Testing is driving marketers’ decisions more these days. It’s probably as much a consequence of the economy as the need to be accountable for results (read “Ignorance Is Bliss” by Mark Sakalosky) every quarter. New media marketing, with its increasingly scientific efforts at measuring, testing, and optimizing, is even having an impact on traditional brand marketers.
Imagine if we were to see changes like this from some well-known brands:
- American Airlines concluded, after several tests in which it cancelled flights that were less than 70 percent full, that fewer than 13 percent of those customers switched to another airline that day. From now on, it’ll be canceling the majority of flights that aren’t at least 70 percent full.
- McDonald’s recently completed a one-week test showing that it could reduce spoilage (food gets thrown out if it’s not fresh) by 34 percent if it slowed operations down by 23 percent. From now on, it’ll be offering three slower-service cashiers for every one express-service cashier. The express-cashier service will only be available during the busiest periods.
- Starbucks recently concluded a test in which it replaced its own coffee with Folgers instant coffee. Nobody noticed. The company will save 48 percent on its cost of goods sold, which should translate into an 11 percent increase in EBITDA.
OK, OK… I’m putting you on. Those stories aren’t true. But I’ll show, later on, why it would be possible to misinterpret tests this way.
There is a serious flaw in the way many new media marketers distinguish between transactional customers and relational customers, and between return on expense and return on investment (ROI). These types of misconceptions can lead to a perfectly logical-sounding analysis… that is dead wrong.
Let’s examine the terms I’m using:
- Transactional customers. Those customers who shop based only on factors that apply to that transaction. The short-term factors affecting their purchase decisions tend to be price, convenience, and/or availability. These customers are not loyal.
- Relational customers. Those customers who shop based on a relationship they have with the brand or people involved. The long-term factors affecting their purchase decisions tend to be value, quality, friendship, and/or brand loyalty. These customers are loyal.
- Return on expense. The return on an isolated expense incurred. The expense could be a pay-per-click deal or the response from advertising a one-day-only discount. This is important, but it’s short term and only one component of what goes into calculating ROI.
- ROI. The return on one-time or ongoing expenses that are incurred with long-term goals in mind. In finance, this term is usually applied to capital expenses. In marketing, it should be applied to expenses that build equity in the brand or business.
Let’s take a look at how the three changes I imagined could have been misinterpreted:
- If one day American Airlines cancelled a flight from Dallas to New York, it’s unlikely that many passengers would immediately go find another airline. Short term, there is no significant customer defection. In the long term, would the same be true?
- McDonald’s does throw away a lot of food. Nevertheless, the McDonald’s brand is based on an experience that includes fun, consistency, and speed. Over the course of one week, going from fast food to not-quite-so-fast food might not affect the brand. In the long term, would the same be true?
- This one is a real stretch, but I always remember that Folgers commercial with the guy whispering in some fancy restaurant. Starbucks sells a pretty good cup of coffee and no one can rationally explain the price difference between its and any other’s cup of coffee. Starbucks has built a solid brand it wouldn’t jeopardize by reducing the quality of the customers experience.
Peter Drucker, the management guru, once said: “The purpose of business is not to make a sale but to make and keep a customer.” That simple statement is profound in a way that is difficult for many marketers to appreciate.
It’s certainly possible to design every single one of your ads/offers as a “one-off.” You can take the classic direct marketing approach of peppering your audience with offers that are not connected by anything other than the fact they come from you. Then you cross your fingers, hoping you’ll get enough traffic to make the effort worthwhile.
In this scenario, the relationship you build is a shallow one, based on “Hey, have I got a deal for you!” When you haven’t got a deal, you don’t get the customer, and the only loyalty you develop is based on price alone — a flimsy value proposition over the long term. Plus, this contributes to major mailing-list and traffic burnout. You’ll be expending a lot of effort on a regular basis to keep attracting new traffic.
Does this mean that I’m antitesting? Nothing could be further from the truth. I regularly advocate a disciplined approach to conversion rate marketing that incorporates measuring testing and optimizing. Nevertheless, the focus needs to be on the long term. The most powerful secret of customer conversion is customer retention. What are you measuring and what is your time horizon? Let me know.