Thursday, September 27, 2007

Spend less on advertising!

A version of this piece was published in Marketing in 2007

This week I recommend you spend less on advertising online.

Last year’s IAB report showed a 41% increase in online advertising spend, this year’s figures are due to be released this month - the only discussion is how much the increase will be, not whether there will be one. This is of course very good news for companies that are in the business of buying digital media, so why would I suggest you spend less?  

First, take a look at where you are spending your digital marketing budget.  If you are like most companies, 100% will be spent on display advertising, search and affiliates.  Driving traffic to your web properties is of course very important, but what too many companies are still failing to recognise is that getting the customer to the front door is only one part of the sales process.  Arguably it’s the easiest part too; converting the visitor into a customer is much more challenging.

I’m a numbers guy, so let’s get back to budgets.  If you spend £1,000,000 on online marketing to generate 2,000,000 unique visitors and manage to subsequently convert 3% of your visitors you might be pretty happy. That’s 60,000 new customers at a Cost Per Acquisition (CPA) of £16.66.

But think about the key figure in this equation – the conversion percentage.  What if we could raise that by just a quarter of a percent, by taking £50,000 of budget and using that to focus on site conversion rather than driving traffic to the site? 

The new numbers are revealing.  Using the same ratio as above a spend of £950,000 (that’s £1,000,000 less the £50,000 earmarked for increasing site conversion) would generate 1,900,000 visitors. If you convert at 3.25% you’ll get 61,750 new customers at a CPA of £16.19  So that 3% more customers for a CPA that is 3% lower. 

This is of course a no-brainer.  Who wouldn’t opt to spend £50,000 to increased conversion by a quarter of a percent? 

Well surprisingly, a lot of companies don’t – and it’s not as difficult as you might think.  Many companies say they have this under control - they regularly perform usability testing and adjust their site accordingly.  This is a good start, but it puts the emphasis on the site, and not on the customer.  That’s why Customer Experience testing is an increasingly popular approach as the online channel grows in value.

To understand the difference, think about how a typical usability study works.  Typically 8-12 participants are asked to complete a series of tasks that follow a relatively logical pattern – find information about product X, register, buy the product, contact the company, etc.  The focus is the site, and the key question you’re answering is, “does what I’ve got work”.

In contrast, a typical Customer Experience test begins with a 30 minute discussion before the participant even touches a PC.  This sets the scene, establishing motivations and emotions prior to the start of the purchase process (perhaps a search).  Once on the site itself the moderator will allow customers to take their natural path rather than following a prescribed list of set tasks.

This approach allows the marketer to garner much more valuable information – what the customer actually wants – rather than whether what has been provided works.   

As a marketer, this approach should sound familiar.  Think about how you test consumer reaction to new products.  Your main interest is not whether the product works but rather whether customers want it, how they use it and how they view it.

The difference approaches might sound subtle, but the difference in results is not. If you want to maximise your chances of increasing online conversions, what should be at the heart of your online business strategy – your site or your customers?  A usability study by its very nature puts the site at the heart of the process.  Shouldn’t customers be the heart of your business?