What Matters Is the Perception of Value, Not So Much the Product

A lot has been written recently on how the perception of value rather than a formularized multiple of “cost” can help guide your pricing decisions. If you can honestly get the customer to perceive a higher value for your product than a simple markup on cost, it permits you a higher ROMI and a greater ACPO.

A lot has been written recently on how the perception of value rather than a formularized multiple of “cost” can help guide your pricing decisions.

In a previous blog post, I recounted the story of the “thank you” gift given to the U.S. Ambassador to Brazil by the chairman of the American Chamber of Commerce. He presented Madame Ambassador with a small blue Tiffany box and said:

“Here is a small gift to show our appreciation for your support.”

Her answer should be writ large on Tiffany’s advertising.

“There is no such thing as a small gift from Tiffany.”

That says it all. Imagine that whatever was in the Tiffany blue box had actually been purchased less expensively from some other source. Would anyone question that the gift’s perceived value grew exponentially when it appeared to be from Tiffany? I remember a humorous ad in the university newspaper offering Brooks Brothers, Paul Stuart, and J. Crew labels to sew into your discount purchased garments to upgrade them by endowing them with the right Ivy League cachet. Somebody understood the magic of perception.

If you haven’t watched Flint McGlaughlin’s excellent presentation from MECLABS Institute you should. His insights make a very strong case for his pricing methodology, which is really worth studying.

Pricing of products or services is one of the key strategic aspects of all businesses. It is fairly easy to look at what your competitor is doing and use that as a benchmark. But “me-too” market pricing is seldom enough and certainly not the way to have a big success. If you can honestly get the customer to perceive a higher value for your product than a simple markup on cost, it permits you not only a higher ROMI (Return on Marketing Investment) but it also often provides a greater allowable cost per order (ACPO) — more money with which to promote, more customers and, hopefully, greater profits.

The profusion of “subscription” offers in the marketplace is testament to the simple economic truth that if you can engage or enroll someone in a program of purchases, the likelihood of being able to transform a “product” into a “service” is greatly enhanced. And services tend to have higher margins. You may remember the story of the 40 or so Microsoft executives in Brazil who, when asked how many had subscriptions, very few hands went up. But when asked how many had Netflix, virtually all of the hands went up. Netflix had managed to eliminate the negative perception some people have to a “subscription” simply by not using the dreaded “S” word.

What has been surprising is that Netflix competition’s pricing appears to have been forced down to undercut Netflix. Looking at all of the streamers, there appears to be much too little effort to segment customers, to determine their individual perceptions of the value of the services (other than to see how many people subscribe and at what cost) and to reengineer the offerings to cater to perceived values. As Rafi Mohammed, the founder of “Culture of Profit,” wrote in the Harvard Business Review:

A one-price-fits-all strategy fails to acknowledge the simple fact that for any product or service, customers have unique needs and a different willingness to pay. With few rivals, mandating all-you-can-watch pricing was once tolerable. But to win in today’s competitive market, streaming companies need to step up their pricing strategies by offering choices to better accommodate the needs of their customers.

He hits the jackpot when he observes, “ … customers have unique needs and a different willingness to pay” and these needs and this willingness are driven, to a significant degree, by how much each customer perceives the services to be worth. That perception reflects the subscriber’s assessment of the channel’s content. For certain affluent customers, the more content that is unique and the subscriber “believes” will meet his/her tastes, the more likely to purchase a premium package, especially if it has “exclusive” content. The couch potato who is less choosy and has a tighter budget will probably go for the cheapest option.

As we can see in this example, the pricing has little to do with the product and service “costs,” which are probably similar for both the premium and economy versions. What matters is the perception of value.

If you don’t embrace the reality that perception may matter more than some other criterion for pricing and how your prospect looks at your offering, you may never have given anyone a little blue box from Tiffany.

Wunderman’s Lesson: Marketing Isn’t a Product, It’s a Partnership

Over the past few years, relations between ad agencies and clients have been in an even greater state of flux than usual. The nature of just what a marketing agency is and what it does has many definitions. But the key issue is whether the agency, internal or external, is a strategic partner or just another supplier.

