Quantipulation

A guy named John Wanamaker is famous for something he said 100 years ago. He said:

“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”

Unfortunately, he’s wrong. I mean, if he didn’t know which half was wasted, how did he know it was half and not three-quarters or one-quarter of it?

He’s also wrong because it’s conceivable that 100% of his advertising dollars were wasted.

A century ago there were no ad ratings or measurement services. So how he could possibly know if ANY of his advertising spend was effective? It’s quite possible that any increase he saw in sales was due to exogenous factors like the weather, the economy, the competition raising prices or going out of business, or word of mouth among customers.

Ah, but hold on here a second. I guess it’s possible that 100% of his advertising spend was effective – or at least, not wasted – depending on what measure of success you use. If you don’t believe me, ask DeBeers.

Is it likely that the advertising he did had absolutely NO effect at all? Probably not. Just because someone didn’t make a bee line for the department store after seeing an ad, doesn’t mean the ad had no effect and should be considered wasted dollars. Some might have seen the ad and learned about the store, or the ad might have left others with a positive impression of the store.

Wanamaker thought half his advertising spend was wasted because he had no way to measure its effectiveness and didn’t even know what to measure.

Today’s advertisers have some measurement tools and services available to them, but none can claim to be totally accurate. And marketers are dreaming up new metrics every day, so you can be sure that no one measure is perfect, nor can we safely assume that even a group of commonly used metrics can truly give us a reliable picture of the effectiveness of advertising.

Bottom line: Any claim on what percentage of your advertising is wasted and what isn’t is just a random guess. We simply don’t know – and can’t know.

Here’s another claim to consider: Have you heard that its costs five times more to acquire a customer than to keep or retain one? How did they figure that? You could double the number of insurance, credit card, or mortgage customers you have by simply tweaking your underwriting guidelines, risk guidelines, or interest rates. No big cost associated with that.

But to retain those customers, you have to incur some big costs to keep branches open, provide call center support, and deliver service in an ever-growing number of channels. Many of the costs you incur to keep the business running are costs that help keep your customers  satisfied – and, hence, keeping them as customers. There’s simply no way the cost of acquisition is five times greater than the cost of retention.

But, wait, that’s not right either. Because all those costs you incur to retain your customers help to make your company the great company that it is. It’s what you’ve built your reputation upon. And without that reputation you couldn’t retain OR attract customers.

Bottom line: There’s simply no way to accurately calculate the cost of acquisition or retention. It involves making too many judgments and decisions on which activities contribute to acquisition and retention. It can’t be done.

———-

These claims – that half of advertising is wasted, or that acquisition costs are five times greater than retention costs – are examples of what I call Quantipulation:

The art and act of using unverifiable math and statistics to convince people of what you believe to be true.

The examples I just gave are just two examples of this widespread practice. In fact, the incidence of quantipulation has grown by 1273% compounded annually since 2003. And I have the math to prove it:

What’s driving this growth in quantipulative activity?

The false legitimacy that quantipulation provides gives quantipulators confirmation that the things they WANT to believe are really true.

In addition, there are many people who want to lay claim to having the secret sauce for marketing success, and sadly, many people who want that special sauce. Quantipulation provides the “scientific” proof that their sauce tastes best.

There are at a lot different flavors of this special sauce that people quantipulate about, especially about customer loyalty, influence, performance metrics and ROI.

I’ll be discussing those things in more detail during the conference. Hope you’ll be there.

Oh, and in the mean time, if I catch you doing anything quantipulative, I’ll be sure to call you out on it. 

Presenting Your Social Media Strategy To The C-Suite

MarketingProfs ran an article highlighting tips for presenting a social media strategy to senior executives. Tips included advice like “be authentic, not just memorable,” “don’t monologue it,” “deliver each line with mastery,” and “be quietly confident.”

While these are useful tips for presenting in general, they’re not particularly helpful for presenting a strategy — especially one for an area the audience is likely to have little experience with — to the C-suite.

