The Marketing Consortium

Search Bid Management Done Right

Pay-per-click search advertising (with Google AdWords, Yahoo Search Marketing, MSN Ad Center, or Ask.com) has been one of the fastest growing marketing channels. Yet, since paid search has only been around for a few years most search marketers are frankly still winging it when it comes to optimizing how much they bid to pay on a clickthrough from each keyword. Many companies outsource their search marketing to agencies in the hopes that those will do a better job. Yet, many agencies frankly also just wing it. Take this conversation:

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Search Marketer: So, Akin, should I bid more on keyword "Color copier" or "Photocopier X2000"?

Akin: Let me pull up my NetInsight web analytics solution and find out for you which keyword performs better so that you can maximize your return on ad spending. Let’s see which keyword converts better on your site:

Color copier keyword: 200 visitors completed a purchase
X2000 keyword: 100 visitors completed a purchase.

Search Marketer: Oh, thank you. So I will bid more on "Color copier".

Akin: But wait, NetInsight also reports conversion rates, i.e. the ratio of total clickthroughs to the subset of those who converted by completing a purchase. I see that:

Color copier: 10,000 clickthroughs, 200 purchases, i.e. 2% conversion rate
X2000: 200 clickthroughs, 100 purchases, i.e. 50% conversion rate.

Search Marketer: Oh, I see. Since my ad rank for X2000 is lower I should bid more on this keyword then because the visitors that click through are much more likely to convert? They already know they want an X2000 after all.

Akin: Yes, but wait. We can also take a look at your average order value from visitors that come to your site searching for each of these keywords:

Color copier: Average order value $500
X2000: Average order value $300

Search Marketer: Oh, boy, so I should bid more on "Color copier" because those visitors buy more from me?

Akin: Yes, but wait. We can also see the pay-per-click costs in NetInsight so that we can gauge how much you are paying vs. selling.

Color copier: Average cost of clickthrough: $8
X2000: Average cost of clickthrough: only 50c

In other words, cash flow on color copier has been:

Color copier bid costs: 10,000 x $8 = $80,000
Color copier revenue: 200 x $500 = $100,000
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Color copier contribution: $20,000
Likewise the cash flow on the X2000 keyword has been:

X2000 bid costs: 1,000 x 50c = $500
X2000 revenue: 100 x $300 = $30,000
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X2000 contribution: $29,500

Search Marketer: Oh, boy. So I should bid more on "X2000" because I get much more contribution?

Akin: Yes, but wait. I see that the X2000 product itself costs you $289. (This is a loss leader product.) So the return calculation for X2000 now is:

X2000 bid costs: $500
X2000 revenue: $30,000
X2000 product costs: 100 x $289 = $28,900
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X2000 return: $600

Likewise the color copier product commands a higher profit margin as it only costs you $75 (you bought them in bulk from a foreclosure). So the return calculation for color copier now is:

Color copier bid costs: $80,000
Color copier revenue: $100,000
Color copier product costs: 200 x $75 = $15,000
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Color copier return: $5,000

Search Marketer: Fascinating. So I should bid more on "Color Copier" after all because I get much more return?

Akin: Yes, but wait. From reading the following book I know that the key metric for optimizing marketing is not return but ROI, i.e. returns divided by marketing investments and expressed as a percentage.

X2000 return: $600
X2000 marketing investment: $500
ROI: 120%

Color copier return: $5,000
Color copier marketing investment: $80,000
ROI: 6.25%

Search Marketer: Oh wow, so if I put my $80,000 into the X2000 marketing campaign instead of the Color copier marketing campaign I might get 120%, i.e. $96,000 in returns instead of just $5,000 returns from the color copier campaign today?

Akin: Yes, but hold your horses, dude! First of all, that depends on how many people search for X2000 and are looking to buy one. It is not immediately clear whether you can in fact spend $80,000 on that keyword in the same time period that we are looking at here. A quick reference to keyword research tools can get you an answer.

Most likely also your conversion rate may go down as your traffic goes up. There is no way other than testing to find out what the new conversion rate may be.

