How Numbers Lead Us Astray So Easily

Frogs, fish, dogs, spiders, hyenas, chimps and others in the animal kingdom all have an innate ability for counting. But we humans are easily fooled by numbers, especially when they’re presented in context. Learning to exploit the power of context can pay off big for marketers, but at the same time, marketers need to be careful not to be fooled themselves.

numbers
Creative Commons license. | Credit: Pixabay by fotoblend

Frogs, fish, dogs, spiders, hyenas, chimps and others in the animal kingdom all have an innate ability for counting. But we humans are easily fooled by numbers, especially when they’re presented in context. Learning to exploit the power of context can pay off big for marketers, but at the same time, marketers need to be careful not to be fooled themselves.

Consider the example of the Economist subscription offer discussed by Dan Ariely in his book “Predictably Irrational.” Ariely duplicated this subscription offer with a group of 100 MBA students:

Chuck McLeester Chart 1
Credit: Chuck McLeester

Which would you have chosen?

Repeating the exercise without the “decoy” offer of the print only subscription yielded the following results:

Chuck McLeester Chart 2
Credit: Chuck McLeester

Which would you have chosen this time? Clearly, context will fool us into perceiving the value of offers differently.

Fish are not so easily fooled.

“Small fish benefit from living in schools, and the more numerous the group, the statistically better a fish’s odds of escaping predation. As a result, many shoaling fish are excellent appraisers of relative head counts. Three-spined sticklebacks are … able to tell six fellow fish from seven, or 18 from 21 — a comparative power that many birds, mammals and even humans might find hard to beat.” Beastly Arithmetic, NYTimes Feb 6 2018

Psychology-based marketing expert Jeanette McMurtry says,

“When marketers discover the inconsistencies and irrationalities about how consumers make choices, they can create messaging that engages consumers’ minds, both conscious and unconscious. When that happens, there’s a lot more to ‘count’ when it comes to sales, revenue, ROI and lifetime value.”

One of the reasons we’re so easily tricked by numbers is our reliance on verbal intuition. In his book, “Thinking Fast and Slow,” Daniel Kahneman provides several illustrations of how our intuition gets in the way of arithmetic when we’re presented with numerical problems in a verbal context. What is your initial response to Kahneman’s word problem?

  • A ball and a bat cost $1.10
  • The bat costs one dollar more than the ball.
  • How much does the ball cost?

You would not be alone if your initial response was 10 cents. But you would be wrong. Because if the ball cost 10 cents and the bat costs one dollar more than the ball then the total cost would be $1.20.

Consider how you might take advantage of people’s intuitive responses when constructing offers, but don’t let your own intuition get in the way of making decisions. Sometimes marketers are fooled by test results because they look for cause and effect in results that could easily have happened randomly. If you’re testing creative variations with samples of 25,000 impressions and your usual clickthrough rates are in the range of 1 percent (which yields a results pool of about 250 clicks), you should know with that sample size and that average response rate, your results can vary by 10 percent. So, statistically there’s a 90 percent chance that you could have gotten 225 clicks or 275 clicks. Yet, if you got both those extremes in an A/B test, it would be easy to conclude that one cell beat the other by a lot.

We are similarly confused by percentages. Psychologists Rochel Gelman of Rutgers University and Jennifer Jacobs Danan of the University of California, Los Angeles, have studied how often reasonably well-educated people miscalculate percentages. We hear that the price of something rose by 50 percent and then fell by 50 percent, and we reflexively, mistakenly conclude, “Oh good, we’re back to where we started.” Beastly Arithmetic, NYTimes Feb 6 2018

Feel free to comment with your answer to this percentage problem, or with any thoughts or experiences you have on using consumers’ proclivity for intuition over rationality to better your marketing efforts.

How Much Should You Spend on Google AdWords?

One of the most frequent questions I receive about Google AdWords is, “How much should I be spending on my AdWords campaign?” That’s a great question, and the short answer is, “It depends.”

