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Social Media and the Power Differential

Social media has radically altered the power of advertising and marketing companies.  With the rise of social media, consumers’ power has increased.  Through blogs, product reviews, Twitter, YouTube and other sites, consumers can voice their feedback and they have an authenticity that often carries more weight with consumers than the companies’ own marketing and advertising.   I know that I carefully read product reviews when contemplating a purchase, whether it be a book on Amazon.com, a shirt from LL Bean or a hotel room in Hawaii.  It used to be that feedback was provided by word of mouth or direct contact with a company.  Now one good or bad review can be seen by a multitude online.

This shift has diluted companies’ power to direct their message and required that they be more responsive to consumer feedback.  Just yesterday a friend told me that he provided a review on a purchase, noting that one of three products he bought did not work.  When he said as much in his product review, he was immediately contacted by the retailer and offered a replacement.  His experience is now business as usual for most companies.  The risks of not being responsive are now too great as one bad review can last a lifetime on the Internet.

At the same time, social media has given companies a channel that enables them to integrate their messaging and engage their consumers.  First, advertisers can now get more value from their mass media.  Ads seen on television have a much longer life now and potentially more power.  They can be seen on websites and YouTube as well as integrated into online campaigns.  Second, consumers can now engage with companies by suggesting and even sometimes creating their own ads, posting their pictures which are then included in ads, etc.  Or they can simply indicate their brand loyalty by becoming fans on Facebook.

While social media has forced companies to be more responsive and in tune with the needs and wishes of consumers, it has also given them a channel by which to communicate more effectively one to one.

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Success in the workplace

The recent discussions about parents promoting academic achievement had me thinking about what it means to be successful in the workplace.  In case you missed the Wall Street Journal’s article, “Why Chinese Mothers Are Superior”, let me briefly summarize.  Amy Chua writes about how she restricts her daughters’ activities (no sleepovers, play dates, school plays, TV or computer games) and requires that they get all As in school, be the number 1 student in every subject except gym and drama, and that they play only the violin or piano.  Her point is that parents who raise successful children stress academics and tenacious practice.

However, what is the effect of promoting academic skills at the detriment of social skills?  During play dates, sleep overs and other extracurricular activities, one learns important skills as well.  Most workplaces require that you work in teams and to be successful you must be able to collaborate and work well with others.  That means you need to be able to understand and deal effectively with a range of personalities.   It starts on the play ground and continues during play dates and sleep overs.

Social skills are also needed outside of work.  For example, in business school I was assigned to a team of fellow students during my first semester.  There was no hierarchy but we had to work together to effectively learn and manage our considerable workload.  Since no one person had positional authority, one needed persuasion, negotiation and hard work to insure that the team met deadlines, allocated tasks, and helped each other.  One of my proudest moments was when a team member asked me to edit a team paper because he thought it could be improved upon.  He valued my insight and recognized that I was an effective team player.  Even though I had not been assigned to write this paper, I would help the team out.

Stressing academics will result in educated individuals.  However, to effectively work well in an organization, you often need more than education and technical knowledge.

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To Groupon or not to Groupon?

Much has been written about the value of Groupon and its power to drive traffic to participating retailers.  The hope is that new consumers will try your store and buy additional items, above and beyond the promoted item or coupon threshold.

However, what if consumers come to your business and simply buy the item on offer?  The Wall Street Journal recently reported on a toy retailer that had offered $20 worth of merchandise for $10.  Most consumers bought just the minimum amount needed to redeem the coupon.  According to the Journal, the toy company lost money on 75% of its Groupon sales.  Further, most of the customers who used the coupon were existing customers.  While this is just one story, it is a cautionary tale.

It is important to drive incremental trips and often coupons, discounts, and loyalty reward certificates are an effective means of doing so.  However, it is also important that these trips at least break even.

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Trigger emails

One of my clients was asking for my advice about trigger e-mails.  If you haven’t worked with trigger e-mails then you may not be familiar with the ability to set up e-mails that are automatically “triggered” by an event.  There are many behaviors that can trigger an e-mail and below is a selection of the types of trigger campaigns you can develop:

1.  Welcome Campaigns

If a customer makes a purchase or registers on your web site, this is a wonderful opportunity to thank them as well as up-sell existing customers and convert prospects into customers.

2.  Birthday Programs

Why not surprise and delight your customers with a special birthday promotion.  You can send a promotion or special offer in the month of their birthday.  For one of my clients, this program consistently generates among the highest response rates.

3.  Specific Product Promotions

You can leverage past purchase behavior to let customers know about products that might be of particular interest to them.  Amazon is a great example of this.  Based on books I have previously purchased, I receive e-mails about books on topics of interest to me as well as e-mails about new books from authors from who I have bought in the past.

4.  Reactivation Campaigns

If it has been a while since a customer has bought from you, a reactivation e-mail may be in order.  The purpose of a reactivation campaign is to remind customers about your products and services and encourage them to become an active customer again.   This is your chance to win back a lost or inactive customer.

Trigger campaigns are one key element of your communication strategy.  They provide relevant content based on customer behavior and enable you to speak to the particular needs and interests of your customers.