Finally, the book mentioned above also cautions of a common mistake in ROI calculations. Namely, to neglect incremental life time purchases of visitors acquired through the campaign. I see in NetInsight that:

X2000 buyers hardly ever make a repeat purchase. Apparently they hate the product.

Color copier buyers on the other hand keep coming back for those expensive color toners (on which you hold the worldwide monopoly). Each of these customers makes incremental purchases that bring you an average return of $500 over the course of the year. This changes our ROI calculation to:

Color copier initial return: $5,000
Color copier incremental return: 200 x $500 = $100,000
Color copier marketing investment: $80,000
ROI: 131%

Search Marketer: Wholly molly. So after considering the incremental life time returns from color copier customers it looks as if I should keep my marketing budget on the color copier keyword after all.

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Now, 99% of today’s search marketers seem to optimize their search bids based on conversion rates and initial revenues. Considerations for actual returns, ROI %, and incremental returns are left out. Moreover, offline purchases following online research are neglected too. The search marketer that calculates all this more correctly can figure out what the real price is that she can afford on each keyword. And she will be the one who wins the bidding war.

Multichannel marketing: where to begin?

We just held a public webcast today with the American Marketing Association (AMA) and our star speaker Jim Sterne. Jim is the president of the Web Analytics Association, author of many books, and the producer of the popular e-metrics summit events for web marketing optimization.

Jim shared with us his insights on "Using Web analytics to impress your CMO". Jim cited many practical examples that ranged from online ad spend optimization through customer relationship building. If you were not one of the 800+ in the audience I can highly recommend the recorded version of the webcast that will become available from Unica.com in the next few days.

In the run up to the seminar, our moderator from the AMA, Marla Chupack, told us a story that reminded me of the plight of the analytics oriented marketer. A man had played the same Lotto numbers for ten years without much luck. Finally, he won a huge chunk of money. Grateful for his fortune, he sent everyone in his native village in India a generous sum as a gift. But what should he learn? Instead of being appreciative soon everybody just wanted more.

What is the moral for the analytically oriented marketer? At first, it may seem hard enough to get web analytics and cross channel analytics in place. Once you invest into the right systems however, you may receive more data, reports, and insights than you can dream of. When you pass those to your colleagues you expect them to be grateful. Instead, a typical bureaucratic organization may request more and more and more reports from you over time. But are all of these driving happiness, a.k.a business value?

Bottomline: In order to embrace multichannel marketing, don't wait until the day that you can put the big 360 degree CRM data warehouse into place. Even if you did, it would not by itself be sufficient for driving better business results. You will still have to turn the insights into intelligent marketing programs for acquisition, conversion, retention, up-sell, cross-sell, attrition prevention, and win back. Given that, my recommendation, why not bootleg by starting small and focusing on generating ROI from the beginning? For example, if you find that customer attrition is a problem you could put an early warning system in place with small amounts of off-the-shelf software. Say, you combine web analytics with event detection. When web site visitors exhibit a change in online behavior patterns (say they used to visit frequently but for the past month the frequency has gradually gone down), you take action for retention.

Later on, when you start seeing results, you could enhance your system by tapping into customers' offline purchases records. Say, you find out who is using the web site less frequently but has instead shifted to the stores. These customers may still be OK and may not need retention efforts. While your competitor may still be building their 360 degree data warehouse, you already generate ROI and increased loyalty.

Clearly, I am biased  because Unica is the vendor of many marketing solutions in this area. But my point is that one does not need to wait until you have the sponsorhip for the solution of your dreams. Start small, see what works, and then grow that.

Multichannel marketing: What's holding you up from embracing it?

You, the marketer, may be the most important person in your company. Did you know that? You ought to be the engineer of your firm's success. Yep, that is right, you, more than the product guys and more than even your CEO. Why? Because: "competition among companies today is less about competition between products but more about competition as to who can get attention from buyers. It is a competition between marketing communications.", says Prof. Manfred Bruhn in a book that I picked up last week during my vacation in Germany. I don't believe this book has been translated into English yet. Published by Torsten Schwarz, it is the "Guide for Integrated Communication", i.e. just another name for integrated multichannel marketing really.

