The Internet will be 25 years old this year. It may be hard to remember (or even imagine), but there was a time when some questioned whether people would turn to the web for news or products. Clearly, those days are behind us.
The fact is that spending on digital advertising is expected to top $134BN globally in 2014, growing 15.1% from 2013. Although I’ve argued many times that a lot of that ad spending is probably wasted, the fact is that digital ads are a force to be reckoned with and will play an increasing role in today’s multi-channel marketing world.
Of course, digital ad spending doesn’t take place in a vacuum. Ad spending is simply a means to an end, and that end is ultimately the sale of a product.
Some might argue that ad spending is sometimes deployed to drive eyeballs to content, but that content is ultimately used to sell downstream ads that are ultimately designed to sell products.
While digital ad spending is expected to top $134 BN in 2014, B2C ecommerce is expected to reach $1.5TN. Yes, that “TN” stands for trillion. That’s a global figure, but to but things in perspective, the US economy generates around $15TN in production annually.
That means that global ecommerce sales to consumers are about 10% of the total US economic output.
That’s big, and those figures are expected to get much bigger over time.
So the Web is big. Digital ad spending is big. Ecommerce is big. But where am I going with all of this?
In large and fast growing markets, it’s not uncommon for people to go crazy and overspend on things that don’t add value. In this regard, the Web, digital ad spending, and ecommerce are nothing new. Replace any of them with the booms in energy, the railroad, telecommunications, or air travel, and the trends are similar.
What is less similar is the fact that three large forces are coming together at the same time, amplifying the amount of misinformation and inefficient investments.
The proliferation of experts and consultants over the past several years in digital marketing has been breathtaking.
One can scarcely turn around without bumping into a range of next generation agencies:
- Social media agencies.
- Search engine marketing (SEM) agencies.
- Content marketing agencies.
- Mobile marketing agencies.
- Affiliate marketing agencies.
The list goes on and on, and despite the disparity of skills and value propositions, the message is often remarkably similar.
Content is king, and you need to be #1 in search engine rankings.
Now don’t get me wrong. I believe that expertise in all of these areas is important, and I won’t discount the value of content nor the allure of appearing as the #1 search result on Google, Bing, Yahoo or whatever other engine is being used.
Assuming that one’s goal is ultimately to sell a product (or service or somehow otherwise get a customer to pay money for something of value), digital marketing is designed to support ecommerce. In this case, there are only four variables that matter in the world of digital marketing.
Acquisition: This is sometimes mistaken for traffic, but there’s a critical difference. Traffic that is off-target or doesn’t convert is traffic not worth paying for. At the same time, there are a number of means of acquiring leads, prospects, and customers. This can be done through special promotions, joint partnerships, affiliate marketing, and a variety of other mechanisms that don’t necessarily equate to traditional sources of traffic. The key here is to ensure that acquisition costs are as low as possible at every stage of the sales funnel.
Conversion: In the old days of direct mail, conversion was informed by a “response mechanism.” In the digital age, we refer to this as a “call to action.” No matter what you call it, conversion is what happens when a stranger takes an action that helps you better understand who they are and moves further along the sales funnel. This might range from a newsletter signup to filling out a survey to purchasing a product or service. The key here is to balance efficiency with cost. There’s no shortage of people constantly looking to “improve conversion” as a percentage of all traffic versus a percentage of visitors who take a specific action. This is a useful exercise, but conversions as a percentage requires context. Low percentage conversions with large sources of traffic that don’t cost much can be as powerful as high percentage conversions on low traffic that’s expensive. Conversion is a means to an end, and part of a broader set of economic analyses.
Pricing: Very few firms do a good job in pricing their services. Most companies fall into one of two categories: price is fine, but they try to charge for a product or service too early in the sales process. Or price is simply too low.
Very few firms have prices that are too high. This fact has been repeated many times by McKinsey; in fact, McKinsey has gone so far as to point out that every 1% increase in price (on average) leads to an 8% increase in profitability.
Of course, pricing is all a matter of context, timeliness, and relevance. In other words, people will pay a certain price based on need, availability, and usefulness of whatever it is they are considering. Pricing strategy requires the marketer to get inside the head of the customer and align the selling process to the customer buying process. This might result in an end process where the entry price for the initial sale is relatively low because there is a longer term strategy to increase customer life time value.
Customer life time value (LTV): Customer LTV is nothing new in the world of marketing, but it is surprising how many companies forget how valuable it can be to engage customers in an ongoing dialogue. Sales is a process, not an event, and if you believe that your job is to sell as many products as possible, you’re dead in the water If you believe your job is to identify, engage, and maximize the economic value of a customer by continuing to delight them with your value propositoin…then you might be on the right track.
These are the four variables that affect the success and profitability of digital marketing—or any form of marketing. No matter what anyone tells you, no matter what product or service someone is trying to sell, if that person can’t tie his or her value proposition directly to one or more of the variables above, keep on walking and find someone who can.