Measuring Social Media’s Impact on Loyalty

Today I listened to a podcast interview with Jake McGee of Big in Japan on the Marketing Monger Podcast.  His firm specializes in helping companies tap the benefits of social media such as Blogs and message boards. While he praises social media as an important loyalty builder, he claims that the ROI is not very measurable.  Since customer loyalty is a key goal (particularly in my company where we sell subscription based software) – I began thinking about how social media might be measurable.

For a company with registered users/customers, it is best to start by creating a field in the database representing each social media program.  Each time a logged in customer participates in a program (such as reading the message boards) it should be recorded in the database.  After enough data has been collected it should be clear whether there is any correlation between participating in the program and higher customer lifetime value (improved customer loyalty).  If there is a correlation, more funds should be concentrated in social media programs.  If no correlation can be identified, resources should shift to other, more direct ROI generating programs.

Why Are There So Few Insider Marketing Blogs?

The majority of marketing Bloggers are on the agency or consulting side.  This is only natural.  It is part of the process of marketing their services to share their ideas and gain recognition as intelligent, practical marketers.   There isn’t really a risk of divulging too much information – nothing will be specific enough to replace the need for the agency or consultant. 

On the other hand, corporate marketing Bloggers have much less to gain from Blogging.  This is why there are so few corporate marketing Blogs.  And there is plenty to lose.  Every Blog entry carries risk.  Am I revealing company secrets?  Am I giving my competition something they can use?  Am I suggesting weakness to potential investors or business partners?  Corporate marketers must filter every word in a Blog for appropriateness.   This is hard work and slows down the process.

So why do we do it?  Well I can’t speak for every corporate marketing exec, but there are two main benefits I derive from Blogging.  The first is that it provides an opportunity to interact with other marketers and become part of a bigger marketing community.  It’s almost like open source for marketers and raises all of our games.  I read the ideas of another marketer and in tailoring a response or opinion I really need to think it through.  If I just ponder it for a moment, it is easy to fool myself into thinking I have it figured out.  But in a Blog entry I reread it and realize that it doesn’t make any sense.  I know that if I am a bit confused by my own words, any outside reader doesn’t have a chance of getting my point.  So I rewrite and rewrite until it is clear.  I’ve found this process not only helps my ability to figure out different marketing concepts, but it also improves my skills at articulating marketing concepts to my team and the rest of the company.  

The second benefit I get from Blogging is that it lets me establish an identity that extends beyond my current role.   Most marketing leaders are at a company for less than five years.  With a Blog they can build an identity and reputation that lasts an entire career.   Of course this is very self serving – but isn’t every Blog?

Pursuit of Marketing Perfection

Passion for perfection is usually associated with a sport like golf, basketball or tennis rather than a skill like marketing.  However, it is equally important for reaching greatness in marketing.   Given the immensity of the range of potential skills and knowledge in marketing, you are always fairly low on the learning curve.  Looking up that learning curve can be both daunting and exciting.  Marketers at every level are challenged (or delusional).

Passion is a key driver of the patience and energy needed to climb the learning curve.  Marketing improvement requires theoretical study and practice.  It’s good to read books, but unless you put that knowledge into practice it will be forgotten.  Also, too much focus in one particular area of the marketing continuum often means that rust builds up in other key areas.  After completing a marketing book, it’s good to integrate some elements into your overall marketing approach, but try to retain the balance of activities that have been effective in the past.

Regardless of the passion you bring, you’ll never come close to mastering marketing.  Sure, different parts of your approach will improve, but as soon as you think you have everything figured out – you choke.

The Ups and Downs of a Free-to-Premium Marketing Approach

We’ve all faced the challenges of trying to break through the flood of advertisements that overwhelm our prospective customers. Over the years many marketing approaches have emerged to address this challenge.  Two of the most notable are “relationship marketing” and “permission marketing”.  Both approaches advocate trying to retain someone’s attention once you have paid to get it in the first place. This can be achieved by building a trusted relationship and selling products over time.