Over the past few years, relations between ad agencies and clients have been in an even greater state of flux than usual.

The nature of just what an agency is and what it does has many definitions. But the key issue is whether the agency, internal or external, is a strategic partner or just another supplier. Occupied with headcounts and finance, the suits in the C-suites often don’t understand the difference. And that spells trouble and bad work ahead.

I well remember a client lunch many years ago.

The location was a private room in an excellent restaurant in Lille, France. At the head of the table sat the president of La Redoute, France’s dominant mail order catalog company. Alongside were his recently appointed commercial director and some associates. Facing him from the other end was Lester Wunderman, flanked by Jean Larue, the CEO of the Wunderman French company, and myself. The atmosphere was polite, but tense.

La Redoute was our largest French client, by far; and until the arrival of the new commercial director, relations had been excellent and the measurable results of the work above anyone’s expectations. Drunk on his new power, the new commercial director, an ex-underwear buyer for a competitive mail-order company, was threatening to put the La Redoute advertising business up for review and search for new agencies he insisted “would be less expensive.” No doubt, that’s how he bought underwear. Our problem was that if we lost this business, we would essentially have to start the agency over, from scratch.

The arguments in French and English went back and forth over dessert and cheese, and were getting contentious — until Lester Wunderman held up one hand to silence the room and spoke for the first time. La Redoute, he said, was one of his favorite clients, because they had had the courage to invest in an innovative strategic partnership with the agency and great creative work. It had paid off handsomely.

“Now everything seems to have changed” he said. “We are no longer being seen as partners and are being treated no differently than the hundreds of salesmen for suppliers (fournisseurs) of goods, who pitch their products to the company every day.” Then, switching to French, he pronounced emphatically: “Nous ne sommes pas des fournisseurs!” (We are not suppliers). He then thanked the La Redoute president for hosting the lunch, rose and headed for the door.

Before he could reach it, the president had jumped up, taken him by the arm to sit next to him and, full of warmth and Gallic charm, asserted that there was obviously a misunderstanding, which he would personally and immediately put right. Summoning a waiter, an excellent Cognac was rapidly ordered and served.

The lesson was lost on no one.

Creating marketing excellence lives in a different universe than purchasing paperclips or underwear. In today’s fast-changing and highly competitive commercial environment, replete with excellent metrics, cost is only one factor in the multiple equations that measure success or failure. Head counts are no doubt very important, but companies and agencies would do well to chase value — rather than delude themselves into thinking they are saving a few pennies.

How does the CEO or finance chief know whether what they are paying for is worth the price? There is no easy way to tell, until the return on the marketing investment (ROMI) has been determined. The La Redoute president saw in Lester Wunderman’s demeanor and words about not being a fournisseur, that genius, pride, and integrity had a value that was unquantifiable.

Relations between agencies and their clients have always been sensitive, and moving the work inside the client company may superficially solve certain problems — but probably won’t. “Who knows best is a constant battle, which pits egos and backgrounds against one another in sometimes near-lethal confrontations. Imagine the argument over strategy between a 20-something data maven and a 40-something traditional creative director.

Agency reps who had never heard the word “data,” and whose attitude to “below-the-line” was, at best, dismissive, have been driven by technologies that are profoundly changing the whole concept of advertising, whether they like it or not. Below the line, as evidenced by the absorption of prestigious brand agencies like J. Walter Thompson into direct marketing groups like Wunderman, is more and more where the action is.

Many major companies have tried to solve this problem by building internal agencies with special skills dedicated to their businesses — with varying degrees of success. According to Forbes, ”64% of corporate America have in-house agencies today. Just 10 years ago, that number was 42%.”

The challenge will be if CEOs and finance chiefs can put their macro equations on performance aside and concentrate on building marketing excellence. If they do, they will no doubt see improved ROMIs, whether their marketing is internal or with outside agencies. Or probably better, with both.