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Evaluating a loyalty program

To be most effective, loyalty programs need to continually evolve.  Loyalty programs need to be regularly re-evaluated as customers, products and the competitive environment change.  Stagnation can cause a once valued loyalty program to be seen as old and tired.

To determine the health of your loyalty program, monitor its performance and perception.  The key performance indicators (KPIs) will be tailored to your program, your goals and your business.  However, there are four general metrics which are important for most programs:

1.  The time it takes to earn a loyalty reward

2.  The percentage of loyalty customers who earn a reward

3.  The percentage of loyalty customers that redeem the reward certificate

4.  The percentage of loyalty customers that take advantage of the program

A loyalty reward must be attainable.  If it takes too long to earn a reward, the customers may get bored and give up.  The appropriate time to earn a reward varies by your business and customer behavior.  That said, do not consider this a static number.  It may be that an average of 6 months was appropriate two years ago but 3 months is more appropriate now.

Similarly, if you have a program that requires a particular spending or mileage threshold, the minimum at which a customer receives a reward must be chosen carefully.  If you are a retailer whose median customer spends $250 per year and customers only receive a reward after spending $1,000 annually, very few customers will likely attain the reward.  If you want to encourage increased spending, you can always create tiers.  The basic loyalty membership level could be annual spend of $250 to $499 per year, the silver level could be $500 to $749 per year, the gold level could be $750 to $999 per year and the platinum level could be $1,00 or more per year.  Tiers encourage customers to strive to reach the next level.  Plus, it does not have to be expensive to add additional services for the higher tiers.  For example, you could e-mail platinum level customers in advance of sales or invite them to special in-store promotions.  However, customers must see the value of achieving a higher tier.  It is very easy to see the benefits of tiers when you see fliers with higher tier levels board the plane first or see the shorter check-in line for premier members.

The value that customers see in your loyalty program is evidenced by how many of the customers redeem the certificate.  In addition, if customers do not redeem the certificate then you have lost the revenue that would have been generated by the incremental trip.  Certificate redemption should generate revenue and continued loyalty to your brand.  If not, the loyalty program needs to be re-evaluated.

Finally, customers should be taking advantage of the program.  If not, you should be asking yourself why not.  Do customers not see the program as valuable?  Does my competitor have a better program?

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The value of a loyalty program

As I mentioned in my prior post, loyalty programs are a valuable tool.  They can help retain customers and companies can win greater share of wallet as a result.  If a customer can buy the same goods or services from multiple sellers, a loyalty program encourages customers to consolidate their purchases.  It might also create additional demand.  For example, a reward certificate can spur an incremental trip or customers may splurge in order to meet a spending threshold.

Another benefit of loyalty programs is the insight into customer behavior.  This has far reaching benefits.  Take the example of a retailer.  This customer insight can help both marketing and merchandising.  Using the data collected, a retailer can segment their customers based on past behavior so that they can tailor their messages and offers appropriately.  For example, marketers can use this information to personalize product promotions, cross-sell products and identify new customers that have the potential to become to best customers.

Further, this data will provide insight into what products bring new customers into the store, what products drive repeat purchases and what products are typically purchased together. Merchandisers can use this information to plan promotions and make buying decisions.

To be valuable, the data must drive actionable insights and be used to continually improve the loyalty program.  I will write about using data to evaluate the health of a loyalty program in my next post.

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Ins and Outs of Loyalty Programs

Loyalty programs can drive revenue and result in actionable insights.  Done properly, a loyalty program can foster customer retention, increase share of wallet, and drive incremental visits and purchases.  It can also provide valuable intelligence into customer behavior to help target promotions.

The currency of the loyalty program can vary.  Financial loyalty programs often offer preferred services based on tiers tied to the amount of your assets or investments with them.  Credit cards typically offer points based on purchases but the Discover Card gives cash back for example.  Shaw’s grocery stores and CVS drug stores offer discounted pricing on selected items, similar to coupons.  Airlines offer miles that can be redeemed for future airplane tickets.  Some retailers offer reward certificates after reaching a certain number of points.  For example, customers receive a $10 reward certificate at A.C. Moore after earning 200 points.

The goal of any loyalty program is to drive a specific behavior, typically purchasing goods and services or investing money.  Thus the program is structured to encourage incremental spend and increased share of wallet.  The program might award double points for purchases of $100 or more, causing you to splurge on your next purchase.  Alternatively, you might receive better service from a financial services firm if they hold all your assets because of the threshold amounts needed to attain various tiers.  Multi-tiered programs that airlines and financial services firms have accomplish this by providing additional benefits with each additional tier attained.

Loyalty programs must provide value to both the customer and the business.  Thus, the loyalty program must provide something to the customer that she believes is valuable but that is not too costly for the business to provide.  Not all customers will redeem their rewards and some rewards cost nothing so assessing the profitability of the program requires more than a back of the envelope calculation.  The trade-off must be considered carefully.  Make the reward too easy to attain and you may put at risk the profitability of the program.  If you make the reward too difficult to attain, customers may sign up initially and then drop out.   I have seen customers splurge to achieve the first reward certificate but they do not sustain that level of engagement afterward.  The program did not sufficiently incentivize certificate redeemers.