Here’s what you need to know and do to present a social media strategy to the C-suite:

1. Solving a problem or capitalizing on an opportunity? Figure out long before you walk into the conference room if your presentation is about how your social media strategy will solve a problem (or problems) that your firm has, or if it’s about capitalizing on an untapped opportunity.

I would strongly encourage you to focus on the former, and not the latter. Why? You’ll find it easier to get agreement from the folks in the room on what the problems are (they might not agree on the priority of those problems, but that’s OK). Untapped opportunities are generally harder to pin down, and subject to more disagreement. You don’t want disagreements in this area in the meeting.

Now I know what you’re thinking: “Ron, the beauty of my social media strategy is that it addresses both existing problems and untapped opportunities!”

Yeah, sure. Good for you. It’s nice that your mouthwash is environmentally safe and promotes healthy gums, but I’ve got bad breath. This is a “sales” meeting — you are selling your strategy to your prospects. Do what it takes to make the sale, and nothing else.

Senior execs have problems and they love people who solve (or eliminate) those problems for them. Be one of those people. Senior execs also love people who make money for the company. But you better be DAMN SURE your social media strategy is going to do that if that’s the path you’re going to go down.

2. Balance the dollars and the sense. The quantitative/qualitative mix in your presentation is a fine line. The presentation can’t just be some litany of statistics on social media use and trends. No one (in the C-suite) cares that 93% of people are on Facebook, and blah blah blah blah. And for god’s sake, don’t mention that if Facebook were a country, it would be the 7th largest country on the planet, or whatever.

Talk about your customers, your prospects — and even your competitors. The statistics you use should be internal statistics — metrics that help establish that there’s a problem to be solved. (Be careful, though — if your stats are all focused on the quality problems that manufacturing is experiencing, and the head of manufacturing is in the room, then don’t send me your resume when you’re on the streets).

You do need to talk dollars. But — believe it or not — not necessarily ROI.

You need to talk about cost — what is your strategy going to cost in terms of dollars and resources.

The return on that investment does not have to be out to two decimal places, nor — I would argue — does it even have to be quantified at all.

If the rationale for why you’re proposing to make this level of investment is sound — i.e., it solves problems and/or capitalizes on untapped opportunities — the C-suite will get it intuitively. They won’t need to know that you’ve calculated it out to be a 1,200% return, because, quite frankly, they won’t believe it.

Presenting a strategy — any proposed strategy — to the senior executive team is about establishing credibility for that strategy. Having a handle on the investments required builds credibility. And describing why you’re proposing what to do will go further than describing what you’re proposing to do.

3. Don’t be a piddlyshit. Piddlyshits are the folks who occupy the lowest rungs of the organizational ladder — and are destined to stay there.  Just because you’re at — or towards — the lower rungs does not make you a piddlyshit. What makes you a piddlyshit is your inability to understand the bigger picture, and your inability to demonstrate potential for moving beyond those lower rungs of the ladder. (Remember Milton Waddams from Office Space? He’s a piddlyshit).

You might be passionate about social media. That’s nice. But if you come across sounding like you’re preaching social media — which oh so many social media bloggers do — then you’ll be pegged as a piddlyshit.

Good senior execs are always (usually subconsciously) on the look-out for the future leaders of their organization. They’re attuned to finding people with that indescribable “it” factor.

“It” doesn’t come from “delivering every line with mastery” (whatever that means).

“It” comes from showing that you understand what impact the strategy is going to have beyond the three walls of your piddlyshit little cubicle, and demonstrating that the folks in other departments and functions who are impacted by the strategy buy into it.

Bottom line: Successfully “presenting” a social media to the C-suite has more to do with selling organizational change than it does good presentation skills. Good luck with your social media strategy, you little piddlyshit, you.

Facebook Versus Google

No, this is not a review of Google+, and how it’s features are better or worse than Facebook’s. Nor is it a post on what Google+ means to marketers, etc.

Instead, it’s a rebuttal to a blog post published on the Customer Collective. According to the author of a blog post on that site, the author concludes that “This boxing match is over before it gets started: Facebook wins.” 

Here are reasons the Customer Collective (CC) gives for calling a TKO, with my take on the points.