Editor’s Note: Don’t miss Phil Frost’s upcoming webinar “Old School SEO Is Dead: What you can do to adapt to Google and the new world of search marketing,” live on February 25. Click here to register.

One of the most frequent questions I receive about Google AdWords is, “How much should I be spending on my AdWords campaign?” That’s a great question, and the short answer is, “It depends.” One of the great things about AdWords is that it is highly customizable, allowing you to make the decisions that best fit your business needs. The downside is that it is not easy to see at a glance how best to manage your AdWords budget.

Fortunately, we have developed a formula that allows you to plug in your numbers and calculate a realistic budget. It breaks down into two phases: Testing and ROI.

Phase 1: Testing

When you begin your Google AdWords campaign, you will need to test several ideas to see what works for you and what doesn’t. While some campaigns are profitable right out of the gate, many others are not. Consider your testing phase to be a form of market research, and plan to invest those dollars without the expectation of getting them back.

Before you begin, gather the following information:

  • Target Keywords Cost Per Click (CPC): Google AdWords follows a pay per click (PPC) model. No matter how many times your ad appears, you only pay when a prospect actually clicks on it. For each keyword, you will pay a different amount of money for that click. This is known as the CPC, or cost per click. For example, Google estimates that “coffee shop” costs $2.90 per click, while “mortgage broker” costs $13.76.

Make a list of the keywords that you want to test, and then use the Google AdWords Keyword Planner Tool to estimate the CPC for each of those keywords. Remember that this is just an estimate, so your actual cost may be higher or lower.

  • Time Frame: How long can you spend in the testing phase before you need to see your results? This is partly dependent on your industry and the keywords you choose. Some keywords have a higher search volume than others, making it easier to get results in a shorter time frame. Also consider your normal sales cycle. Do customers tend to purchase in one day, or does it take months for them to make up their minds? The lower your search volume and the longer your sales cycle, the longer it will take for you to obtain accurate data.
  • Sales Conversion Rates: As a general rule of thumb it’s safe to estimate that 1 in 100 people (1 percent) who view an AdWords ad will click on it, and 1 in 100 clicks (1 percent) will convert into a paying customer. These are estimates, and your ads might drive more or less traffic, but they work for planning purposes in the testing phase.

Now you are ready to put together your testing budget:

  • Per Keyword Cost to Test: If you can turn 1 in 100 clicks into a customer, then the estimated cost per sale is the cost per click (CPC) divided by 1 percent. For example, a keyword that costs $3 per click will cost you an estimated $300 for one sale. Go through the same process for each keyword you want to test, and add up the results to get your total budget.
  • Monthly Testing Budget: To generate a per-month Google AdWords budget, divide your total keyword costs to test by the number of months you want to allot to the testing phase. For example, if your total costs calculated earlier are $2,000, then you could budget $500 per month for 4 months. Or if you wanted to test faster, then $1,000 per month for 2 months.

Phase 2: ROI

Once your testing phase is complete, and you have generated a handful of sales from your ads, then it’s time to move into the ROI phase. The goal here is obviously to maximize return on investment from AdWords.

What should your budget be in the ROI phase? If your ads are profitable, then the answer is you should ditch your budget altogether! If every dollar you spend nets you more than a dollar in sales, it only makes sense to invest as many dollars as possible.

While many businesses focus on writing better ads, which improves the AdWords quality score and reduces the cost per click (CPC), that’s only half of the equation. The real magic comes from the EPC, or earnings per click.

To find your EPC, just multiply your customer value times your conversion rate. Your Customer Value is the average amount that one customer spends on your product or service minus your fulfillment costs. Your conversion rate is the percentage of clicks that become paying customers. So if the customer value is $100 and you have a 1 percent conversion rate, your EPC is $1.00.

Why Is EPC so important?

Well, it tells you exactly how much you can afford to pay per click for every single keyword in your account! If you pay more than your EPC, then you’ll be unprofitable. If you pay less, then you’re profitable. It’s as simple as that.

That means the key to AdWords success is to maximize your EPC by increasing both your customer value and your conversion rates.