Lastly, you must also be careful that you have considered possible unintended consequences.  For example, it may be loyalty members are only buying discounted or low margin items in order to earn a reward certificate.  Once they receive their reward certificate, they may spend just enough money to redeem the certificate and no more.  Alternatively, cashiers might be scanning in their own loyalty cards or a dummy card when customers do not have a card or do not have their card with them.  Your loyalty program might be rewarding unprofitable customers or non-loyalty customers.

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“The report of my death was an exaggeration”

While Mark Twain was talking about his own death, there is another reported death that I am thinking about.  Back in January 2009 I included a quote about banner ads being the next direct mail.  I mean no offense to direct mail but the implication was that the value of a banner ad was diminishing.  The belief was that banner ads were being replaced by social media, which is a disruptive technology much in the same way that e-mail marketing has replaced direct mail in many industries and situations.  Direct mail still is a valuable channel but it is being used more selectively than it once was.

Well reports of the death of the banner ad might be premature.  A recent study by eMarketer predicts that banner ad spending in 2010 will be up 8.2%.

US Online Ad Spend Growth by Format (% Change)
Format 2009 2010 2011 2012 2013 2014
Video 38.6% 48.1 42.7 43.4 34.7 33.0
Search 1.4 15.7 8.6 10.1 5.9 7.0
Banner ads 3.8 8.2 6.7 11.8 7.7 4.8
Lead generation
-13.8		 5.5 6.6 8.4 7.0
Sponsorships -1.0 4.9 5.0 5.6 5.9 6.3
Rich Media -8.3 4.7 3.5 4.7 3.0 3.1
Email -27.9 -5.4 4.4 7.9 2.4 3.6
Classifieds -29.0 -13.1 -8.3 3.6 2.2 3.0
Total -3.4 10.8 8.4 12.1 8.9 9.3
Source: eMarketer, May 2010
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Privacy and Cookies

With the recent Facebook fiasco, privacy is yet again coming to the forefront of users’ minds.  As Scott McNealy said, “You already have zero privacy – get over it”.  And yet, we hope that that is not true.

On my personal laptop I restrict third party cookies and am selective about the sites from which I accept first party cookies. I accept first party cookies when I perceive that there is a benefit to doing so.  Because I don’t see the benefit in third party cookies, I never accept them.

I am willing to trade privacy when I am receiving a valuable service in return. Thus, I accept cookies from Amazon because of the perceived value to me — the ease in ordering, the suggestions for additional purchases, and the ability to add to my wish list. However, I decline first party cookies from a running website that requires cookies. The website serves up running routes in my area but I don’t value this service. Yet, the website will not function unless cookies are enabled. It frustrates me whenever I forget this fact and try to measure the distance I ran. As a result, I typically go to this site once or twice a year by mistake. By restricting access, the website is trading off brand awareness in the hopes of better measurement and personalization of content. I personally don’t think the trade-off is worth it.

I believe that users should have the ability to turn off and on cookies as they wish. Further, there needs to be more education about cookies and about a user’s digital footprint in general, particularly with the advent of behavioral targeting. I have provided a link to a Wikipedia page but perhaps an example would be best. Companies can use data from your cookies to serve up targeted ads. Providing you with ads that are targeted to your needs and preferences sounds great. But what if those ads are wrong because you share a computer with someone else for example? For some this could be annoying but for others it may be offensive. There is also the question of who has access to that data and how long it will exist. Further, what if your digital footprint is combined with your off-line behavior?

Personally, I think that advertising companies, in particular, should be required to ask for permission to use your data for behavioral targeting purposes similar to opt-in requirements for e-mail marketing. Best practices calls for consumers to be considered opt-outs for e-mail communication unless they expressly opt-in. Requiring the same for behavioral targeting will encourage advertisers to educate users in the hopes of increasing opt-in rates. In the US, the Federal Trade Commission (FTC) is advocating self-regulation but I think they should push for express consent by users. Most users don’t read privacy notices and those that do find that they are usually full of legal jargon making them difficult to understand. There’s a report from the FTC called Protecting Consumers in the Next Tech-ade: A Report by the Staff of the Federal Trade Commission from March 2008 in case you want to read more about it

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How do you measure social media?

The question I am increasingly asked is how do you measure social media and what is its ROI?  Given the economy there has been an increased demand for accountability and measurement.  The question is how do you apply this to a channel that is about brand awareness? 

There is the question of source material.  In many cases this translates into what web sites do you follow?

  1. Your company web site(s)
  2. Social media web sites (e.g., Facebook, Twitter)
  3. Individuals’ personal blogs

What metrics do you measure?  Below are just some ideas.

  1. Number of tweets
  2. Number and ratio of positive comments
  3. Number Facebook fans and Twitter followers
  4. Links to personal sites that fans and customers have added to their web sites and blogs
  5. Level of engagement with your company web site

Lastly, how do you establish causality?  It is difficult to determine if events in the social space are affecting purchasing behavior in the bricks and mortar space.  As my Statistics Professor said so often, “correlation does not mean causation”.