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Tuesday, December 1st, 2009

What Everybody Ought to Know About Promotional Marketing

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I had the good fortune to ask 20-year Promotional Marketing pro Kent Rippey to break down how promotional marketing works.

Don’t let the silly photo fool you — this guy has helped the largest companies in the world nail promotional partnerships.

Promotional Marketing Pro Kent Rippey

Promotional Marketing Pro Kent Rippey

Here’s the Q&A:

Q: Hi Kent. Here’s a lob ball question to start us off:

What is “promotional marketing?”

Promotional Marketing (A.K.A. “Promotions Marketing” or “Partnership Marketing”) has two main executions.

1) Promotions or Promotional Marketing refers to using a sweepstakes, contest, game of chance or some similar mechanism to attract significantly more attention to their product, service, company than if they simply did standard marketing practices (primarily using advertising – to their distribution system (b2b), or the end user (b2c)).

2) Partnership Marketing involves the marriage of two basic principals:

A) A company with an “exciting” brand or property (think of a movie or video game release, or a current technology product that is “in-demand”, like a TV, MP3 player, or eReader) that always needs additional exposure over and above what their marketing spend will allow, combined with

B) An unrelated company or product with a similar demographic, a marketing budget of their own, and perhaps a “less exciting” marketing message (think basic household items) that could use some “excitement” to bring their brand or property to life.

Q: What are the main benefits to a business that uses promotional marketing?

The idea of Promotional and Partnership Marketing are the same – trying to combine the “power” of two marketing powerhouses to create a powerful message for each.  For the “exciting property-holder”, they will get a dramatically higher amount of exposure for the property.

For the other company, it usually is the association and the concurrent promotion (i.e. sweepstakes) with the exciting property that they are seeking.  Both sides win.

Q: What’s an example of promotional marketing using real-life companies?

Things you see every day – a beverage and a video game company get together, and the video game title is highly anticipated.

The beverage company negotiates to do a promotion of some sort using the video game title and is allowed to put the game’s cover art on millions of cans and bottles.

In exchange, the video game company allows the use of the art, provides some sort of prizing, and perhaps includes branding for the beverage into the game itself.

When all is said and done, the campaign kicks-off on a strategic date (release of the game) and both brands/companies see the benefit of increased awareness, press, and hopefully sales.

The things you can’t see – such as increased consumer perception of the brand or property – (hopefully) follow suit as well.

Q: What are some tips on how to build a world-class email list using promotional marketing?

Very simple: consistency and promotions!  Building a loyal fan base takes time – and I don’t mean a year (as some budgets won’t allow), but indefinite commitment.

Building trust, consistency of offers, getting your customers involved, and let’s face it – excitement – is what draws and retains fans of your brand property or company.

These days, we are seeing similar trends in social media, so budgets have to allow for these types of campaigns on sites like facebook and twitter as well.

Q: What are the main promotional marketing tools you use?

The most common are advertising (TV / radio / web / print etc.), on-pack (actually on your retail display box / carton / point of purchase display material), email lists (both yours and the partner), and social media (facebook, twitter, etc.).

Others used can involve launch date events, sampling, and other interactive tools.

Q: How does a business go about finding promotional marketing products to include in a deal?

Be realistic.  Evaluate your product or service and do some real research to determine your audience.

Consult someone with an extensive network of contacts to determine your goals – do you want to target a new audience for your product, or simply increase loyalty and market to those who are your current users?

This will determine who to go after and what types of products will make the most sense to partner with.

Q: Does money have to exchange hands in a promotional marketing deal?

Again, being realistic is key: it totally depends on what you have to offer.

If you want to tie in with a blockbuster film, be prepared to hear “no” from a studio or be prepared to pay for the privilege to be associated with the other partner.  It may be worth paying for in some cases.

Q: Is there category exclusivity in promotional marketing?

Most of the time.  While there are instances where it can’t be offered, one thing that is discussed early in conversations is exclusivity, and most of the time it is granted.

Q: Who is the hottest promotional marketing partner right now, and why?

There is no “hottest” partner, but you’ll see the same companies over and over.

The include entertainment properties, QSR (fast food retailers), beverage companies, cookie and cereal companies, and of course products that are the “it” goods of the time (think technology companies).

Hot partners are closely related with current trends as well as brand demographics.  You’d be surprised how many companies could have “hot” products with the right partnership and promotion.

Q: Do you have to be a large consumer packaged goods-type company to take advantage of promotional marketing?

You don’t have to be, but you have to be big enough to bring something to the table: advertising, promotional activity, social media, physical locations, on- package real estate, cash, etc.

