Quantipulation: ROI Versus Success

[This is a follow-up post to Quantipulation. I thought I could get away with just floating a few ideas out there, but some comments I’ve seen suggest that there’s a lot more to quantipulation than I wrote about, and those comments are correct.]

Quantipulation — the art and act of using unverifiable math and statistics to convince people of what you believe to be true — is commonplace in the marketing world, but perhaps nowhere more so than in the social media environment. Especially when it comes to everyone’s favorite topic: Social media ROI.

Whenever I use the term ROI in my reports, the editor where I work asks me to spell it out. As she rightly says, there may be people who aren’t familiar with the term. I don’t tell her this, but if you don’t know what ROI is, I don’t want you reading my reports.

There’s another reason why she’s right: There may be people who define ROI differently than I do. I won’t tell her this, either, but those people don’t deserve to read my reports.

ROI = return on investment. It doesn’t mean return on influence or any other “I” word you can dream up. And despite what some quantipulators would have us believe there’s only one formula for ROI: Financial return divided by financial investment. The only “variable” piece to the formula is the timeframe you use to quantify these variables.

That won’t stop some people from trying to redefine the formula, however.

The most egregious example comes from a firm called Digital Royalty. I won’t besmirch my blog by linking to the offending post. Instead, I’ll point you to Anna O’Brien’s brilliant (and very funny) critique of it.

Here’s another example of ROI quantipulation:

My bet is that tthe firm that put this chart together wanted to include other ROI components, but since it would have messed up their inverted hour glass figure, they decided to leave them out.

Then there’s attempt at redefining social media ROI:

This guy has decided that the ROI unit of measure should be “conversation”. He goes on to tell us that we can measure the “value” of conversation by looking at participation, engagement, influence, imagination, energy, and stickiness. But not increased revenue or decreased cost. Sweet.

There are (at least) two things going on with these attempts to redefine ROI. One is bad, the other is good. 

The bad: An annoying attempt to demonstrate thought leadership. Ugh. Not the way to do it. Anna O’Brien said it best in her blog post: “Random metric names and symbols is not an equation.” (Maybe she didn’t say it best, because it should be “are not an equation”).

There is a good aspect to what the ROI quantipulators are doing, however. They’re raising the very valid point that there are other measures of success beyond ROI. 

There’s a formula for that, too. The one I like is from Pat LaPointe who writes a blog called Marketing NPV. Pat’s formula says that success can be measured by dividing the value added by the resources used. And as this formula implies, “value” can take on the form of many of those measures that those other people wanted to use to calculate ROI.

But this isn’t the whole formula.

Pat added something on to this formula that, as far as I’m concerned, qualifies Pat as a marketing genius. Pat’s formula for calculating success is:

(Value Added/Resources Used) * Perception

What Pat recognized was that what you might consider to be “value” might not be viewed as valuable by other people. Other people like, say, your CEO or CFO.

We’re living in an ROI culture. Suggest that your company do something, and somebody will ask “what’s the ROI on that?” If you want to get up in front of your management team and suggest that your company do something because you “feel” it’s the best thing for the company to do, go for it. Just don’t send me your resume when you’re on the street. 

That doesn’t make your feeling wrong. But being right doesn’t make you successful. Persuading others to do the right thing does. 

This is why quantipulation is so important:  Quantipulation is an attempt to influence perception. To be a successful leader, innovator, or change agent, you have to shape, change, and confirm people’s perceptions.

There’s a reason I call quantipulation an art. Successful quantipulators know that it’s about more than just the data – it’s about logic and emotion. And there’s no formula or recipe for figuring out how much logic and emotion to mix in with the data.

The examples of ROI quantipulation shown above fail not because they’re wrong, but because they fail to influence perception. Those formulas simply confirm for the social media believers what they already believe. That’s easy. Converting the heathen is hard.

Had those social media ROI formulas made any attempt to link social media results to the conventional definition of ROI — financial return — they might have been more persuasive.

Last thought: Quantipulation is not inherently bad or evil. Yes, it’s a play on the word manipulative, which doesn’t have positive connotations. But I prefer to take a more realistic view: It is what it is. And it’s a necessary skill for today’s business world.