So, how should we communicate in order for our communications to be competitive and have the upper hand in getting buyers' attention? Hmmm, lets spam more people than the competitor, yell louder and use more neon colors in our TV ads. Yeah, right. Not! That doesn't work because buyers by now have developed the equivalent of a noise cancelling headphone in order to tune out even the loudest market criers among us.

In order to be relevant we have to embrace integrated communication, i.e. integrated multichannel marketing. You have heard that over and over again. So if your firm has not embraced it yet, what then has been holding your team up?

Prof. Bruhn has conducted a survey among German enterprises on the subject. In his chapter within the book, Prof. Bruhn lists many of the challenges that companies have cited. Some responses confirm exactly the discussion in the two previous posts on this blog. Namely, multichannel marketing requires cooperation between the employees who are expert in each channel (especially online) vs. generalists that are expert in ensuring consistency across all channels. This requires down-up management rather than top-down or bottom-up management. Even pure office politics can be a challenge that needs to be overcome before these folks open up towards working together. But among the technical challenges that companies mentioned there was one that was mentioned most frequently. Guess which one that was? It was controlling, i.e. results measurement of multichannel marketing activities. Especially, when a buyer is touched by multiple communications before making a purchase, which one(s) should get the credit?

Now, multichannel analytics and response attribution happen to be exactly our expertise here at Unica. These kinds of analytics are a challenge that Unica customers have solved over and over again. To hear a portion of the methods used by Unica customers tune in to our upcoming free Webcast: Using Web Analytics to Impress Your CMO, Featuring Jim Sterne, President Web Analytics Association . Hope to meet you there!

Internet Marketing meets The New Direct Marketing

Did I say that online and offline marketers need to fuse together into a whole marketer? Did I say that online marketers have all the data but the offline direct marketers know the better questions to ask? Well, here are a few great examples to that point from The New Direct Marketing by David Shepard Associates

I wolfed down the book last night after borrowing it from my colleague at Unica, Jay Henderson. Jay is another industry veteran that I get to work with. Web analysts know him well as he has been one of the key people behind the NetGenesis web analytics solution. Later he lead the NetGenesis division after SPSS acquired the firm. Years later now, Jay is at Unica. Unica just gets the best and brightest to work with us.

If you are a direct marketer then you probably know this book well. It is a well rounded text on direct marketing but the key new theme that it introduced (back in its first edition in 1990) is an approach based on statistical modeling. Rather than just relying on more traditional direct marketing techniques such as RFM for segmenting prospects and customers it suggests to use regression and other modeling techniques to better predict which prospects/customers will maximize your returns when targeted. Based on the statistical model, each prospect/customer is scored and ranked for targeting. This is exactly what Unica customers are doing today when they use Affinium Model to mine their customer database  and use Affinium Campaign to treat each target cell with the most relevant offer.

So, what can web analyst contribute here in order to make the model much, much stronger? More data than the offline direct marketer could ever dream of! Every online prospect's every click can be fed for example from Unica's web analytics solution Affinium NetInsight into Affinium Model for building even better predictions. Companies have used this approach for example to predict whether an anonymous web site visitor is male or female based on their click behavior. The visitor is then subjected to targeted ads based on the prediction which is something that can be accomplished for example with real time personalization solutions such as Affinium Interact. But it first requires the online and offline marketer to come together and talk.

The book doesn't stop there. What else can web analysts learn?

1. Web analysts today buy internet ads or keywords based on success in conversions or revenue. Web analytics solutions by now can capture delayed conversions in cases where the purchase is not made during the initial visit but during a subsequent one (doh!). But already in 1990 The New Direct Marketing suggested not to ignore what it called "Back-end performance management". Namely, to calculate the life time purchases that result from such acquired customers and not just the initial purchase. (doh again!). Otherwise, how could you really tell whether you eventually broke even on the, say, 5 dollars that you paid for a visitor clicking through from a paid keyword?
2. We web analysts can jump to conclusions too quickly. For example, a keyword attracting existing customers to repeat purchases may yield higher margins than keywords used by prospects. Our algorithms (in our heads or in our bid management solutions) would suggest to prioritize the keyword that yields higher return. Yet a catalog business knows that you still have to invest into new prospects nonetheless otherwise your customer database will eventually become stale and your business is at risk.

