Posts Tagged ‘direct marketing’

It’s easy to imagine how a company moves to variable pricing. They follow the money. They test into it. They realize that the buying behavior of shoppers varies from day to day and hour to hour. Their analytics tells them that someone using Safari has higher average purchases than someone using Firefox. They know that visitors that come to their website after visiting certain websites are more or less price sensitive than if they come from other referring sites. And sometimes, they’ve even learned that it pays to increase prices based on repeat visits. In other words, on some sites, the best price you’ll ever get is the first one they show you. Shop around, come back, and you’ll pay more. (Sort of like a car salesman, who knows that if you come back, he’s got you, and he doesn’t have to lower his price to make the sale.)

Then a marketing manager or someone in the sales department makes the case that they can improve profits by harnessing all of this data into a variable pricing strategy. It’s hard to argue with the data.

So the company invests in a pricing engine or builds its own pricing algorithms and institutes variable pricing. And guess what? Profits go up. Sales go up because shoppers are getting deals created with their buying habits in mind. After all, it is an accepted rule of Internet marketing (and direct marketing before it) that the more relevant and personalized the offer, the better the response. And milking every extra dollar out of a sale (or, in some cases, many extra dollars) increases profits.

A slam dunk, right?

Anybody who remembers the relevance of that phrase knows where I’m going with this.

Pricing may seem like a commodity, but in fact, it is part of brand identity. As is the relationship a buyer has with a brand. And just to be clear, a retailer is a brand, too. Sure, Target sells brands, but it is also a brand. People shop at Target as opposed to Wal-Mart for many of the same reasons that they choose Land’s End over Old Navy.

If you found out that the person next to you in line paid less for the same sweater at Land’s End than you did, how satisfied with Land’s End would you be?

Some shoppers will be so upset they’ll never come back. And others will find out how to get the lower price, and then make sure they do that from now on.

Let’s call the first shopper a Brand Shopper. And the second a Price Shopper.

Price Shoppers are smart. They find coupon sites. They find discount codes. They follow blogs and Twitter feeds that promise to find and deliver the best prices. Some of them use bots or apps to notify them of the best prices on specific retailers and shopping aggregators.

And in many cases, price shoppers know that brand distinction isn’t as important as it used to be. As Seth Godin famously said, most products these days are “good enough.” In other words, the upcharge for a top brand isn’t always worth it, and price shoppers often know that.

If you are courting price shoppers, then you’re always in a pricing war where the shoppers are as well-armed as you are… sometimes better. And the competition can almost always undercut you… unless you’re the rock bottom price, in which case, you’re not varying your prices anyway. You’re Wal-Mart.

With variable pricing, price shoppers learn when to buy, and when not to buy. The profits you initially expected from this major segment wither away.

Now let’s look at Brand Shoppers, the core of your business. Your house list, so to speak. They love you. They swear by you. They only wear/drive/eat you. But it turns out, brand is about more than just quality, or value. Brand is emotional. Brand lets people willingly buy inferior products out of love, or a sense of belonging, or even habit. In other words, brand is like a relationship, the human kind.

And nobody likes to feel cheated on, or duped, or lied to, or made a fool of. When they do, they dump you like a bag of bread that’s gone moldy.

So what happens to your brand loyalists when they find out that you’re playing fast and loose with pricing and they get no benefit for being a loyal customer? Even worse, what happens when they find out that you’ll give a better discount to someone who’s never bought from you before, rather than they, who sing your praises, evangelize your brand to all who will listen, and buy whatever new product you throw at them?

So yeah, variable pricing looks great from inside the bubble. But can someone please explain to me the value of a brand in a world where we’re made to feel like chumps if we don’t outsource our shopping decisions to mindless shopping bots that always find us the best prices, regardless of source, regardless of emotion, regardless of loyalty?

Like I said. Slam dunk.

To a direct marketer, testing is vital. But it’s important to know exactly what you’re testing. If you’re not careful, what you think your test is telling you may not be what it’s saying at all.

It’s not just in direct marketing and business that testing matters, as you’ll see in a minute.