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. 

How To Differentiate Your Credit Union

On the CU Water Cooler site, William Azaroff wrote:

“When I look at many credit unions, I’m troubled by their blandness, their inoffensiveness. They used to stand for something, but now they’re moving away from differentiation and towards sameness. And many credit unions are doing this at the precise moment when differentiation is a necessity. The question is: do some people hate your brand? If some do, then I would say you’re doing something right. If not, then I’m guessing your organization is trying to be all things to all people, and should take a stand for something and embed that into your brand.”

My take: To quote former President Clinton: “I did not have sex…” No, wait, that’s the wrong quote. I meant this one: “I feel your pain.”

William is spot on that many credit unions aren’t differentiated in the marketplace. What William didn’t get into, however, is why few credit unions are effectively differentiated. There are (at least) three reasons why undifferentiated credit unions are that way:

  1. They don’t know how to differentiate themselves.
  2. They think they’re differentiated, but don’t know better.
  3. They don’t want to be differentiated.

The last reason might surprise you, or strike you as wrong. But after 25 years of being a consultant, I can’t even begin to count the number of times I’ve made a recommendation to a client to do something, only to be met with the following question: “Who else is doing that?” Risk adversity runs deep in the financial service business.

There are also a fair number of CU execs who think that their CU is differentiated. Almost to a man/woman they give the same description of what differentiates their CU: “Our service.” This is often — I’m inclined to say always — wishful thinking. Why? First, service may be what your firm does best, but it doesn’t mean your service is comparatively better. And second, because service means different things to different people.

The most prevalent reason why so many CUs are undifferentiated, however, is probably the first reason: They don’t know how to differentiate themselves. 

I’m not looking to pick a fight with William — I suspect he would agree with me here — but approaching the topic of differentiation from the perspective “what can we do to tick people off and be hated by some of them?” is not the right way to go about it. 

And with all due respect to my friends in the advertising business, the last thing a credit union should do is bring in the advertising people to help them figure out how to differentiate the CU. 

Why? Because there’s a prevalent — but misguided — mindset among advertising people that differentiation comes from “the story you tell.” (If you need proof, go read Seth Godin).

But the story you tell doesn’t differentiate you. What differentiates you is the story that your members tell. That they tell to themselves inside their head, and that they tell verbally to their family and friends. And those stories only come from their experiences with the credit union, not the advertising. 

Which means this: Differentiation comes from something you do

That “something” must be meaningful to members. And that something must be something that: 1) only you do; 2) you do measurably better than anyone else; or 3) you do measurably more often than anyone else.

Differentiation doesn’t come from standing for something, and it doesn’t come from your branding efforts (your differentiation drives your brand, not the other way around).

William’s credit union Vancity “stands” for community development and improvement.  So do plenty of other CUs. What differentiates Vancity is that — time and again — they do something about it. They can count the number of times they’ve done something about it, and they can measure the impact of what they’ve done.

Differentiating on service is tenuous. What does that mean? That you fix your mistakes better than anyone else? That the lines in your branch aren’t as long as they are in the mega-banks down the street? That Sally at one of your branches greets everyone by name and with a smile when they come in?

If you’re going to differentiate your credit union, you have to do something. Different, better, or more. None of those options is particularly easy to do. Technology initiatives intended to gain a competitive advantage — mobile banking, remote deposit capture, etc — are often easily (I didn’t say cheaply) copied. Better is hard to prove. And “more” requires strong commitment from the management team for an extended period of time.

This isn’t to say that aren’t opportunities for differentiation, just that they require commitment — and a lot of it.

So what can you do to differentiate your CU? I think it comes from committing to differentiate in one — and only one — of the following areas:

1. Advice. Managing our financial lives is tough and getting tougher. People need help making smart financial choices. But the advice available in the market tends to be focused on asset allocation and stock picking for the relatively affluent, or focused at the very lowest end of the income spectrum for people who need help with serious debt problems. What about everybody else in the middle? What about providing help with all those everyday/week/year decisions that have to be made? PFM holds the potential to provide and deliver this kind of advice, but the tools aren’t quite there yet. If this is the path you choose, you’re going to have to make some investments to develop them and get them to point where they can deliver on this promise.