Otherwise, the partnership will be lopsided and the partner that feels that they are giving much more than receiving will back out.

It’s my job to work with each partner to be sure that each is getting the maximum benefit from the program given honest and open parameters.

Q: Thanks, Kent. If someone wanted to utilize your promotional marketing services, how should they get in touch with you?

Send me an email to kent@riptidemedia.com – that’s the easiest way to reach me.

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Friday, November 27th, 2009

Which Web Sites Teenagers Like And Why

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I’m fascinated with how teenagers are using the Internet these days.

Teenage Internet use has reached 82% in the U.S. (for ages 12 to 17) and 43.5% of children ages 3 to 11 will use the Internet on a monthly basis in 2009.

That’s 32 million teenagers using the Internet regularly just in the U.S. — teenage Internet usage worldwide is likely more than 60 million.

My Niece Ruby, Me & Nephew Miles

My Niece Ruby, Me & Nephew Miles

I decided to do a very unscientific poll of teenage Internet usage: I asked my 18 year old nephew Miles and 15 year-old niece Ruby a set of very open-ended questions.
;)

Here’s the Q&A:

Q: What’s your favorite Web site?

Ruby: StumbleUpon. We did it last night…we were too lazy to find a site ourselves.  You can stumble upon art for instance.

Miles: I don’t have one…except ThemThangs.

Q: Do you use blogs?

Ruby: I use a lot of blogs…for photography and art. I can’t name any but I use them all the time.

For example, when I searched masquerade pictures on Google recently, I found blogs listed.

Miles: I don’t have one…but I sometimes read them.

Q: How do you feel about Facebook?

Ruby: I hate that it controls people’s lives. I’m only on it when my friends don’t have phones — because they will send me a message via Facebook instead…so then I check it.

It’s always in every conversation…you can’t avoid it. We were walking down the street yesterday and this girl said: “Did you get any turkeys in Farmville” (Farmville is a game on Facebook).

Someone was at school and said they had to go home cuz they had four turkeys in the oven.

Miles: I hate it…but everyone does it so…I guess it’s ok. I have one (a Facebook page).

Q: How do you feel about Twitter?

Ruby: I know people use it but I don’t have one. Not many kids use it.

Ruby: Some people get carried away with it…people use it to say that someone wrote an article…and that’s useful. And you can do it by phone so that cool.

But I heard about a husband tweeting about what he was eating for dinner….and that’s ridiculous.

Miles: I don’t use it…but I’ve heard people refer to it — I can see how it’s useful. Some of it is cool but I’m sure most of it is bullshit.

Q: How do you feel about MySpace?

Ruby: It’s life consuming for people but not essential — kind of a waste of time. Some friends use it to get in contact with bands.

One thing I’ve noticed is that the term “MySpace picture” is a new term” that kids use these days…if someone is taking a picture of themselves with a friend, they call it a “MySpace Picture” (even though the picture is not just for MySpace (it may be for Facebook)).

Miles: It’s outdated. The MySpace era ended…because of Facebook. People had MySpace’s and suddenly their headlines started saying: “Go find me on Facebook.”

I think Facebook is more innovative than MySpace…and it’s easier to use.

However, I like the creative side of [using] MySpace — they allow you to be more creative.

Q: How do you feel about Google?

Ruby: I like it. It’s very easy to work. Very efficient…and a lot of pictures.

Miles: It’s cool. Basically, anything I type in there I can find. Even with videos, there’s a video for every thing.

If I’m trying to look for song lyrics, for instance, I can type a variation of it and find it.

Q: How do you feel about Microsoft?

Ruby: That’s what Apple doesn’t run on, right? The one Bill Gates started, right? I don’t really like it — it’s not efficient. Too hard to work.

Miles: I don’t really use it at all. Earlier today, I said I wanted an xBox…and that is the only product from Microsoft that I want.

The only thing I currently use by them is Microsoft Word.

Q: How do you feel about Apple?

Ruby: I like it…though it’s frustrating that they come out with new things so often like the iPods and computers — it’s frustrating because you always want the new one.

It feels like it’ll never stop.

Miles: I like it a lot. Their products are all very cool-looking and simple…all state of the art and sleek.

Their computers are so easy…you just open it and use it. It’s very attractive.

With PCs, it’s very 90′s…shitty. If you’re all fried out on a computer, the Mac is easier to deal with than a PC. It’s more visually appealing.

Q: How do you feel about Bing (Microsoft’s new search engine)?

Ruby: I hate it. My school computers converted to it. The default search is Bing but I can’t stand it so I change it to Google. I’m so used to Google…Bing is hard to get used to.