Why C-Suites Are Agonizing Over the Death of Email

The higher on the corporate totem pole the executive who leaped to a premature conclusion of email’s demise, the less likely he or she is to have the time and patience to carefully drill down into the data.

There is no question that many of the fat cats inhabiting C-suites today are nervously scratching their heads and trying to conjure up strategies to protect their empires against the possibility of an economic downturn. The barbarians are not yet at the elevators; but with all the changes happening in the marketplace and Cassandra predictions that the happy days of the strong economy are coming to an end, probably sooner rather than later, the day of reckoning may not be too far off.

It is probably a good time to start worrying — if not a bit late. While the macro data and quarterly earnings calls — which always seem to be the focus of our corporate leaders — are clearly important, they often reflect superficial understanding of what’s really going on. Or the micro profit dynamics that fuel their businesses.

“I´m afraid that email is already a dead platform” complained a senior executive, having seen her company’s latest dashboard — showing a pronounced decrease in the number of responses, compared to the previous years. The conclusion: “Nobody reads emails anymore.”

That’s what we used to call, in less politically correct times, “mother-in-law research.” Suffice it to say that, on the basis of available information, the paraphrase of Mark Twain’s classic remark when he read his own obituary in the newspaper is appropriate here:

“The reports of my death (or in this case, the death of email) are greatly exaggerated.” That doesn’t mean it’s as healthy as it might be, but it may be a little early to call the undertaker.

Rodrigo Mesquita, of Return Path, a company that has an admitted preference for email as a medium, likes to quote the initial paragraph of his company’s useful study, “The State of Email”:

“Studies show that a vast majority of consumers prefer email for brand communications, and current projections indicate that by 2021, there will be more than 4.1 billion email users, worldwide.”

The trouble is that the higher on the corporate totem pole the executive who leaped to a premature conclusion of email’s demise, the less likely he or she is to have the time and patience to carefully drill down into the data and discover such critical factors as its overuse, its increasingly dirty data, or sub-optimal delivery rates — to say nothing of the creative quality of the communications.

What is more likely is an edict issued from on high, cutting the very resources that could make the email regain its place as the least expensive medium per thousand with the greatest reach and the ability for personalization, known to be a critically important element of today’s marketing and the medium with the highest ROMI (the M is for “Marketing) and the least up-front cash investment. But that’s a level of detail that seldom makes it up the last flight of steps to the C-suite. It’s too micro for management attention.

Haven’t we all seen it happen dozens of times?

Who is easier to blame for the figures that don’t come up to budget than the marketing team?

It is well-known that as public corporations look toward the end of any given calendar quarter and the estimated profit figure looks below forecast, the easiest way of instantly cutting significant expense is to cancel a large chunk of the current marketing budget. As costs come instantly down, the other end of this seesaw, profits, rise magically up. And does it really matter to the company’s success in the long run? There have been lots of learned MBA thesis on this subject, but no one is certain.

What is certain is the tendency of many companies to still view marketing as an “overhead.” The useful publication, Digiday, recently headlined an intriguing piece: “ ‘Overhead’: Why marketing is still seen as a cost-center,” which looks at some of the reasons why marketing often gets the blame when things go wrong.

Despite chief marketing officers making the case for how important marketing is to an overall business, marketing’s reputation as a “cost center,” versus one that actually drives profits, is hard to shake off …

Reducing marketing overhead became the standard approach for troubled brands following the 2008 recession. Procter & Gamble, Unilever, and General Mills, among others, cut their marketing spend, slashed their agency rosters and gave procurement departments much more power putting cost above all else. [My bolding.] That approach hasn’t always proved successful — look at what cost-cutting has done to Sears or Kraft-Heinz — but it hasn’t dissuaded the C-suite from slicing and dicing marketing.

Are companies going to be any smarter the next time? Your guess is as good as mine.

Conclusion

Until the C-suite executives stop “putting cost above all else and do the work of truly understanding how, in today’s increasingly B2C environment, marketing is the only bridge between the business and its customer, they are often falling into the water. Bean counters in the procurement departments are trained to buy as cheaply as possible. Not understanding the economic process that is data-driven marketing, their knee-jerk reaction is to cut expenses. Those cuts are often counter-productive. Procurement can always save a bundle getting the order to the customer in a week rather than the same day. And what’s all this wasted expense for CRM actions?

