media is pennies on the TV dollar
• TV still has better mass reach
• Average people are not your customers

Please, please help us pass the word the next time you see this “underinvestment in mobile advertising” claim.

In the meantime, here is an example of what Flurry knows that ought to make privacy advocates sh&t their pants:

"...our analysis shows that females and males, between the ages of 25 and 34, who have higher levels of disposable income and a bachelor's degree or higher, more strongly interact with mobile ads.”

JetBlue & Southwest Airlines – Little Brand Baggage

Compared to the so-called “six legacy carriers” (American, Continental, Delta, Northwest, United, US Airways), JetBlue and Southwest are miracle children. With American recently going Chapter 11, these two are the only other airlines of note who haven’t gone broke or been acquired by someone else.

(As an aside, isn’t it funny the legacy guys can, and will, only buy each other? Two years from now, will the six-now-four be down to two?)

Typical industry measures don’t help much in figuring out where JBLU’s and LUV’s success comes from. Southwest has the highest incidence rate of complaints. And JetBlue’s on-time arrival performance for 12 months through November 2011 was abysmal, third from the bottom.

Let’s look at a something else the U.S. DOT tracks: those niggling little baggage fees. For some airlines, they are neither niggling nor little (discuss amongst yourselves).

Number one on the list through the first three quarters of 2011 is Delta, pulling a cool $650 million in nuisance, er, baggage fees. Number two is American, where a baggage-fee income stream of nearly $450 million wasn’t enough to stay out of bankruptcy court.

Way down at #10 is JetBlue, a meager $47 million. Then Southwest (who, as you might recall, made this the centerpiece of its advertising a couple of years ago), at #14, with a measly $24 million.

On a percentage of revenue basis, this nonsense is important to Delta and American. The baggage fee income represents 2.5% of their total revenue. For JetBlue, just half that. And Southwest’s is basically a rounding error, representing 0.24% of revenue.

Travelers seemed to respond. Again for the period covering the first three quarters of 2011, JBLU flew 9% more passengers year-over-year, LUV 2.4% more (off a very high base).

Delta’s traffic? Flat. American? Flat.

For different reasons, each of these four airlines has pretty much stayed with a flat budget for advertising. American because, of course, it can’t afford it. (Strangely, six weeks before bankruptcy, AA had launched a new brand campaign.) Delta is still leaning on its tired 2009 “Climbing” rebrand.

Where are JetBlue and Southwest spending? On focused initiatives. For example, JetBlue is campaigning in Boston, targeting business travelers (a first). And Southwest is expanding its focus on the Hispanic segment.

Travelers don’t need the “brand spots” from JetBlue or Southwest now. They get what they stand for. Delta and American, however, are brands that stand for, um, nothing. Each will need to spend inefficiently forever and on.

Until either or both are bought out, and lose their legacy status.

Insider’s View: Lining Google’s Pockets

Piling on to yesterday’s rant about Google search, here’s a personal look at where Google makes 97% of its money – paid search – the majority of it from the shallow coffers of small businesses and organizations.

For roughly four years now, I’ve been the Google “AdWords guy” for a nonprofit. There never seems to be enough time to launch a proper Facebook or Twitter campaign to let people know of our periodic events, so, like many small businesses, we rely on AdWords to drive people to our tiny website.

So, here we are on Rosh Hashanah eve, with an offer of a free dinner and service. In Manhattan. We started our paid search campaign less than a week ago. Since the expense comes from my shrinking bank balance, I minimize bids and daily totals. Expectations couldn’t be lower.

Yet, within a day, our little scoreboard shows that we are showing up! Hundreds of impressions! And even though Google “suggests” keyword prices double what we are bidding, we rank in the top four.

Then the “clicks” come through. Amazingly, they are always 2%. We get 2% click-thru on “Rosh Hashanah,” where our ad has served up 38,806 times. We also get 2% for the alternate spelling (“Hashana”), for which only 2948 impressions have been delivered.

Almost all of our dozen well-performing keywords come in at 2%. Strange coincidence.

But what really counts are what your site visitors do when they click through to your site. We have 849 supposed visitors via AdWords. My credit card is looking at a hit of $269.51. Number of dinner reservations called in so far? Zero.

[Speaking of the High Holy Days, we’ll not post again until next Monday. This will give Google a chance to catch up on its indexing.]

Our silly little website provider’s silly little analytics package doesn’t confirm anywhere near that much site activity. A rational person would halt the campaign. But this is the big day, when thousands of people who have waited this long to finalize plans will search Google for some Rosh Hashanah event advice.