Google AdWords is a highly customizable and extremely powerful advertising network, but it can be a bit overwhelming for newcomers. That’s why I put together an AdWords checklist to help you get your campaigns set up for success. Click here to get my Google AdWords checklist.

PPC Shockers and Secrets

Pay per click (PPC), particularly Google AdWords, is a marketing channel that can produce profitable results for your business, whether your goal is lead generation or sales. I have been managing PPC for businesses, as an in-house marketing leader as well as marketing consultant, for over a decade now. Though the years, I have noticed many secrets to success that I wanted to share—especially with business owners and marketers that haven’t tried PPC yet.

Pay per click (PPC), particularly Google AdWords, is a marketing channel that can produce profitable results for your business, whether your goal is lead generation or sales.

I have been managing PPC for businesses, as an in-house marketing leader as well as marketing consultant, for over a decade now.

Though the years, I have noticed many secrets to success that I wanted to share—especially with business owners and marketers that haven’t tried PPC yet.

First, I’d like to clear the air about a big shocker … or actually a fallacy … that you need a big budget to run an effective PPC campaign.

You don’t. If you happen to have a large budget, your ads will be shown more and you can spread out your ad groups and test different types. With a smaller budget, you do need to be more judicious with your efforts. But if you market smarter, not broader, your campaigns can still produce positive results.

I have run PPC campaigns with total monthly budgets of $1,000. I have run campaigns with total daily maximum budgets ranging from $25 to $50. These campaigns brought in both sales and leads, despite their limited spending. But they do require active management, strategic thinking, deep PPC knowledge and refinement/optimization.

The PPC Tri-Pod
What is going to determine the cost and return of your campaign are three simple things I call the “PPC Tri-pod”, as it supports your entire PPC efforts:

  1. Keywords
  2. Creative (or banner ad, if it’s running on the display network)
  3. Redirect URL

So in order for you to get the most bang for your buck with PPC, you should be aware of a few things regarding the PPC Tri-pod:

Keywords. The more popular the keyword, the more cost per click (CPC) it’s going to have. So it’s very important to do your keyword research before you start selecting your keywords as you’re setting up your campaign.

I like to use Keywordspy.com. The “lite” version is free, but you can also upgrade to the full version and see more results and have more capabilities for a monthly fee. Google used to have its Keyword External Tool, which has since morphed into Google AdWords Keyword Planner. You need a Gmail account to access this free tool.

Either of these tools will allow you to enter keywords or keyword phrases and then view popularity (actual search results), as well as what the average CPCs are. This is important for your keyword selection and bidding. You can also type in your “core” or focus keywords and get additional ad group/keyword ideas. To help refine your search terms, you can also choose broad match, broad match modifier, phrase match, exact match and negative match.

If you pick a word that is too vague or too under-searched, your ad will not see much (or any) action. Impressions will either not be served, or if they are served (in the case of a vague word), it may cost you a high CPC. In addition, a vague keyword may not be relevant enough to get you a good conversion rate. Because you pay by the click, your goal is to monetize that click by getting an instant conversion. And conversions, my friends, will be the role of the landing page. I’ll talk about that more in a moment.

Creative. This is your text ad (or banner ad, if you’re running in AdWords’ display network). For Google to rank your ad favorably, and more importantly, for you to get the best conversion results possible—there needs to be a relevancy and synergy between your keyword, text ad and landing page. Google will let you know if you’re not passing muster by your ad’s page position and quality score. Once you’ve carefully researched and selected your ad group keywords, you’ll want to make sure those keywords are consistent across the board with your ad and landing page. Your text ad has four visible lines with limited character count:

  1. Headline (25 Characters)
  2. Description Line 1 (35 Characters)
  3. Description Line 2 (35 Characters)
  4. Display URL (35 Characters)

Your keyword must appear in your text ad, as well as follow through and appear in the content of your landing page.

This will give you a good quality rank with Google, but also help qualify the prospect and carry the relevancy of the ad through to the landing page. Why is this important? It helps maintain consistency of the message and also set expectations with the end user. You don’t want to present one ad, and then have a completely different landing page come up.