“Overhead” need not be a dirty word; especially when the majority of what is often labelled “overhead” is often the cost of the fuel which powers the total sales process.

Simplistic as it may sound; the bottom line should always be “the bottom line.” Before discarding an effective medium like email or decimating an effective marketing program by mislabeling it “overhead,” C-suite executives might do well to look carefully at the micro issues — what actually happens with each customer — instead of only at the big numbers.

It might be worth knowing that according to the Wall Street Journal, “Average Tenure of CMO Slips to 43 Months.”

Bonus

If you crave success and justified adulation, glory may be waiting for you at echolatam.org.

As data and AI increasingly drive our industry and there is increased focus on the bottom line, I’ve developed a special respect for the International ECHO Awards. They were born in the United States 80 years ago and are now also present in Latin America and Brazil.

We all know there are many advertising awards, wonderful for our egos and our CVs when we win one. The best known is the Cannes International Festival of Creativity. Cannes celebrates creativity, while paying lip service to strategy and measurable results. That’s great, as far as it goes.

But as you know, our targeted business has other dimensions that deserve to be acknowledged and rewarded. That’s the purpose of the International ECHO Awards, the only ones that consistently rate campaigns on the three pillars of Strategy, Creative and Res,ults, giving equal weight to each of these components. The type of results ECHO measures are business results, the bottom line.

Entries are open through Aug. 27. Get all of the details at echolatam.org.

8 Website Elements for Strong Marketing ROI

There are many elements that go into creating a great business website. Any list of the most important is bound to leave a few worthy contenders off, but I’ll take my chances with this list of what I think are the elements worth paying attention to first.

Many elements go into creating a great business website. Any list of the most important of these is bound to leave a few worthy contenders off, but I’ll take my chances with this list of website elements I think are worth paying attention to first. (And I’d love to hear what you think should be on the list but isn’t, and what you’d remove to make room.)

1. Informative Content

Prospects aren’t browsing your website because they have nothing better to do or because they’re in a procrastinating mood — that’s what Facebook is for. They are on your website, or looking for a website like yours, because they have a problem to solve.

So, one element I’m not likely to remove — or even move down the list — is informative content. No matter what else your website has going for it, you’re not going to attract an audience or keep their attention if you don’t have content that helps them solve the problems they are facing. It’s just that simple.

2. A Prospect-centric Perspective

One way you can make your website content more attractive to your prospects is to present it from their perspective. That means writing from their perspective, rather than yours, discussing the problem from their perspective, and even organizing your site from their perspective.

(If “About Us” is the first thing on your website’s main menu, you’ve got some rethinking to do.)

3. SEO Awareness

The right tone and perspective will help keep prospects interested, but you’ve got to get them to the site first. Building a site that is SEO-aware is critical. Whether or not a full-blown SEO campaign is a good fit for your services, target audience and competitive market is another question worth in-depth analysis.

Either way, you want to make your site as easy to find as it can be.

4. Frequent Updates

Once you’re comfortable with the SEO requirements for the content most attractive to your audience, keep the content taps open. Update the site on a frequent and regular basis. Not only is this helpful for SEO, it’s also the fuel for powering many other aspects of your marketing — email marketing, social media, even more traditional marketing channels like direct mail.

You have to have something of value to share. Your website should be the central gathering point for this content.

Don’t overlook evergreen content, though. Its value is, of course, in its timelessness. But you can add more value by updating it, adding similar content from a slightly different perspective or tailoring it more specifically to a particular audience segment.

5. Calls to Action

Getting prospects to your site doesn’t magically turn them into customers, even if your content has them quietly nodding their heads in agreement. You have to provide a way for them to take the next step.

From newsletter signups to worksheet downloads to appointment booking tools, your site must have calls to action that encourage, yes, action! Get them to take the next step; invest a little bit more in the relationship until picking up the phone or setting an appointment seems like a natural next step, rather than an intrusion from a salesperson.