Evan Jones, my good friend and ex-Partner-in-Crime at our old game company, QED Games, Inc., is beginning to make a name for himself in an entirely new field, Climate Change. He’s about to be the “et al” in two scientific papers and was a key researcher in a current report to Congress.

Evan is part of a group led by meteorologist Anthony Watts (who writes a very popular blog, Watts Up With That, aTechnorati Top 5K blog with a ranking of 2083!) that is focused on a major aspect of Global Warming:  not whether it’s happening, but whether we know whether it is or not.

Evan and his colleagues have been examining the over 1200 U.S Historical Climate Network (USHCN) surface stations in the US that measure temperature. And what they’ve found is surprising. Nearly 89% of these stations are located in situations that render their data suspect or flawed according to the government’s own standards. Most of these stations were once fine, but encroaching urbanization has frequently turned an isolated station into one surrounded by heat sources. Add to this the fact that temperatures are recorded by citizen volunteers and are roughly 30% incomplete.

There’s more, of course. You can read about it here in this article from WBZ TV in Boston.  Better yet, WBZ did an interview with Evan while he was up in Boston assessing some of the surface stations there. You can watch the report here. And be sure to check out Anthony’s blog for even more examples of questionable data.

In the end it all adds up to one thing: the data doesn’t add up. It is, for the most part, not telling us what we think it’s telling us. For instance, when a station formerly situated in the middle of a field registers a temperature increase over the last decade but that station is now situated in a blacktop parking lot with an air conditioning exhaust unit nearby, is the planet getting warmer, or just the station’s readings?

Whether you’re building an online research survey, setting up a 16-cell direct mail testing matrix, optimizing a paid search campaign or collecting temperature data to prove or disprove global warming, you need to check your inputs, check your confidence in the amount and clarity of the data, and structure the test to actually answer the questions you’re asking.

It’s critical that your testing framework not be flawed or all of your results could be useless. It’s equally important that you analyze the testing results accurately. And if you go ahead and act on bad information, whether it’s a new product launch or an attempt to save the planet, you could be doomed to failure before you start.

And speaking of global warming and saving the planet, can someone please explain to me how anyone can be so certain of the truth when the tests themselves are flawed?

CNN had a story today about the discovery of a colony of 125,000 Western Lowland Gorillas, well over twice the previously estimated worldwide population of 50,000. Naturalists had searched in vain for the vanishing primate, growing increasingly pessimistic, until researchers from the WIldlife Conservation Society stumbled upon a huge population in a swamp forest in the Republic of Congo.

I couldn’t help but compare this to marketers who have been lamenting recently that its harder to find consumers than ever before. First, there was the mystery of the missing 18-34 males, who traded in their TV for video games and the internet.

Now it’s white, educated, affluent women aged 25-44. They’re going online to watch episodes of broadcast TV, according to a recent study by IMMI reported on MSNBC.com.

Newspapers are losing readers, while blogs like the HuffingtonPost.com are getting more readers than The NY Times. (The Huffington Post claims 5.7 million readers, while the Times claims a total circ of 1,476,400 for their Sunday edition, their biggest day, including their electronic edition.)

But it’s not that consumers are going extinct. Or even that they’re getting harder to find. It’s just that they’re not in the places marketers are used to looking for them. Kind of like the gorillas.

In the same way I’m heartened by the article about the gorillas, I’m thrilled by the recent Communications Industry Forecast written about in USA Today. For the first time ever, by 2012 direct marketing spending via Internet Service Providers, video games and cable and TV providers is predicted to surpass traditional media. And direct marketing is much broader than it used to be, encompassing everything from behaviorally targeted interactive advertising to opt-in SMS campaigns to paid search to emails to digitally customized, personalized mailers to PURLs.

More and more marketers are waking up to the fact that “mainstream advertising” is failing to find the gorillas in the mist, and direct marketing is a more successful strategy for reaching them… even if it means slogging through a data-drenched swamp to get there.

So can someone please explain to me why so many marketers are still looking for consumers where they used to be, instead of finding them where they are?