———-

CC: Facebook is about staying connected with friends. Google is about making the world’s data searchable. Google is therefore not on solid ground.

My take: Facebook is about “staying connected with friends”? You must be joking. For thousands (if not millions) of companies, Facebook is about finding new customers, and connecting (or at least trying to connect) with existing customers. For Facebook, Facebook is about figuring how to monetize the vast traffic and engagement it has.

Google is about “making the world’s data searchable”? Ha. Google is about connecting advertisers to prospects. The common thread between FB and Google? Advertising. Both are on very solid ground when it comes to generating advertising revenue.

———-

CC: Google is already pervasive in our lives due to its dominance in search, email, collaboration, smartphone integration, and more. People are going to resent or ignore the company’s attempt to elbow out Facebook just like we resent it when one close friend tries to eliminate another one from our lives.

My take: A misinterpretation here. Facebook users’ connections are with other FB users — not with Facebook. Yes, Google is looking to elbow out Facebook. But the rest of the world doesn’t care about that.

———-

CC: Face it, Google: Social networking is not your thing.

My take: Oh, come on. PCs weren’t IBM’s thing, but (after some fumbling) it became very successful in the personal computing world. The web wasn’t Microsoft’s thing, but they adjusted. Writing off Google from social networking because of Wave and Buzz failures is a bit short-sighted.

———-

CC: Facebook stays focused on its core business for a reason – they really know what they’re doing.

My take: You’ve got to be kidding me. Facebook knows what it’s doing? It’s taken so many missteps (especially regarding data usage and privacy) that it’s to back up an argument that there’s a grand plan (other than “world dominance”) at Facebook. Forays into Facebook Credits (which is a damn good idea) is hardly about their “core” business of advertising, which accounts for, what, 95% of their revenue? And even if it were true that FB is “focused” on it core, and “knows what its’ doing” is hardly an argument for why the “boxing match is over before it begins.”

———-

CC: Last but not least, Google doesn’t seem to get that people actually care about privacy and worry about being tracked online, especially when it comes to their personal email.

My take: If the implication here is that Facebook does get that people care about privacy, then there is little that I’ve seen from Facebook that supports that contention.

———-

Bottom line: The boxing match is far from over. But it does seem that Google has a big task in front of it, if it wants to avoid getting Pownced.

I wonder if people even remember Pownce. Not long after I started using Twitter in 2007, Pownce was launched. It was a Twitter- like tool, with some additional features. While many of the people I followed (and who followed me back) registered with Pownce, it quickly became a game of Alphonse and Gaston: “Who’s ready to give up Twitter? You go first, Alphonse.  No, no, no — after you, Gaston. 

Nobody left, and and Pownce got bounced. 

The social media gurus have already jumped on Google + and conferred upon us their wisdom regarding the new networks’ features and implications for marketers and businesses. 

But the acid test is whether or not the masses change their behavior. And changing behavior is not easy, nor does it usually happen very fast. And it doesn’t matter if Google+ is better or not. We’re lazy. We don’t like to change. Unless we get paid to, or if the convenience we gain by changing is very noticeable.

A sample size of two isn’t very representative, I admit, but when I asked a 16 year-old and a 21-year old that I happen to know (for 16 years and 21 years, respectively) if they would switch to Google+, their response was identical: “Not unless all my friends do.”

The wildcard here is what businesses will do. If Google can entice businesses to launch brand pages, and if businesses can lure customers and prospects, then maybe the balance of power can be tipped. But it would seem to me that Google needs data to lure businesses, and without 100s of millions of users, won’t have the data. Chicken-and-egg problem. 

So, it’ll be a tough road for Google, but it’s way too early to call the winner. 

New Metrics For The Social Media Bubble

In case you didn’t notice, social media is transforming life as we know it.  The old laws of business, supply and demand, and even gravity, no longer apply.

In the world of business, our longstanding adherence to something we call GAAP (Generally Accepted Accounting Principles) is giving way to SMAAP (Social Media Accepted Accounting Principles). A pioneer in this new world of accounting is Groupon. According to the New York Times, the firm has developed the ACSOI metric:

“Short for adjusted consolidated segment operating income, Acsoi is a yardstick that Groupon recommends investors use to determine how it is performing. It is essentially operating profit minus the company’s online marketing and acquisition expenses — a highly nonstandard approach that has many scratching their heads.”

