Don't Confuse Response With Return

I just got off the phone with a client. We discussed the results of a two-step campaign he's been running to establish a relationship with potential customers. He quickly steered our conversation toward response percentages.

"Response is not yet relevant," I said. "The first numbers we must count are dollars expended on the campaign, and dollars coming back to your business as a result of that campaign.

"Its the response rate, and the average sale, and the upsell, and the markup, and the repeat sales factored against the cost. This is Return On Advertising Investment. It's the first and most critical number."

Start with gross sales. Subtract your cost of goods (or cost of services). Divide the difference by the cost of the campaign to calculate your Return On Advertising Investment.

Any whole number is good, and the larger the number the greater your return.

Suppose that your ROAI calculations show that you're getting back $3.00 for every $1.00 you've invested. Is your advertising too expensive? (Lemme ask it this way: could you consistently get a 300% return on any other investment?)

But now that you know your 3.0 ROAI, perhaps it's time to examine that response rate. A ten percent improvement in any of the vairables will also increase your ROAI by ten percent, to 3.1. Could you improve that rate with a stronger offer? More frequency of repetition? Adjusting for seasonality?

When you know the ROAI, it's easy to determine whether tweaking the other variables is making things better or worse. Until you know the ROAI you have no way of determining whether you can even afford to continue the campaign.

Let me give you an example* of why response isn't important by itself, but ROAI is.

A few years ago an acquaintence of mine took over recruitment advertising for a large employer in Minneapolis. The company had been running regular display advertising in the "want ads" section of the Minneapolis Tribune. He placed all of their ad dollars on six local radio stations.

About ten days into the new strategy the client called, somewhat agitated, and said "We normally get a hundred applicants a week. This last week we got only three."

The ad man asked "How many of those hundred applicants do you typically hire?" His client told him the usual number was three. He then asked "How many of the three applicants who did respond to the ads did you hire?" His client said "Well, all three."

"Humm..." said the ad man. "So for the same investment you got the same three qualified employees, but this time you didn't have to interview the ninety-seven deadbeats? That upsets you?"

In this example, adjusting the advertising because of the change in response rate would have been counter productive. But tracking the Return On Advertising Investment makes sure the campaign is accomplishing the job we need to get done.

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* Choice of medium should involve the strategy, the desired audience, the offer, and a number of other variables, including cost. Please do not interpret this story as an endorsement of radio over newspaper.

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Coffee, The Moon Landing, And A Game Of Poker

I don’t play often, but I appreciate a good game of poker. Poker makes a pretty good analogy for marketing, and for business.

Poker players know what they hold in their hands, they carefully watch what everyone else appears to be doing. They make educated guesses as to the cards the other players hold. Poker players hoard their resources until they know they hold a winner, then they confidently apply all of their resources to winning that particular hand.

At the end of the game the winner takes the whole pot. The loser loses everything. The other players pick up a few bucks now and then and manage to stay in the game.

In real life marketing the winning hand is held by the company with the greatest share of mind. Let me give you an example.

Name the first brand of coffee you think of. Now name another. Can you name a third?

Chances are that you named your first coffee brand rather quickly.

The second came almost as quickly.

Most people take slightly longer to name the third brand.

Most people also purchase the first brand that comes to mind.

Would you like to see how 3,000 other people* answered that question?



People remembered these brands in roughly the same proportion they buy them.

Conclusion #1: Share of mind predicts share of market.
Conclusion #2: The first name that shoppers think of is the one they buy.

How does a company become the first name on the customer’s mental list, and thus hold the face cards in the marketing poker game?

The easiest way is to actually be first.

Who was the first man to fly solo across the Atlantic? The second? How about the first woman to fly solo across the Atlantic?** Charles Lindberg and Amelia Earhart won those hands. You can’t even name the losers.

You might remember the second man to set foot on the surface of the moon, but can you name the third? Can you name the third expedition to the North Pole? The third Pope? The third signature on the US Declaration of Independence? (How about the third amendment to the Constitution)?

In share of mind, share of market, and poker, third position is a loser. Winners come in first. Second place sometimes makes a few bucks. Beyond that, money gets very tight.

“But wait a minute, Chuck” (I can hear you saying), “I have a small business in a small town. I’m not the first at anything.”

Ah. This is where marketing makes a difference.

Charles and Frank Duryea built the first gasoline-powered automobile in 1893 – a full ten years before Henry Ford got into the business.*** Henry made the automobile affordable to every household, creating phenomenal word of mouth on the Model T. Henry held the winning poker hand, and became the most famous automobile manufacturer of all time. How many of the losing hands can you even remember?

The best selling MP3 player of all time is the iPod, but Apple didn’t invent the device. Rio did, in 1998, nearly three years before the iPod hit the market. Rio built an expensive toy for people who loved technology. Apple created a toy for people who love music. Apple wins that poker hand. (And, tell the truth, until I mentioned the name, you didn’t even remember the Rio player, did you)?

Your objective is to make your company the one that people automatically think of when they need what you sell. When you’re first on that list, they don’t even think about buying elsewhere. You see, the first company to make a claim has an 85% chance of being remembered for that claim. The second company has about a 15% chance. The third company less than 5%.

Ford and Apple simply out promoted Duryea and Rio, respectively. Neither was first in the market. Each became first in the minds of their prospective customers.

Can you be first at something? Absolutely. In fact, its essential.

To be remembered, to hold top position in share of mind, to hold the winning hand in marketing your business, you must be first at something.

I’d suggest that you choose to be first in the reason your existing customers do business with you now.

Find out what your current customers believe you provide that they can’t get anywhere else. Then, start promoting that. Promote it to the point that you’re now playing in a whole new game, and in this game you hold the winning cards.

* BRANDPOLL survey of coffee brands, January-March 2001.