Miles: I’ve seen the TV commericals about it…where they claim Google is random and inaccurate and Bing is more accurate. I don’t believe that.

The image search on Bing is not as easy to use. Google does just fine.

Q: How do you feel about Ebay?

Ruby: I’ve been using it…because I’ve been wanting some used things like clothes. If I had money, I’d buy these things…but I’m broke.

The two things I use it the most for are camera and clothing.

Miles: I used to use eBay but it’s frustrated when you are bidding on a product and then someone else wins with a skyrocketed price.

I prefer Craigslist.

How do you feel about Craigslist?

Ruby: I like it. I go on it for bikes…if I was going to buy a bike, I’d use it. But, again, I don’t have enough money.

Miles: It’s cool. I use it a lot to look at people selling bikes.

It gives me an idea of stuff I’d like to buy…price ranges for different things.

I like it more than eBay because you don’t have to bid…I can just meet a guy and get it.

How do you feel about Blackberry?

Ruby: I got mine awhile ago…the night I got it I got really mad about it because it made me like everyone else.

[my sister (her Mom) interjects at this point and says: "You can sell your BlackBerry then." Ruby replies: "No, I do want it!"

Miles: For work and stuff it seems fine. It's sort of a fashion thing for the girls I know.

Guys I know seem to prefer iPhones. I don't understand Blackberries for teenagers.

I just don't think you need [a smart phone]; plus they’re pricey…and I think they’re too distracting (for teenagers)

How do you feel about Wikipedia?

Ruby: I don’t trust it for English or History classes because the information can be false…but I use it for some other things.

Miles: I like a lot. I know people say everything’s fake…sometimes it disappoints me when I’m looking for something basic but most of the time I can try anything.

I like how some things are highlighted in blue…it’s referenced to another page — that’s a fun way to learn about stuff.

How do you feel about Digg?

Ruby: I’ve never heard of it.

Miles: What is it?

How do you feel about Yahoo?

Ruby: I used to use it for horoscopes and that’s it. I’ve never had a Yahoo account.

Miles: I don’t use it very much. I know people who do…but basically I was raised using Google as a search engine.

How do you feel about YouTube?

Ruby: I use it a lot…cuz I don’t have money to buy iTunes songs so I just watch the music videos on YouTube.

Miles: I like it a lot. It’s getting to the point where it’s like Google…you can type in virtually anything and it’s there.

Type in “How To,” for example, and you can find options for how to do anything. I’ll find myself on YouTube for hours.

I’ve figured out how to do math homework using it…people explaining equations.

And there’s crazy footage of accidents and other weird stuff.

Also, if you don’t want a buy a song on iTunes, you can just type it into YouTube and listen to it.

How do you feel about iTunes?

Ruby: I like it. It’s too over-priced though. They changed the songs to $1.29 and that’s too much…I’d rather buy a CD and upload them.

Miles: iTunes is cool. They just recently made it all new. I don’t like that as much maybe cuz I’m used to the old way.

But they don’t have everything…I understand how some bands just don’t put their songs on iTunes (like the Beatles).

But I’m really against downloading music online…because it’s totally killed record and CD-buying culture.

How do you feel about Amazon?

Ruby: It’s good for things you want cheap and don’t mind if they’re used. It’s a good site.

Miles: Amazon is cool…but I don’t use it cuz I’m not sure how it works. Is it just people like you and me selling stuff or real companies? (I told him both).

How do you feel about Flickr?

Ruby: A lot of my friends use it so I look at it when I’m at their house.

Miles: I like it…I don’t know how to work around it very well. Often times I’ll find myself on there because I found something on Google Images and I clicked on it.

Often times I find myself on there by mistake…but I still like it.

How do you feel about LinkedIn?

Ruby: I don’t know what it is.

Miles: I don’t know what it is.

How do you feel about AOL?

Ruby: It’s like Yahoo, right? A copy, right? I don’t have an account.

Miles: I don’t use it whatsover. Sorry. Is that a search engine also. I don’t know what it is.

If you owned the name Purchase.com, what would you do with it?

Miles: It sounds like another CraigsList or eBay or Amazon. It sounds like some place where you can buy stuff…but that’s sort of boring.

Or, what could be cool to give you a list of Web sites that are available for business-people to buy: Web sites people are trying to sell.

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Tuesday, November 24th, 2009

Thought Leadership in Business: The Top Ten List

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I met a woman recently who’s focusing her career on Thought Leadership…and then I ran into this terrific Thought Leadership poll out of the U.K that happened to be released today.