My take: A brilliant idea.  And there’s no reason why Groupon — or any other start-up looking to capitalize on the social media bubble — should stop at that metric.

Here are my suggestions for new metrics for the social media bubble:

1. Temporarily Unconverted  Revenue from Fans (TURF)

During the Dot Com boom, many start-ups focused on “eyeballs” — i.e., how many site visitors they got during a reporting period. The problem, they discovered, was that eyeballs didn’t equal revenue, and this hurt their ability to maintain their initially high valuations.

SMubbles (social media bubble start-ups) need not let this happen to them. They should encourage investors to focus on a metric called TURF — temporarily unconverted revenue from fans. There’s simply no reason why a SMubble should have to rely on real and realized revenue when proving its value to the market.

The question, of course, is how much does that Facebook fan represent in unrealized revenue? Adweek says $3.60. Sound’s good to me. Let’s move on to the next metric.

2.  Cumulative Revenue to Periodic Expense Ratio (CRePE Ratio).

Under the ancient GAAP method of accounting, profitability is calculated by comparing revenue to expenses for a given reporting period.

How quaint.

For a SMubble, this form of accounting can be detrimental to its valuation if expenses are rising faster than revenue (e.g., in periods when TURF is rising, called TURFing).

Instead, a SMubble should report profitability by using the CRePE Ratio — its cumulative revenue over the course of the year divided by the current period’s expense.

Here’s how it works:

Let’s say a SMubble brings in $1 million a quarter and spends $2 million per quarter. Under GAAP (Grievously Archaic Accounting Principles), that SMubble would be operating unprofitably. But using the CRePE Ratio, in the 2rd quarter of the year it would break even, and show a profit in Q3! Hooray for the CRePE Ratio!

3. Earnings Before Interest, Taxes, and Expenses (EBITEX).

SMubbles who generate no revenue during a particular reporting period won’t like the CRePE Ratio if expenses increase from the last period to the current one.

Their measure of profitability should be EBITEX — Earnings before interest, taxes, and expenses.

In the age of social media, there’s simply no reason to let something like operating expenses bring down your profits, and get in the way of a high valuation.

(h/t to @AtomicTango for alerting me to the NYTimes article)

Twitter Vs. Facebook: Which Is Better For Driving Purchase Activity?

Compete recently published a blog post called Four Things You Might Not Know About Twitter. Based on its consumer data, Compete concluded that:

“Twitter is more effective at driving purchase activity than Facebook. 56% of those who follow a brand on Twitter indicated they are “more likely” to make a purchase of that brand’s products compared to a 47% lift for those who “Like” a brand on Facebook. This is further evidence that marketers can drive ROI with Twitter by engaging followers through compelling content.”

My take: Nonsense.

Compete is off-base concluding that Twitter “drove” purchase behavior simply because a larger percentage of Twitter users are “more likely” to purchase from a brand than Facebook followers do. The only way to conclude that a source is a more effective driver is by comparing actual purchase activity resulting from specific messages or offers.

In addition, without a measure of what consumers’ purchase intention was before following a brand on Twitter or liking it on Facebook, it’s impossible to determine if Twitter or Facebook is having any impact on the customer relationship (Compete’s use of the term “lift” is inappropriate in the context it was used in).

Even if Compete had that benchmark, a change in purchase intention could not be attributed to Twitter or Facebook unless the messages, content, and offers were identical.

Bottom line: This is just one example of many that claim the “superiority” of one social media platform over another. Sadly, all of them are based on flawed data and assumptions, and misses the important point:

Different platforms are better suited for different types of messages/interactions.

It’s blindingly obvious how Facebook and Twitter differ in terms of the types of messages, interactions, and content each are suited to. As a result, the only way to determine which is more “effective” is in terms of an individual company’s objectives and needs regarding engaging with customers and prospects. And that means that “effectiveness” is based on the message or content — not the platform.