** Charles Lindberg, May 20, 1927; Amelia Earhart, May 20, 1932 on the fifth anniversary of Lindberg’s crossing.

*** Nicholas Joseph Cugnot designed the first steam powered self-propelled vehicle in 1769. The device was so heavy that it had to run on roadways of steel, and evolved into the modern locomotive. Etienne Lenoir patented the first practical gas engine (coal gas) and drove a car powered with one from Paris to Joinville in 1862.

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Emotions VS Logic

You’ve no doubt heard that people emotionally decide what to purchase, and then use logic to justify that purchase.

Can a product be sold on emotion alone? Yes. Usually to children.

Children desperately want to fit in. The easiest way to entice a child is to present your product as the one purchase that every other kid is getting.

Truthfully, does anyone need shoes that light up at each step? They don’t even flash a light in the direction the kid is traveling. Instead, they light up to show where he’s been.

When I was a kid, everybody had streamers - long strips of colored plastic attached to the plastic grips on bicycle handlebars. They flapped in the breeze and were absolutely useless except to show all of the other kids that you had 'em.

And if it weren’t for other kids owning them, could there be any justification for Pokemon cards?

Bigger kids, even sixty-year-old kids, still feel this pressure to belong. They’ve just become much better at justifying their purchase choices. As I said, they've learned to use facts as if the facts were how they came to the decision. It's seldom the case.

But, for a minute, let’s consider the other extreme. Can a product be sold purely on logic alone?

Yes, it can, if it’s a commodity.

Commodities are interchangeable mass-produced, unspecialized products like gasoline, rice, airline seats, and pork bellies. Since they’re all virtually identical, one buys them from a strictly transactional mindset: by dividing benefits by price. More benefits, lower price, better deal.

But, for everything else we buy, emotion plays a major part in our decisions.

Knowing that, should you use emotion or logic to sell your products and services?

It's a trick question. You need both.

Your ads should provide emotional appeal to help shoppers to choose your offering; and then back the decision up with solid facts they can use to explain their purchase to anyone else.

Here's a fictitious example:

Nothing warms and protects you like genuine leather. And nothing else will look so good on you, either. Ajax Leather jackets are exceptionally flattering. They can be worn for business, but you’ll find them equally comfortable for causal wear. The first thing you’ll notice as you slip into a lined Ajax Leather jacket is the weight. This jacket won’t wear out in a lifetime of use. Secondly you’ll admire the strong zippers and snaps and the quality of the stitching. But you’ll probably choose it because it looks so good on you. Step in to the Ajax Leather store and step out in style. Ajax Leather on Bovine Boulevard.

Help your customers to buy from you. Give them the rationale they need to justify they decision they want to make emotionally.

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Zen And The First-Time Buyer

A Zen truism: when the student is ready, the teacher will appear.

All over the world the vast majority of people are passing through stages of their lives, and ignoring advertising. Most people don’t need, don’t want, and are not even interested in most products being advertised. Thus, they ignore the ads.

At age 14 did you pay attention to stockbroker’s ads? When you were 21 had you ever noticed an ad for a retirement community? I can assure you that the ads existed. Why don’t you remember any of them?

If you’re like most of us, at that stage of your life you had no interest in these things. You ignored the ads. Their message didn’t even enter your consciousness. No wonder you don’t remember seeing any of them.

We live in an information rich society. Frankly, we live in an information-overloaded society. Out of sheer self-defense we ignore most of the adverbabble that surrounds us.

When you think of your high school graduating class, how many of you married at the same time, and had children simultaneously? Few, I’ll bet. So though you and your classmates may have had very similar life experiences, you didn’t have them at the same time. You moved through the various stages of your life independently of those around you.

And for most of your life, you’ve ignored most advertising.

The person most aware of advertising? The owner of the business. The owner has such a high exposure to his own ads that he’ll get tired of them much more quickly than the public ever will. He’ll want to “try something new” just out of boredom.

He shouldn’t.

If the ads are working to deliver a steady stream of customers, he should let them continue to do the job they were designed to do. The Sherwin Cody School of English ran the same ad for 42 years - "Do You Make These Mistakes In English?" Mr. Cody was never bored when he heard his cash register ringing.

Last year’s shoppers are already someone’s customers. Maybe the business we’re discussing. Maybe a competitor.

Once people’s lives enter a new stage, they have new motivations to listen to the ads, and to hear them for the first time. And the messages that worked so well last year, will work equally well this year on a whole new group of shoppers.

This is why successful ads shouldn’t be changed often.

The rhythm of life doesn’t have us all marching to the same beat. And at any given time we pass out of a life stage as someone new enters. Think of this as a steady stream of first time buyers.

When the student is ready...

A woman becomes pregnant for the first time. For the first time in his life, her husband is becoming aware of ads for baby furniture, for disposable diapers, for college funds. Those ads, which surrounded him for years, are suddenly just “there.” Now, though, they are getting his attention.

How many first time pregnancies will there be this year?

America’s birth rate is 1.4%. Our population is 51% female. The U.S. Census tells us that the average family has 1.9 children. Therefore: less than four tenths of one percent of the population will be pregnant for the first time this year. Slightly more than three hundredths of one percent will be pregnant for the first time this month.

A company that manufactures or sells baby monitors, for instance, will have roughly three hundredths of a percent of the population in their marketing area become aware of them for the first time this month. And that’s enough to keep them profitably in business.

The ads they ran last year will be noticed for the first time by a whole new group of shoppers this year, and last year’s appeals will be just as attractive to this year’s shoppers.

When the student is ready, the teacher will appear.

It takes a lot of effort to just be noticed in our over communicated world. When you (or your advertising manager / agent / consultant) have come up with an idea that actually persuades someone to purchase from you, don’t stop running that ad until it stops “pulling.”

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