One of the best ways to accomplish a trusted relationship is by offering a very valuable, completely free product or service.  This gives you an ongoing opportunity to patiently introduce the benefits of your premium products. I call this approach free-to-premium marketing.  It is important to understand that these products must be completely free and valuable, not just free trials or “crippleware”.

Once traction has been established with free-to-premium marketing, it can also be very effective for attracting new users via word-of-mouth.  People love to talk about valuable free products, and this not only applies to consumers.  Business buyers also enjoy being “in the know” about free alternatives and sharing this information with their peers.

Many successful businesses have been built using the free-to-premium model.   One of the most noteworthy is Efax.  Efax has attracted over 9 million registered users by offering a completely free fax number that delivers faxes to your email.  Many Efax users upgrade to the premium version, which lets you choose the area code for your fax number.  Efax likely contributes a significant portion of its parent’s (J2 Communications) $1 billion market cap.

Other successful free-to-premium products include AVG and Zone Alarms.  Both products entered highly competitive markets (anti-virus and firewall) and became significant players in their respective categories.  In 2004 I also introduced this model at my company.  Since then we have attracted millions of users – with upgrades driving sales across several product lines.

Not all products and services are ideal for the free-to-premium model.  Even within the same category, one provider might be able to execute the model while it is impossible for another.  For example, one of my competitors, Webex, tried to replicate our free-to-premium model, but eventually discontinued it.  There are several confidential reasons why we had an advantage offering a free version.

In order to be successful, free products or services must have a low marginal cost and very efficient marketing.  While word-of-mouth will likely become a strong driver, a company must first gain initial market traction.  This generally requires both a large marketing investment and near flawless marketing execution.   Acquisition costs must remain low since a large portion of the free users will never generate any revenue.  Once free users have been acquired, you must continuously work the funnel to improve upgrade rates.  Finally, there is downselling pressure for anyone that discovers the premium product first or upgrades and then decides that the free version was enough.

Still, with the right product and marketing execution, a free-to-premium model can be a powerful growth driver.

Intuition First – Then Analysis

Seth Godin wrote an interesting piece on the tradeoff between intuition and analysis.  While it was insightful, I view things slightly differently.  I don’t think there is a tradeoff between intuition and analysis as he claims.  I think intuition drives the ideas that should be implemented and then after implementation the results must be analyzed.  Prioritizing the order in which ideas are implemented requires an additional level of intuition or gut instinct.  However, careful analysis of the results will provide guidance whether an idea should be killed or if it should be further developed and financed.

When I discover people on my marketing team debating an idea I always step in and just say “test it”.  Subjective differences are very hard to overcome via debate and debate over ideas is often a waste of time. However, once we prototype an idea, test it and have some hard data it is much easier to agree on a future course of action.  One of my key marketing team members is a data analyst who previously worked as an actuary, so he is very helpful in evaluating the data.

Startup Hopping: Road to Ruin or Riches?

In my previous post I wrote about my journey from wanna-be CEO to serial marketing entrepreneur.  This got me thinking – how much risk is there living on the perpetual startup merry-go-round?

We’ve all heard the statistics.  Most startups fail.  It is hard to find official VC success rates (most VCs don’t disclose financial results) but anecdotally I’ve heard that less than one in ten investments hits big and most result in investment losses. Even with these low success rates, many VCs generate excellent overall returns.

As individual team members we don’t have the luxury to make a portfolio investment of our time across multiple startups (at least not without significantly diluting our efforts).  I’ve averaged about 5 years in each of my two startup experiences.  I consider myself extremely lucky to be 2 for 2 in joining pre-funded companies that hit big.  The typical stats would suggest I would hit big one in ten times.  Those odds aren’t very appealing, especially when you consider the other risks and costs of a startup.

According to, a Marketing VP in the Boston area should earn a median income of $219,000/year. However, marketing VPs at most venture funded startups are lucky to earn $150,000/year.  So right out of the gates, a startup marketing exec is likely giving up more than 30% in salary.  Then consider that there is a lot less job security with little if any severance if things don’t work out.  Also you’re fortunate if you can get fully paid health insurance, 401 K contributions, etc.