Data, Data Everywhere: Nary a Bargain to Find?

Stephen Yu’s recent and extremely thought-provoking piece on AI started me wondering once again about the dangers of data overload and whether we’ll ever really, really understand the purchasing decisions people make, how they make them and be able to track them accurately.

Data mining
“Big_Data_Prob,” Creative Commons license. | Credit: Flickr by KamiPhuc

Stephen Yu’s recent and extremely thought-provoking piece on AI started me wondering once again about the dangers of data overload and whether we’ll ever really, really understand the purchasing decisions people make, how they make them and be able to track them accurately.

Because today’s machines gobble data and — like my dog eats anything he can get jaws around — we marketers seem to search for more and more bytes in the hope that sifting through this mega data will hold the keys to the holy grail of maximum profitability. Perhaps it will. But as a disciple of Lester Wunderman, I can’t let go of his oft-expressed prescient warning that “Data is an expense. Knowledge is a bargain.”

Admittedly, when this was first expressed, data was one hell of a lot more expensive to keep and handle than it is today and shaking knowledge out of it was very difficult. But that’s hardly the point. Our trade press is now overflowing with titles like “Planning and Measuring Social Media Campaigns” (Sysomos), the “Email Marketing Metric You May Not Know” and unnumbered guides to the customer journey. But I’m still waiting for the definitive article that leaves all of the peripheral data by the side of the road and presents a usable and believable knowledge-based metric model to measure the cost of each step in the journey from awareness through to final purchase. In today’s multi-media environment, that’s the metric model we are all waiting for. Will we ever get it? Will AI provide it? I’m not so sure.

There is historically a different focus between top management whose attention is quite sensibly on macro numbers and operational marketers who know that it is the micro numbers that spotlight big opportunities. The ROMI, the return on the total marketing investment, is the bottom line for both: How much did we earn for how much marketing money invested? Simple.

But at what milestones in the customer journey did the momentum toward purchase increase and at what others did the potential customer take a turn away from purchase and why? That’s the type of data we need if we are to optimize our practice and it will surely impact the ROMI. Sadly in many cases, we will never know.

Recently, some of my Brazilian colleagues created a very strong email campaign as the first stage in persuading well-segmented prospects to clickthrough to a website to register interest and gain a price advantage in making a major purchase. The client reported that while the website was receiving a lot of activity, only a tiny fraction came as the expected clickthrough from the emails. The client was understandably angry and it didn’t make any sense.

Every adult Brazilian has a unique CPF number, which is regularly requested and used to identify the individual in financial transactions. It’s rather like an American Social Security number. Because my colleagues were fortunate enough to have the CPFs of the prospects to whom the emails had been sent and as registration on the website also required a CPF, it was a relatively easy task to compare the two groups to determine how many of the registrants had been sent the emails, even if they hadn’t availed themselves of the clickthrough option. It turned out to be a happily large percentage.

While research has been undertaken to determine why, any measurement of the relation of emails to registrations and their cost would have been both misguided and meaningless. If the marketers had decided to stop using the emails because, as they said, ”emails didn’t generate any response,” they would have been making a critical error.

Perhaps that’s a long way around the issue of just why, with all of the enormous data and sophisticated tools at our disposal, we just can’t develop a meaningful metric model that reliably tracks the prospect along the path to becoming a customer. And it argues that while AI will certainly add valuable knowledge, getting inside the head of a prospect and truly understanding his/her actions is a long way off.

Direct, Data-driven Marketing Increase Brand Equity

I may be a ripe heretical candidate to be barbecued at the stake by my more conservative direct marketing colleagues, but I’ve come to the conclusion that communications which enhance brand equity should be accounted for as such, and that this value must be part of and added to the data-driven marketing equation.

Opening Keynote - Dinosaurs & Cowboys: Direct Marketing Secrets Every Marketer Needs To Know Whether You Are Selling Online, Offline or Both
Direct marketing may be an older technique, but it’s relevant and adds to brand equity
Check out even more about personalization and artificial intelligence with FUSE Enterprise.