Not only is that a “bait and switch,” but it’s costly. Because you’re paying for clicks, a great ad that is compelling and keyword rich, but not cohesive to your landing page, will not convert as well as one that is. And your campaign will actually lose conversions.

Redirect URL. This is your landing page. Different goals and different industries will have different formats. A lead generation campaign, which is just looking to collect email addresses to build an opt-in email list, will be a “squeeze page.” This is simply a landing page with a form asking for first name and email address in return for giving something away for free—albeit a bonus report, free newsletter subscription or similar. It got its name because it’s “squeezing” an email address from the prospect. Some retail campaigns will direct prospects directly to e-commerce sites or catalog pages (as opposed to a sales page). Direct response online marketers will drive their traffic to a targeted promotional landing page where it’s not typically a Web page where there’s other navigation or distractions that will take the prospect away from the main goal. It’s more streamlined and focused. The copy is not technical, it’s compelling and emotional, like promotional copy you would see in a sales letter. The anatomy of your redirect URL will vary on your goal and offer. It will take optimization and testing to see what’s working and what’s not. And that’s par for the course. If you’re testing, I suggest elements that scream and not whisper, such as long copy vs. short copy, or headlines and leads that are different themes. However, no matter what your goal, whether it’s going for the sale or the email address, you still need keyword consistency between all creative elements.

Tips And Tricks For Maximum ROI
Whether you have a big or small budget, there are a few things I’ve learned during the years that help the overall performance of a PPC campaign. Some of these are anecdotal, so if you’ve seen otherwise, I suggest testing to see if it makes a difference to your particular industry.

Ad and Landing Page. In general, I have noticed that shorter, to the point, landing pages produce better results. And the rationale is quite obvious. People searching the Web are looking for quick solutions to a problem. This means your creatives have to not only be keyword rich, but compelling and eye-caching. You have seconds to grab a Web surfer’s attention and get them to click. In the same sense, the landing page has to be equally relevant and persuasive, and typically shorter in copy. Keep in mind Google has many rules surrounding ad copy development. So write your text ads in accordance to its advertising policy.

Price Point. Again, in my personal experience, most Web surfers have a price threshold. And that’s items under about $79. When running a PPC campaign, think about price points that are more tolerable to “cold” prospects; that is, people who haven’t built a relationship with you or know anything about you. They have no brand loyalty. They don’t know you from Adam. So getting a sale at a lower price point is an easier sell than a product you have that costs hundreds of dollars. Luxury items or items with strong recognition and brand loyalty are the exception to that rule. As a direct response marketer, I urge you to price test and see for yourself.

Campaign Set-up. There are a few tactics I notice that help with ad exposure, clicks and saving money. When you’re setting up your campaign you can day-part, frequency cap and run ad extensions. Day parting allows you to select the hours of the day you’d like your campaign to run; ad extensions allow you to add components to your text ad to help visibility and call to action—such as location, site links, reviews and more; And frequency capping lets you set a threshold on how many times you’d like a given person to see your ad (based on impressions).

PPC Networks. It’s smart not to put all your eggs in one basket. In addition to Google AdWords, try running campaigns on other PPC networks, such as Bing/Yahoo, Adroll (retargeting through Facebook), Advertising.com/AdSonar.com, SiteScout.com (formerly Adbrite.com), and Kanoodle.com. Then see where you get the best cost per click, cost per conversion and overall results.

I’ve only touched the surface here. There are more tactics and features that can help a PPC campaign’s performance. So get yourself familiar with it, read up on the best practices, and don’t be afraid to put your toe in the water. As with any marketing tactic, some channels will work for your business, and some won’t. But you won’t know unless you test. Just remember the foundation of success hinges on the PPC Tri-Pod. The possibilities are endless.

How Performance Marketing Accelerates B-to-B Prospecting

Every time you turn around, a new “performance marketing” opportunity turns up for B-to-B marketers. What a treasure trove! And on the face of it, a real boon, because you only pay when your prospect takes the action you’re looking for—the click, the download, the purchase, whatever. But there are some potholes to consider. Let’s look at how marketers get value out of this approach to finding new customers.