Still, startups attract great talent.  Why?  Well for one thing, there is a lot of upside with the rare successful exit.  But successful startups also offer employees at all levels a better opportunity for fast career growth.  Most run as a meritocracy – generally larger companies have internal political pressure to offer somewhat equitable structured career paths and salary increase caps.  Startups have to reward the stars or risk losing them.  Without star employees, they are sure to fail.

So considering the risks and rewards of startup life, is it wise to base a career on startup hopping?  For some, yes.  Success generally requires a combination of luck, skill, self confidence, perseverance and careful assessment of each opportunity.  A comfortable, secure lifestyle requires all of these to mesh within the first couple of opportunities.   Otherwise, you could easily be on the startup treadmill for your entire life – working hard and providing little long-term financial security for your family.

In future posts I will explore some key ways to increase the likelihood of success for startup hoppers.  I’ll also discuss the profile of people with a decent chance of success and those who should avoid a life in startups.

Are Sales Targets a Marketing Responsibility?

This morning I shared my 2nd half 2006 marketing objectives with a colleague from a different department.  He was surprised to see that I would include the H2 sales targets as a key marketing objective.  Though traditionally in most companies hitting short-term sales targets wasn’t a primary marketing responsibility – it should be today. Practitioners of metrics driven marketing understand that short-term bookings (particularly new bookings) goals are a key element in the model that is used for measuring the efficacy of our outbound marketing budgets.  Of course we also look at more granular numbers that relate to specific activities, but the aggregate numbers are also important.  Additionally, most venture funded companies are expected to grow quickly and marketing shares the responsibility for achieving target growth rates.  Obviously in the process of achieving short-term sales goals, marketers must be building long-term brand equity to support future sales momentum and ensure that target markets have the capacity to support future growth targets.  Marketing cannot escape the pressures of accountability to the top and bottom line.

Accidental Selling in Foreign Markets

I have spent about half my career working abroad and running international marketing teams, so you’ll probably be surprised by the following statement – I currently sell more product internationally by accident than through careful planning.  “Going international” is no longer the huge endeavor that it once was.  With online advertising, ecommerce and a good product, it is almost impossible not to go international.  This is particularly true for software, because of its easy digital delivery over the Internet.  However, moving from organic international growth via online advertising and ecommerce to aggressive market building in foreign countries is very challenging.  Product localization is only part of the picture; effective sales and marketing execution requires a “native touch”.  The necessary investment to build a local native team is huge, but is much less risky after traction has been established in a foreign market through organic growth. 

Yankee Group gets it right (mostly) about SMB online marketing

You may have noticed the recent release from Yankee Group regarding SMB online marketing. The release suggests that SMBs are “accelerating adoption of e-commerce and online marketing.”  Overall I agree with the findings of the report.  It’s a natural next step for SMBs who’ve created a web presence to begin promoting that presence.  However one thing jumped out at me that didn’t seem quite right; senior analyst Sanjeev Aggarwal believes “the area of online and search marketing has become too complicated for SMBs to tackle on their own.”  Though it is tempting to boast that what we do is rocket science, it really isn’t that complicated. Also, many SMBs don’t have a big enough budget to justify working with an outsider.  With a couple hours of research, they could easily start a Google ads campaign and most would see immediate benefit.  Of course at larger budgets, most SMBs should work with an outsider.

New Kotler Book on Marketing Metrics

I was excited to see that Philip Kotler (and Ned L. Roberto and John Davis) will publish a book in January ’07 called “Measuring Marketing: 103 Key Metrics Every Marketer Needs.”  I’ve always found Kotler’s books offer valuable marketing guidance in topics that complement metrics driven marketing.  However, since this book focuses entirely on marketing metrics, it should do a lot to validate the science of measuring marketing efficacy.  You can view the table of contents on the publisher’s website.  By the way, while Amazon lists Kotler as the first author, you’ll notice that publisher’s website only mentions John Davis.