Coincidence? I think not. ;)

So I thought I’d do a short posting on the subject.

The poll is from TLG an Populus and you should click here to follow up on more details of their poll or their services: TLG Blog

TLG defines effective Thought Leadership companies as ones who can help change consumer behavior to generate positive social outcomes. Here’s another definition from WikiPedia: Thought Leadership definition.

And here’s their list:

[it's neat to see relatively new entrepreneurial thought leaders (such as Facebook and Twitter) so quickly joining the list of other heavy-weights]
Top 10 Business Thought Leaders 2009

The top two were:

1. Apple (up from #2 last year)

2. Google (down from #1 last year)

…then there was a three-way tie for 3rd:

3. Microsoft (unchanged from last year)

3. Amazon (new to the list)

3. GSK (unchanged from last year)

two companies were tied for 6th:

6.  Co-operative Group (down from #4 last year)

6.  Marks & Spencer (unchanged from last year)

…And these three rounded out the list

8. Facebook (new to the list)

9. Virgin Group (slipped from #5 last year)

10. Twitter (new to the list)

The Thought Leadership Index also ranks non-profits and I’m not suprised that the Bill & Melinda Gates Foundation ranked #1 in that group.

3 comments so far (is that a lot?) | Continue Reading »


Monday, November 23rd, 2009

Why The Home Page Is Dying & What To Do About It

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The homepage used to represent the online focus of a brand, establishing the point of first contact for the consumer and allowing the company to establish a digital presence.

This is no longer the case.

With increased fragmentation among traditional media channels and even within the content itself, companies must adapt new strategies to best suit the ever-evolving online world.

Given the number of web properties available to consumers, they are now more likely to land on a company web page from another web destination.

Thesis Author Daniel Neukomm

Thesis Author Daniel Neukomm

In fact, as of 2008 75% or more of corporate web traffic originates from a source other then their own homepage (Schmitt, 2008).

This is largely due to the emergence of Blogs, Social Sites, Search and RSS feeds as primary feeder points for almost all information on the web (Schmitt, 2008).

One important implication of this is the decline in premium pay sites, such as Times Select.  This was dismantled in 2007 as a result of the overwhelming traffic it was generated stemming from large numbers of links from blogs referencing articles.

According to paidcontent.org, they walked away from nearly $10 million in annual revenue to refocus their revenue generation strategy around advertisements rather then subscription service.

While this trend is affecting all brands none are as adversely impacted as major TV networks that are desperately trying to lock in content distribution deals with video portal sites such as You Tube and Yahoo! Videos.

While TV networks are leading the charge away from homepages, largely due to the increasing demand for more instant and relative info, companies will most likely not see the return of the homepage in the near future if ever.

Digital marketing agency Razorfish reported at the end of 2008 that more then 70% of consumers originate their web experience from a search portal, while 60% start form customized start pages and 56% from RSS feeds.

Given the decline of the homepage, there are four important implications for marketers which must be considered:

1) Traffic Distribution Metric

This key metric should be established to measure all traffic in (via search, referrals, or direct) and out of the homepage in light of the various points of origin prior to, and destinations after landing on the homepage.

Razorfish suggests that a key benchmark is 65% of all traffic ending up on pages other then the homepage itself should originate from places other then the home landing page.  This standard has been adopted as the norm for socially savvy websites and will quickly become the standard in which to compete for traffic.  (Schmitt, 2008)

2. Every page is the homepage

Due to increased access to all pages on a site stemming from fragmented points of origin, each page must be treated as if it is the primary landing page.

More specifically, there is an increased chance that consumers will land on any page within the site due to referrals, blogs and search, so greater attention is needed to ensure that the consumers first point of contact with the brand is clean and well presented.

The clarity of content and access to other aspects of the site should be accessible on all pages. (Schmitt, 2008)

3. Web 2.0 Toolbar

Given the need for content distribution, all pages should incorporate a toolbar that facilitates viral distribution.

Applications that enable such mechanisms include Digg and Reddit and should also be used to distribute video content if available to sites such as You Tube and Facebook, broadening the scope of reach as much as possible.

Linked content appears higher on Google powered search results then non-linked content further justifying this web 2.0 integration.(Schmitt, 2008)

4. Performance Tracking

Measurements of success are now dictated by so many different syndicated content locations that it is important to measure the success of websites from all angles. Emails, Applications, downloads, blog links and search results all occur off site but are still valuable in determining and segmenting ROI. (Schmitt, 2008)

As online media becomes more inherently dynamic and new channels emerge, the strength of the homepage will be continually diluted.  As such, markets must adapt to newer, more disruptive consumer behaviors and expectations.