Every time you turn around, a new “performance marketing” opportunity turns up for B-to-B marketers. What a treasure trove! And on the face of it, a real boon, because you only pay when your prospect takes the action you’re looking for—the click, the download, the purchase, whatever. But there are some potholes to consider. Let’s look at how marketers get value out of this approach to finding new customers.

To back up, what is this performance marketing thing, anyway? It generally means that the media channel owner conducts a campaign and charges the marketer an agreed price for every respondent, according to predetermined criteria. There are scads of ways performance marketing is being applied across the B-to-B go-to-market spectrum. So far, this is what I know:

  • Pay per click. The grand-daddy of performance marketing, the system that sent Google’s fortunes into the stratosphere. You only pay when a prospect clicks on your selected keyword(s). The secret to success here is choosing the right keywords and sending the clicker to a brilliantly written landing page, where you have a prayer of converting them from a mere clicker to something else, like a prospect with whom you can continue a conversation. Some banner advertising and email rental lists are sold this way, as well.
  • Pay per lead. This highly popular technique was pioneered by trade publishers looking for ways to extend the value of their customer access. Ziff Davis and TechTarget are leaders in the tech industry world, using “content syndication,” distributing marketers’ white papers and research reports, and charging by response. MadisonLogic offers pay per lead programs via banner ads to a network of 300 publishers, with particular strength in the HR and technology sectors. Another player is True Influence, which uses email to its own compiled database of business buyers.
  • Pay per appointment. Hiring a telemarketing shop to conduct appointment-setting programs for sales reps is a long-time staple of the B-to-B marketing toolkit, and often priced by the appointment. Myriad call centers offer this kind of pricing.
  • Pay per PR placement. Several PR agencies have taken the big step of pricing their services on a pay-for-placement basis. Amid much hand-wringing among PR professionals, the model’s strong appeal to marketers is likely to mean continued experimentation.

Is the next logical step some kind of pay-for-performance results guarantee from creative agencies? I doubt it. I posed that question recently to Warren Hunter, Chairman of DMW Direct, who said firmly, “No way.” Since they are a direct marketing agency and thus used to delivering highly measurable results, I thought there might be a shot. But here’s how Warren explained his position. “If you give me control of the creative and the media, sure. Without that, there are too many variables that impact the results.”

The newest entrant in performance marketing is the daily deal business, pioneered by Groupon and Living Social. You might call this “pay per new customer.” In the B-to-B space, some experiments are underway like BizyDeal and RapidBuyr, but they don’t appear to have really taken off yet. Except for very small business, this is not how businesses buy.

My net takeaway on this subject is the old adage that you get what you pay for. When you think about it, the performance model has an inherent bias against quality, so marketers need to do the math. Avoid this model unless you have good data on conversion rates—conversion to qualified lead, and then conversion to a sale. With that data in hand, you can determine a profitable price and buy leads and appointments till the cows come home.

Based on my experience using PI (Per Inquiry) deals with cable TV operators years ago, I know that the “pay per” model works best if both sides have a track record with that offer in that medium. The media owner knows what kind of response it’s going to get, and the marketer knows the lifetime value of the new customer. So one way to increase the likelihood of success is to run a campaign using traditional pricing and then convert to performance-based pricing after generating some experience.

Where is performance marketing in B-to-B headed? Erik Matlick, founder of MadisonLogic, shared a few observations with me recently:

  • Marketers will get savvier about recognizing the importance of nurturing these contacts and converting them to eventual revenue. The new trend is assigning separate budgets, one devoted to generating “net new” leads and another to nurturing them to the right level of qualification.
  • Suppliers of leads should begin to offer account-level services. Most marketers need to reach multiple contacts in a target account to influence the various buying roles.

I would add my own prediction: The sky’s the limit for creative ways vendors can craft new performance-based marketing programs. Marketers have plenty to look forward to.

A version of this post appeared in Biznology, the digital marketing blog.