Back when direct marketing was a tribal affair and its warriors and their acolytes were constantly on the field of battle against the trendy “mad men,” it was a heresy to even consider that any marketing action that didn’t have a measurable call to action was anything but pure waste. The image purveyors had a monopoly on all of the glamor and all of the money. And they could laugh off that eternal question attributed to Lord Leverhulme: “I know half of my advertising expenditure is being wasted, but no one can tell me which half.”

Long before we had computers to churn all of the numbers, our DM tribe boasted that we could exactly determine whether the advertiser was getting his money’s worth by dividing the total advertising expenditure in each medium, or even each specific ad, by the number of measurable sales generated. When a campaign was running, the first place to stop when one got to the office in the morning was the mailroom, because that’s where the orders were.

Until the last decade of the 20th century, the concept of valuing “brand equity” didn’t exist. If you owned Coca Cola or Nescafe, what the brand was ‘worth’ was measured almost totally by the sales and profits generated in the marketplace. In 2006, “The Journal of Consumer Marketing” published an important academic article, “Measuring Customer‐Based Brand Equity” which made a compelling argument that “brand equity positively influences financial performance.” Even the most hidebound direct marketing professionals had to recognize this reality, even if they found it convenient to ignore it in their own work.
Recently, working on a project to present the results of a broad multi-media campaign to a company with the recommendation that it be expanded, one of the factors arguing for that expansion was an analysis of the return on the marketing investment (ROMI). The combined press media and digital campaign invited the reader/viewer to an attractive homepage, which both told the advertiser’s story and offered the next step in the journey — registration to receive a free series of ‘content’ publications and videos.

Peter's media response analytsis
(Note: In Brazil, where this article was written, in the templates, commas denote decimal points and ‘.’denote the commas used to separate thousands.)

Using the standard media response template, it was easy enough to put costs against each of the site visitors and registrants. For the advertiser’s $60,000, he received 5,300 visitors; and of these, 2,060 people registered to receive the additional content. Although it had been established by the client that the lifetime value of a purchaser would average $250.00, because there was no direct sale of the product (although one could have been promoted with an incentive coupon, etc.), the problem was how to show the advertiser what he had gotten for his money.

To value the campaign, we had to start with the concept that only a percentage of the registrants would be “buyers.” So we built a simple “sensitivities” table, ranging possible conversion percentages Peter's blog post chartand established the sum of all of the costs that would be necessary to effect the conversion, had the client wished to promote a direct conversion. Looking at the number of likely sales from the sensitivities table, even being conservative and saying that only 40 percent or 824 would become buyers, the cost per sale at $54.88 would be acceptable: a lower cost would be better.
There is an old saying that: “The heresy of one age becomes the orthodoxy of the next.” If it were a direct marketing heresy in the past to ascribe any value to the frequency a consumer came in contact with a brand message if this could not be traced to a measurable sale, perhaps we ought to revisit this and, in our new digital age, this might be transformed into orthodoxy. That said, how can we reasonably and fairly determine the added brand value: What price should we put on each head?

Another Peter blog post chart

Economics teaches that the value of something is what a willing buyer is prepared to pay for it. If the willing buyer is prepared to pay $5 per thousand to send out email messages, then is it really a heresy to say that these communications have a positive value in conveying the brand message — adding to the brand equity — to the analytically selected audience? Note that in the campaign results summary above, we have valued the 20 million brand impressions at $60,000, almost the entire amount the advertiser paid for the campaign. Adding this to the hypothetical $206,000 of revenue earned from sales means that the ROMI is 3.9 times.

I may be a ripe heretical candidate to be barbecued at the stake by my more conservative direct marketing colleagues, but I’ve come to the conclusion that communications which enhance brand equity should be accounted for as such, and that this value must be part of and added to the data-driven marketing equation.

Learn even more about the convergence of technology and branded content at the FUSE Enterprise summit. Artificial intelligence and personalization will be featured among many other techniques and technologies.