Increased media channel fragmentation driving the decline of the homepage can be attributed to the rise in search and social media.

The combination and power of these two channels is driven by the rise in user-generated content flooding the web – this will only continue as consumers develop increased comfort with technology as it becomes cheaper, faster and more accessible.

How will your company adapt to the new digital landscape?

Note: The above is an exercpt from a thesis written by Daniel Neukomm.  A source for the excerpt was Schmitt, G. (2008). “White Paper: Does the home page still matter? Why distribution trumps destination for publishers and advertisers.” San Francisco: Avenue A Razorfish.

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Monday, November 16th, 2009

What is Affiliate Marketing? — Tips From a Veteran

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Pam White has helped affiliates sell millions of dollars of  products…and those sales were made at little risk to the affiliate marketer’s she managed, as they were primarily performance-based (they didn’t layout any cash until the products were sold!)

She generously agreed to answer some questions to help us understand the affiliate marketing business.

Q: Welcome, Pam. A lob-ball question first: What is online affiliate marketing?

A good description, I believe, is “selling other people’s stuff” on the Internet and receiving a commission for doing so.

Affiliate Marketing Expert Pam White

Affiliate Marketing Expert Pam White

Q: If you’re a business, and you have products to sell, how do leverage affiliate marketing?

Determine the financial benefits of handing over the marketing expertise of a “staff of affiliates”, versus the cost of marketing the product through your own marketing department’s expertise.

Does the competitor have an affiliate program?  Maybe you should consider it as well.

Q: If you want to run a business, but don’t have any products of your own, how do you leverage affiliate marketing?

1. Learn all you can about affiliate marketing – in general.  SEO, PPC, etc.

2. Research products or services of which you have expertise and are passionate about.

3. Analyze keywords and quantity of searches performed for the   niche.

4. Realistically analyze your budget and ROI goals

Q: You mentioned earlier that the top affiliate marketing programs are offered by Commission Junction (CJ), Sharesale and LinkShare — please tell us more about each of them?

Commission Junction /LinkShare/Shareasale and many other networks, contract with hundreds of merchants selling products, and for a fee, handle the management, tracking internal listing of the Merchants Affiliate program.

Those interested in joining an affiliate program within the network can peruse the various products offered once they have completed the signup and approval process.

Generally speaking, however, the affiliate must have a domain name and website or blog to be approved to sell the merchant’s product.

Q: You also mentioned, that if you’re selling a service you can utilize Clickbank: how do you make money with Clickbank?

Clickbank is similar to CJ, in that there are several merchants listed in the Clickbank Marketplace and you can choose which products you wish to promote.  With most merchants offering up to 75% commission per sale, it’s very popular for those wishing to sell digital products or membership site offers.

Q: What’s the “Clickbank Elite”?

Clickbank Elite is a program sold by a 3rd party merchant that extracts the “hot” selling products at Clickbank as well as cloaking the Clickbank generated hoplinks.

Q: I understand that Google has entered this space — what are your thoughts on the Google Affiliate Network?

I must be honest and say that I’ve not had the opportunity to search their offers or speak with any Merchants who are currently using the Google Affiliate Network.

Q: Speaking of Google, I hear stories about affiliate marketers who receive “Google slaps” — What’s a Google Slap?

A Google Slap occurs when Google views your website’s content and the Adwords keyword used to drive traffic via that ad to your landing page as not relative, or of poor quality.

This will result in an increase in your PPC costs to as high as $10.00 per click.  Additionally, your page rank, and thus your Quality Score, will be adversely affected.

Q: How do you avoid getting Google-Slapped?

Consider the keywords you are bidding on and the landing page and Adwords Ad group to make sure that they all “relate” to the content on the landing page as well as offer value to the visitor.  Be sure the page has adequate “original” content.

A great place to learn all the basics of Google Adwords is from the Google Adwords Learning Center. You can also view the Youtube videos published by Google.

Q: I hear that Pay Per Click (PPC) is key to affiliate marketing — would you elaborate on that, including defining a PPC Affiliate?

A Pay Per Click affiliate bids on and pays for each click on his targeted Sponsored ad at Google, Yahoo, Bing or any PPC network.

PPC is the key to gaining an immediate presence for your brand or campaign in the search results.

Q: What do you consider to be the best affiliate marketing program of all time?

I don’t know that I’m qualified as an expert on that question, so I’ll go with Amazon, since they were one of the first to enter the space.

Q: Who do you consider the best affiliates in the marketplace?