We have no choice.

I expect we will “get” 400 “clicks” today alone. Google has now doubled its suggested price for “Rosh Hashanah” to $1.75, four times our current bid. We will be $500+ in, with most likely zero ROI.

Not that every outcome for all AdWords users is this bad, nor that our website is any good, etc. etc., but it seems easy to figure out how Google can amass $30 billion. Just take 5 million small businesses who are able to say, “what the hell, it’s only $500, what have we got to lose?” and you’ve tallied $2.5 billion.

Paid search is like gambling. You know you should be doing something else with your time, that the whole experience makes you feel a little dirty, that the house is stacked against you, and that you’re not going to win. But you place your bet anyway.

Another form of digital addiction.

Mayor Koch Moment #5 – How’m I Doin’?

Way behind on scoring our December 2010 predictions for 2011. If you’re keeping score at home, here’s how Lairig Marketing has done so far:

January: Double-digit gains in holiday ecommerce = YES
February: Resurgence of TV advertising = YES
March: The rise of small-bank marketing = NO
April: Increased increases in mobile ad forecasts = NO

Unfortunately, we keep our losing streak going for the May 2011 prediction. Here’s what we said back in December:

“…an upwardly revised forecast comes out for media spending, this time for digital out of home. However, unlike for mobile advertising, no one notices because DOOH is still seen by most of the marketing world as the drunk, gay uncle at Thanksgiving.”

The only upwardly revised forecast this year has been for something else digital, the only digital any trade journal or blog wants to talk about – online advertising. How strange, when the growth rate for DOOH – the “D” STANDS FOR” DIGITAL,” folks – is just as high as that for online advertising.

So we are going to take half a point for this one. Because no one noticed. DOOH is still your gay uncle.

Here are some key story extracts from this year that NO ONE is reading:

Global digital-out-of-home advertising revenue, which climbed 16.3% from $5.56 billion in 2009 to $6.47 billion in 2010, is expected to climb another 16.9% to $7.56 billion in 2011.

Fox Sports South started incorporating live-streaming data on 10 digital billboards in Atlanta…sports scores will run on 40-foot billboards…CBS, Clear Channel, Lamar Advertising and Olympus Media are participating.

U.S.-headquartered Planar…saw sales of digital-signage products rise 68% year-on-year in the second quarter of 2011.

Preventable, a Canadian non-profit, together with the BCAA Road Safety Foundation, is setting up mobile digital billboards near schools that photograph speeding cars and post their photos on the billboard with the message "Before you rush through here, have a word with yourself." It is the first such road safety digital billboard of its kind in North America.

Digital location-based video ad exposures are seeing marked growth, according to The Nielsen Company’s Fourth Screen Network Audience Report. In the last quarter of 2010, the “average minute audience” for adults 18+ across 12 participating location-based networks was up nearly 250 percent. For Q4 2010, that translates to more than 500 million gross minute exposures per month.

A survey of 1,000 strategic media planners released Tuesday by the Digital Place-based Advertising Association found that 86.3% of the respondents plan to include digital place-based media in their 2012 plans, up from 65.3% in 2010.

At least someone in marketing is paying attention.

Netflix Revised Subscriber Guidance: Netflinch

News so important it interrupts our normally scheduled Friday Fast Four. So important that we’ve upped our word count by 100.

First, we shall break our arm patting our back. Our prediction for this year’s July back in December 2010:

“The financial press is awash in headlines like ‘Netflix: The Best Short Ever?’…”

On July 13th (!!!) Netflix hit its all-time high, just short of $300. Since then it has slid, tripped and finally tumbled to $170. For those that shorted Netflix on the right day, you just made a return of 43%. You can thank us later.

Now to a bit of analysis about Netflix that you will not read anywhere else.

The blogo-rhea is flooded with knee-jerk “examination” of yesterday’s terse but honest guidance from Netflix management. Even Wall Street followed suit (!!!), cutting the share price by nearly 20%. All of this driven by a 2.7% reduction in forecasted subscriber count (and not an “actual” loss as some dopes are reporting).

Because almost all of Netflix’s reduced guidance is from DVD-only subs, here is the typical reaction by bloggers, many who should know better: “Netflix raised its prices too much.”

Oh dear.

Here is what you should really think about. Someone in the corporate strategy department at Netflix fuxed up the forecast. Here are two inputs he or she messed up, and you can also take these as learnings based on the revised guidance.