Books, feed your mind!

Fusing the online and offline marketer into a whole marketer

Maybe the most fun aspect of my work at Unica is that I have many colleagues from both the online and the offline marketing worlds. So I get to learn and compare the view points of both sides first hand. As it turns out, cross-channel marketing requires more than just integrating marketing methods and metrics. You know what else it requires? It requires integrating the mind sets of the marketers.

My colleague Kevin Cavanaugh pointed me to the following analogy recently which I think is absolutely brilliant. Kevin is one of our veterans here at Unica with one foot deep in the offline, direct marketing world, and the other deep in the online marketing world. One of Unica's most savvy web analytics customers, Judah Philips from Reed Business, recently described Kevin as the "Jedi of Whiteboarding".

We online marketers live in The Matrix, i.e. we have an unbelievable detail of data about every prospect's and customer's every click, every day, every time. Having so much data at hand we use web analytics to turn the (otherwise useless) data into insights with which we can improve the success of our web site design and our online advertisements. What do you - not - see in The Matrix as easily however? A picture of the customer! We online marketers have traditionally been more focused on acquisition marketing at the aggregate level rather than paying much attention to the individual customer relationship.

What about the offline marketer’s world? The offline marketer’s world is more akin to CSI: Crime Scene Investigation. The offline marketer is not blessed with the detailed data available to the online colleague. So they have to leverage every bit of information that they can extract and derive about their prospects’ and customers’ wishes, needs, desires, dreams. So, they have become very intelligent at using every bit of data that they can get their hands on. Additionally, the offline marketer has been at this job much longer than the colleagues on the web site. As such, the better offline marketers have already taken to a relationship marketing approach rather than "one size fits all" or spamming. Yet, according to Forrester Research, despite the availability of open web analytics solutions such as Unica’s Affinium NetInsight, too many offline marketers have still not added the available online customer insights to their customer data mart.

In combination it appears that the online marketers have all the data, but the offline marketers have figured out the right questions to ask. I think, they should talk, yes?

Are you an online marketer or offline marketer yourself? Please add a comment on how you get along with your colleagues on the other side. Or are you one of those model companies that have broken down the barriers between the two? Please share your story!

Cross Channel Marketing fusing the Online with the Offline

Wow, Alan, many thanks for sharing a glimpse into your daily work with marketers for more efficient, measurable, and profitable marketing operations!! Big shoes for me to fill now. The Marketing Consortium blog will be in my hands for the hottest month of the year for discussing an equally hot topic that follows from Alan's. Namely, effective, measurable, and profitable cross channel marketing for finding success online and offline.

These are exciting times for online and offline marketers. Maybe a bit scary too. Change is in the air. The online and offline are fusing into two sides of the same coin. As consumers, we are already living the cross channel reality. We print out our movie tickets at home after buying them online, we check-in online to our flights and rental cars, we research/buy online and pick up in the store, or we buy in the store and get help online. Yet, as marketers not all of us are quite up to snuff yet when it comes to crossing the channels. To see what I mean, watch the following video that my colleague Denis Lacassagne from our office in Paris pointed me to:

Ha ha ha. With great opportunities come great challenges (as Spiderman might say if he was a marketer). How do we fuse marketing initiatives between online and offline so that the customer experience is a good, i.e. relevant one? How do we leverage what we know about each prospect on one channel to turn them into a (better) customer on another? And my personal area of focus: how do we measure if it is working so that we can improve and be better next time? Let's put our heads together in July to discuss ideas and best practices methods that you and us have built.

P.S.: If you know of any other videos or cartoons on multi channel marketing, please share by adding a comment, will you? Hey, it is summer. Why not lighten up the mood before we dive into the work ahead?