Not to hedge that question, but “the best” I believe, would be relative to the vertical.   Best CPA, Best CPL, Best CPM.  I haven’t worked in all those verticals.

Q: What’s a super-affiliate?

Again, this is relative to the vertical.  A “super-affiliate” may be an individual, an agency, or a network.  It’s any affiliate that has the ability to drive high volume sales (consistent with the niches expectations) which outperform the “average” amount generally produced over a given period of time.

Q: What’s the best way to recruit super-affiliates?

Network, know the competition, review who is the top PPC advertiser in your niche, identify them through various online tools, contact them, present your offer and metrics and invite them to join your program.

Q: What’s the best way to learn affiliate marketing?

Forums, Blogs, E-books, Industry leaders, Google Learning Center, Articles, Mentors, Coaching programs, trade shows like Affiliate Summit. Twitter, Facebook

Q: What’s a good affiliate marketing website to check out for beginners?

Affiliate Tips owned by Shawn Collins, who is also the co-founder of Affiliate Summit.

Q: In our last conversation you mentioned ABestWeb.com — would you describe the affiliate marketing forums they provide?

Basically, almost any network you choose to join will have a corresponding forum at ABestWeb where you can discuss openly any issues, complaints, questions, or accolades you wish and have it viewed and answered by a moderator/associate of that particular network.

Q: Thanks for sharing your perspective, Pam. If someone were to want to get in touch with you, how might they do that?

You’re more than welcome.  Those who wish to reach me may do so by contacting me at my e-mail address pam.white@gmail.com.

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Tuesday, August 25th, 2009

Tips on Striking Business Partnerships

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You likely need partnerships to grow your business.

Here are some tips I’ve used to close partnerships with such companies as Disney, Microsoft, Sprint, Sony Music and NBC.

  1. What’s Your Endgame — As Stephen Covey says in The 7 Habits of Highly Effective People, start with the end in mind. Imagine the press release you would like to announce your partnership – be as specific as possible.
  2. Establish the “What” before the “How” — Make sure to be clear with yourself and partner on “what” it is you’re both trying to do before you dive into the how. An example of a “what”: you may want traffic from your partner’s Web site to your own; and they may want you to pay them to advertise on their Web site. An example of a “How” would be: Your partner will put a link for your Web site on their Web site.
  3. Those Who Listen, Win — Don’t talk too much: focus on your partner’s challenges.
  4. Ask A Lot of Questions — As I pointed out in my article on Spin Selling, ask a lot of questions (especially about what your partner’s objective is). A favorite question of mine is: “What’s your biggest challenge?”
  5. Be Direct & Honest — Don’t beat around the bush. Be as honest and direct with your partner on what you want as possible.
  6. Determine the Fit First/Business Model Later — Focus on getting to know each other and finding the partnership fit first, before you get caught up in negotiating. The business terms will be much easier once you’ve fallen a bit in love as partners.

Best of luck!

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Friday, July 10th, 2009

How to Use Marketing Analytics

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I had the good pleasure of sitting down with Anup Samanta recently.

Anup worked for Mojam (the company I co-founded) early on in his career. He’s gone on to an interesting business journey that included Discover Financial, Lycos, MyPoints and Navistar.

Analytics Pro Anup Samanta

Analytics Pro Anup Samanta

Anup specializes in analytics and he and I decided to do a question and answer session on the topic of Marketing Analytics

Hi Anup. First off, what is the definition of Marketing Analytics?

Marketing analytics is primarily a data-driven function that extracts, validates, understands and reports on the quantitative data points generated from market-facing tactics to not only measure the performance of those market-facing tactics, but to also forecast sales demand across multiple channels being used by the brand to acquire and retain customers.

What are the top paid Marketing Analytics tools out there?

Every company has internal systems that aggregate different categories of data. It is important for market analysis managers to understand the data infrastructures of these internal systems.

Microsoft Excel, SPSS and SAS are generally adaptable and flexible marketing analytics tools that can handle huge volumes of data, regardless of the derivation of the data point.

There are also industry-specific data sources that can help supplement the integrity of reports created by the market analysis manager.

What are the top free Web analytics tools available?

There are several free Web analytics tools available. I use Google Analytics, Feedburner and ShareThis to track site performance metrics of my Stratelysis blog.

And I am happy with the ease of use these Web analytics tools.

I notice a lot of Web searches on Google Analytics, Thomson Analytics and Siebel Analytics — what’s the difference between those three?

These tools are very different as they serve different industry players and have various levels of complexity, but are similar as they deliver a data-driven solution to assess business or functional actions.

Google Analytics enables website managers to track site performance metrics to make decisions on how to better engage visitors.