1) The 800,000 subscriber overestimate in DVD-only means this (and sorry for the caps, but we don’t want skimmers to miss it):

NOT AS MANY HOUSEHOLDS ARE PREPARED TO GO OVER-THE-TOP AS EVERY PUNDIT WITH SIX “CONNECTED” DEVICES BELIEVES.

There are simply too many households without the wherewithal – money, equipment, or knowledge – to watch “TV” on a laptop and/or hook a laptop to the crappy old TV set they own.

Now, as a set-up to the Netflix forecasting mistake/learning #2. Where did those 800,000 go? Notice the Netflix streaming number was also reduced, by 200,000. WHERE DID THE 800,000 GO?

2) The drop in Netflix’s streaming-subscriber guidance means this:

NETFLIX IS MAINLY A SUPPLEMENT TO PAY TV. NOT A REPLACEMENT.

The 800,000 will simply rely on their CURRENT cable or satellite provider for video entertainment. The new, much higher price from Netflix adds 20% or more to the monthly household “TV” outlay.

These households just don’t have the funds for it. Now, and for a long time (see long-term unemployed; and U.S. poverty rate).

Only loyal Lairig Marketing readers will see this Netflix analysis of course. The same ones who could have told their neighbors to get out of NFLX stock in late June or early July.

Meantime, let’s make another prediction: Deep in the basement at Netflix headquarters, a corporate strategist is about to get “streamed.”

The Search For Intelligent Life On The Web

In yesterday’s post, we illustrated how Google parlays Internet users’ laziness into cold, hard cash. Our reference point was the Experian Hitwise July newsletter, which just happened to have another table of interesting data about…let’s call it...“cold, hard daft.”

If you were asked to guess what Hitwise shows as the #1 search term for coupons, you now know to guess “coupons.” Followed by “coupons.com.” And just like yesterday, the remainder of the top 10 are retailer names, a la “jcpenney coupons.” Except when you get to #7 on the list.

You’d better sit down. Ready? The #7 most-used term = “free coupons.”

I will repeat that. “Free coupons.”

Cold ice. Hot steam. White snow. New innovation. FREE coupons.

ALL COUPONS ARE FREE, dammit!

Surely no one would pay Google to place a text ad for this daft, dopey, redundant phrase? Wrong. And stop calling me Shirley.

Google “free coupons” and you will see three top-of-page paid ads and a full right rail. Fly-by-night deal houses going up against the likes of Coke, Kellogg’s and LivingSocial. Fighting over the lowest denominator of search at probably one of the highest prices for keywords. Every click going for $50, maybe? More?

Which means Kellogg’s is, in essence, paying the lowest value of customer in existence $50 to take a coupon for a $4 box of cereal.

Except that the $50 goes right into the Google coffers. Click, click, click. “Free coupons” gives Google “cash money.”

Coldwater (Creek) Turns To Ice

Loyal readers know Coldwater Creek. In 2010, Lairig Marketing created a faux stock index of companies we felt had strong marketing strategies and operations. CWTR was the first. And the worst.

We “purchased” the stock in May, 2010 just above $6 a share. It ended the year with a 50% loss. Out of curiosity, I looked up the price yesterday. I’m embarrassed to say Coldwater Creek is even further downstream.

With a stock price of $1.25, and revenue falling by double-digit percentages, this company easily qualifies for our “How Would You Save [company name]?” series. Where did we go wrong?

Marketing Investment
Back then, we were impressed with Coldwater Creek’s increased marketing spend in the fourth quarter of 2009, a big gamble. Little did we know it would subsequently CUT spending across all of 2010. For God’s sake, CWTR reduced the number of catalogs it mailed to customers by 10% !

Channel Management
We cheered the company’s progress in raising sales by 20% in Q4 2009 via catalogs and the Web. Little did we know, this momentum would be the biggest lost opportunity an apparel retailer in the modern day could suffer. Direct channel sales DECLINED in 2010.

Brand Management
We applauded Coldwater Creek’s decision to limit its constant price-off posture. Little did we know it would keep prices high for clothes that female customers would reject, calling them “matronly.” Oh dear.

The company knows it is DEFCON 1 time. Here is what it said in the 2010 annual report:

“We recognize that we need to reposition the Coldwater Creek brand and communicate to our customer that we are changing.”

Well, then, where is the DEFCON 1 response? Here we are in July, and nothing much at all seems to have changed about this brand.

Hard to imagine the lights going out on a $1 billion company, but take a look at Talbots for a reference on the brutality of the women’s apparel business. Roughly the same size company, fighting for its life.

There better be something magical in the water, else Coldwater Creek is going to run aground.