In other words, neither Twitter nor Facebook is “better” for driving purchase activity.

p.s. Note to bloggers/researchers/consultants/pundits: When publishing data that purports to claim that one social network is superior to another for driving purchase activity, ROI, or whatever metric you’re talking about, it would be very helpful if you talked about WHY one platform is better than another. I don’t think I’m asking for too much, here.

Banks: Don't Use Twitter For Fraud Notifications

From a Bank Technology News article titled Westpac, Other Banks Use Twitter to Warn of Fraud:

“When Westpac was recently targeted by web crooks, the Australian bank used another online venue to warn consumers, sending a Tweet warning consumers of the crime. The alert was part of a new trend—using social media to publicly expose online fraud attacks in real time—that Anti-Phishing Workgroup Chairman Dave Jevans says can be an effective way to spread security warnings, if it’s done right. Jevans says that if phishing and other attacks are corrupting trust in the email channel, it makes sense that banks would look to Twitter and other social media to alert their customers. By using Twitter, he says banks can warn customers instantaneously, without sending emails that could be construed as a malicious phishing attempt.”

Interestingly, Mr. Jevans is quoted later on in the article as saying that using Twitter “requires banks to be aware of how the Twitter, Facebook and other sites can be used by crooks themselves. Tweets could be used to spread false security alerts, similar to how email is used by fraudsters.” (I love that: “the” Twitter). 

My take: It makes little sense to use Twitter for fraud notifications.

It’s not so much a security issue as it is a numbers game. 

Pew Research Center reported in December 2010 that 8% of Americans use Twitter, and — more importantly — that just 2% of online adults used Twitter on an average day. 

I haven’t seen any studies on this, but I would bet that the average Twitter user sees less than 10% of the messages that come through their Twitter stream. 

More numbers: As reported on TheFinancialBrand.com:

“Less than one quarter-percent (0.021%) of all big bank customers follow their bank on Twitter. That translates to an average of 208 followers for every one million customers. BofA, the largest bank in the study, had 12,315 followers out of its 55 million customers. Wells Fargo averaged one follower for every 8,635 customers.”

For credit unions, “0.65% of members are connected to their credit union on Twitter. That’s one follower for every 155 members.”

Bottom line: Your response rate on direct mail credit card offers is probably higher than the hit rate of reaching customers on Twitter with important messages.

One potential solution to this could be a centralized Twitter account (maybe the CFPB could do something useful, here) that would be verified by Twitter. Banks could notify the CFPB who would then tweet the fraud notification. In this scenario, consumers would only have to follow one account, and would be assured of the legitimacy of the message.

Infographaritis: A New Social Media Disease

A while back, I did my part for social media hygiene and health by identifying four social media syndromes: Attention deficit disorder, Twitterhea, Redactile dysfunction, and Irritable blog syndrome. 

I’m saddened to announce that my scientific research has uncovered a new social media disease: Infographaritis.

Sufferers from this affliction are easy to spot: They have an unhealthy infatuation with infographics.

A good infographic is a work of art. It’s visually pleasing and informative. It engages the viewer and is intuitive.

The problem is that there are few really good infographic artists out there.

But the fact that a good infographic requires its creator to have good data and design skills is of no concern with those afflicted by Infographaritis.

Believe me when I say that the last thing I want to do here is name names and call out the folks with this sickness. But in the interest of social media public health and safety, I’m afraid I’m going to have to do just that.

Exhibit #1: The Real Cost of Social Media. Folks, listen up: Simply slapping a bunch of numbers in a graphic and varying the chart styles does not make for a good infographic. What’s even worse, the Infrographaritis sufferer that put this one together isn’t even in the ballpark of coming up with credible estimates for the costs and benefits of social media.

Exhibit #2: The Five Types of Annoying Facebook Users. There’s a lot wrong with this infographic. First and foremost: There’s no information. It’s called INFOgraphic for a reason, no? Another problem: There aren’t five types of annoying Facebook users — it’s more like 500. 

I could go and on with examples of Infographaritis sufferers. If you feel a case of Infographaritis coming on, then please — PLEASE — go take a cold shower or something until it passes.