Thomson One Analytics enables clients to track the performance of financial markets to make better decisions on how to allocate their money for maximum returns.

Siebel Analytics (Oracle Marketing Analytics) allows an organization understand marketing return-on-investment (ROI) by reporting on customer preferences, purchase behavior and segment profitability to drive profitable revenue and build brand.

Do you need separate tools for Web Site Analytics versus Search Analytics versus Email Analytics versus Mobile Analytics versus Video Analytics, etc.?

About ten years ago, brands allocated a larger piece of their marketing budget for offline than online tactics. Within the past five years, that allocation has shifted, especially as mobile, Web 2.0, video and photography technology have not only greatly approved, but rapidly proliferated.

The pace of technological growth has fundamentally outpaced our ability to understand the data coming from the technologies. Large agencies that execute multi-channel campaigns are aligning with specialized boutiques that focus exclusively on one, two or all of the online technologies listed above (Here’s an interesting Internet Companies & Ad Agencies article on this).

Based on media mix shifts and existing agency structures, clients must depend on separate tools for online analytics.

And I know you’re into social media — what are your thoughts on Twitter Analytics or Facebook Analytics?

I know that a lot of good work is being done on Twitter and Facebook analytics. It’s important to take a step back to understand the metric of success for a brand marketing itself on these sites.

For Twitter, is it about acquiring twenty followers a day? For Facebook, is it about targeting someone with 500 friends, fifty percent who provide status updates about beer?

In addition, qualitative customer research must be done to optimize the site layout so users are not only engaged with the activities of their followers and friends, but experience an advertisement and buy a product.

A suboptimal online marketing strategy is one where the brand engages the target customer via Twitter or Facebook, but has fewer incremental online sales versus a baseline online strategy where Twitter and Facebook aren’t deployed.

Brands and agencies that can figure out how to monetize social media will be the marketing gurus of our future.

Where in the org chart do you recommend Marketing Analytics reside (in the Marketing department or a separate Analtyics department)?

Marketing Analytics should report into a Marketing Business Intelligence or Customer Intelligence team that reports up to the Chief Marketing Officer or Vice President of Marketing.

Where’s the best place for employers to go to post marketing analytics jobs?

Employers should visit my alma mater to post marketing analytics jobs: The Medill Integrated Marketing Communications program at Northwestern University teaches a very customer-centric, data-driven, integrated marketing approach to its students, anticipating a new way on how stakeholders interact with brands.

About 80 students graduate from this program each year.

If someone wants to get in touch with you, what’s the best way for them to do?

Please visit my my Stratelysis blog and contact me through there.

Thank you, Anup!

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Sunday, May 10th, 2009

A Simple Formula For How Much to Pay for a Customer

17 Comments

I’m going to give you a formula to determine how much you should invest to acquire your typical customer.

I call it “Desired Customer Acquisition Cost.” I also saw it referred to as “Allowable Acquisition Cost” in Ready, Fire, Aim: Zero to $100 Million in No Time Flat, an excellent book I recommend by Michael Masterson (I borrowed a couple of his ideas for this article!).

Note: I’m going to write a separate article on customer acquisition strategies, customer acquisition programs, customer acquisition networks and the overall customer acquisition process — please come back for those!

How Much is Your Customer Worth?

How Much is Your Customer Worth?

Ok, on to your Desired Customer Acquisition Cost.

For starters, you’re going to need to do a few calulations of your own…don’t worry about having the perfect answers — just give it your best shot!

Calculate Your Customer Lifetime Value (aka Gross Sales Per Customer)

You need to estimate the lifetime value of your customer.

Let’s first define customer lifetime value. It is how much a customer will spend with you for their lifetime (i.e. the total number of products they buy from you over time multiplied by the price of each product).

If you’ve been in business already, you might know your Customer Lifetime Value. In fact you could simply divide the total amount of sales you’ve had since you began by the total number of customers you’ve had).

If you’re in a new business, I suggest you research competitors or other similar companies to yours to get a sense of their lifetime value.

For now, if you don’t know what your Lifetime Value is then you could use the range I use: where Lifetime Value is typically about 2X to 6X the price of the first product your customer typically buys from you.

For example, if you customer is likely to pay around $50 for the first product they buy from you, you could expect the lifetime value of your customer to be anywhere from $100 to $300.

Where’s the 2X to 6X range come from? That’s just my experience with businesses I’ve seen. Remember, your business and others can be very different.

Sidenote: If you are selling a subscription-based product (e.g. Netflix, DirecTV, Sports Illustrated) as your first/primary product, then your lifetime value is going to be very different. The lifetime value of a cable/satellite customer may be 10 to 40X the first month’s price since they are likely to stay with their service for a few years (i.e. 10 to 40 months).

We’re going to use a Lifetime Value of 3X for this exercise.

Obama’s Lifetime Value

Let’s pick a fictional company to make this easier…we’ll call our pretend company Obama Enterprises (they sell a set of information products on how to become the next President!).

Obama’s flagship product is a $50 DVD that he’ll ship you on the basics of what it takes to be Mr. President; he has more expensive products that he sells you on the back-end.

So, let’s use $150 (3X the price of his first product) as our Lifetime Value.

Calculate Your Refunds, Cancels, Bad Debt, etc

If your business is like most, your customers will cancel or request refunds, or simply not pay you.

This varies by industry and by business.

For Obama Enterprises, we’re going to assume that 10% of the sales will be refunded, canceled or otherwise just not collected as cash we keep.

So, Obama’s Refunds & Cancels is $15 per customer (10% of $150).

Calculate Your Cost of Goods Sold

First off, most people who know what Cost of Goods Sold is call it “COGS” (sounds cooler, right?).

Here’s the COGS definition:

  • The materials cost used in creating the goods plus
  • The direct labor costs used to produce the goods

Note: COGS excludes sales, marketing and distribution costs.

COGS varies by industry but are typically in the range of 20% to 50% of the price of your good.

For example, the retail industry is known to mark items up by 100% so in essence their COGS on a $20 shirt is 50% or $10.

In the Software or Internet industry, the COGS is very low (typically just 20% of the sale)…for example, if Microsoft is selling you a software product for $200, it likely only costs them $40 (20% of that) to create/produce.

Since the COGS for Obama’s video product are pretty inexpensive (Discs, box, etc.), we’re going to use 20% of $150 (or $10) as his COGS estimate.

Calculate Your Overhead Costs

Let’s define overhead cost: It’s simply all the costs that are NOT associated with any specific business activity we mention in this article.

Examples of Overhead costs include: Payroll (All Payroll except that included in COGS), Insurance, Rent, Utilities, Legal, Accounting, Travel and Entertainment.

Again, you’re going to have to research your business’s math (or that of your industry if you’re new), but a good rule of thumb is that Overhead will eat up about 33% of your Sales or Lifetime Value (most of this is due to your labor costs).

So, Obama’s Overhead costs are about $50 (33% of $150).

Now, the only other cost we haven’t covered so far is the Customer Acquisition (or Marketing) cost…we’re going to skip that for now as that’s what we’re trying to determine.

Calculate Your Desired Profitability %

Let’s skip to how much profit you want.

Profit is how much money you want to keep after all expenses (except taxes) are paid…you know it as the “bottom line” (Google and Microsoft tend to keep a profit of 20% to 30% while other businesses are more modest with a profit of 5% to 10%).

Obama’s people are not greedy, so we’re going to pick a profit goal of 10% for Obama Enterprises.

So, Obama’s Desired Profit is $15 per customer (10% of $150).

Ok, now for the good part. Here is how you calculate your Desired Customer Aquisition Cost:

Desirable Customer Acquisition Formula =

  • Lifetime Value minus
  • Refunds & Cancels minus
  • COGS minus
  • Overhead minus
  • Desired Profit

So the formula for Obama’s customer acquisition is:

  • $150 Lifetime Value minus
  • $15 Refunds & Cancels minus
  • $30 COGS minus
  • $50 Overhead minus
  • $15 Desired Profit

…And thus the amount Obama can spend to buy one customer, drumroll please, is…

= $40

And There You Have It (Your Desired Customer Acquisition Cost)

So, if our assumptions are ballpark-accurate, Obama can go out and spend an average of $40 to acquire each customer who buys his $50 DVD product, and still have all his expenses paid and a desired profit of 10% of all he sells.

For example, he could offer to pay you $40 for each customer your Web site sends over to his…and if you sent him 1,000 customers, he would gladly pay you $40,000 (1,000 times $40) because he would eventually receive about $150 in Lifetime Value from each of those customers and eventually receive a profit of $4,000 (the 10% Desired Profit he calculated) on his partnership with you.

Caveat here (which you probably already figured out):

Since Lifetime Value is over time, Obama has to make sure that he has the proper cash flow to afford to pay all bills while he earns the lifetime value for customers.

That’s called “Cashflow” or “Working Capital” and it has to wait for another day!

Though, if you want to improve your creditworthiness (so you can get better/larger loans or credit card limits), you should read How to Boost Your FICO Score.

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