2. Convenience. There’s one bank in the Boston marketplace that advertises itself  as the “most convenient” bank. Hooey. Having extended branch hours and free checking isn’t “convenience.” Making people’s financial lives easier — i.e. more convenient — to manage is a complex and difficult proposition. But when you’re really doing it, people know it. And you’ll be differentiated.

3. Performance. You might not be the easiest FI in the market for me to deal with, and you might not provide me with any advice (maybe because I don’t want any), but if the performance of my financial life — that is, the interest I earn, the fees I pay, and the rewards I get and earn, are superior to everyone else out there, than I will consider you to be differentiated in the marketplace.

I didn’t say differentiation is easy.

The Cost Of Retention Versus Acquisition

Chief Marketer conducted a survey of more than 1,000 marketers across a range of industries and company sizes. I found the following comment — in response to the finding that nearly half of respondents plan to focus on acquiring new customers versus 26% that will concentrate on retaining and reactivating customers — particularly interesting:

“Customer retention and reactivation are less costly, but marketers may redouble efforts to reach new potential buyers”

This notion was recently echoed in an article in Insurance & Technology magazine:

“While the cost of retaining an existing customer is usually far less than the cost of acquiring a new one, all customers are not equal and different customers tend to have a different “cost of ownership.”

My take: Damn. It’s 2010, and this myth about the costs of acquisition versus retention still hasn’t been exploded. People, listen up: This notion that “it costs 5 (or 6 or 7) times more to acquire a customer than to retain one” is bunk.

If you’re in the banking world, put up a website, offer a 5% rate on a savings account, do some online advertising, bring on board an ex-Twitter exec, and you’ll acquire a bazillion customers. Very cheap (except, maybe, for the equity you’ll have to give to the Twitter dude).

Keeping those customers is another thing.

You’re going to have to build a damn good customer service delivery capability. Oh, and you’ll need to provide account access, and transaction support in what, like ten different customer-facing channels? Don’t forget the money you’ll need to invest in security and fraud protection.

And when the next genius comes along and offers 6% on a savings account, you’ll have to raise your rate. And the additional interest you have to pay out is a cost of retention, my friends, not a cost of acquisition.

Here’s the issue: There is no defined standard for what costs to include and which ones to exclude when calculating customer retention. Or acquisition for that matter.

The point is moot, of course. Why “of course”?

Because it doesn’t matter what the cost of acquiring a customer or retaining a customer is. The only thing that matters is how profitable the customer is. If you have a customer that will produce $100 of profit per year (that’s ongoing + incremental revenue less the cost of marketing to that customer and the cost of servicing her), wouldn’t you be willing to spend more to acquire her than a customer that will only produce $50 of profit per year?

Sure you would. But if you’re like many of the marketers surveyed, you can’t figure any of this out.

Among the Chief Marketer’s survey respondents, 63% don’t track customer lifetime value by channel. Now, that’s OK if those firms only interact with customers in one channel. But that’s unlikely. Bottom line: Those marketers have no clue what their real customer lifetime value/profitability numbers really are.

So marketers’ focus on acquisition versus retention has nothing to do with perceived costs, or even expected customer profitability. Instead, it reflects a philosophy that their best opportunities for growth come from new customers instead of existing customers.

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Manketing

We’ve already established that men are just slightly dumber than a dog.

And as I said in that blog post: Show me a doofus husband, and I’ll show you a wife who just needs more time.

What I failed to realize at that time, however, is that this is giving rise to a whole new field within the world of marketing, something I’ll call Manketing: The marketing of men’s products by targeting women.

Because I am slightly dumber than a dog, it’s no great wonder that I fail to realize that I’m incapable of making decisions for myself. (I am smart enough, however, to understand that I can’t make household-related decisions — I came to that realization 22 years ago, about 10 seconds after I said “I do”).

I also possess a sufficient degree of self-awareness to realize that I can’t be trusted to dress myself. If my wife didn’t give me the go/no-go approval on my selection of clothes, it’s scary to think about what I might wear in public.

So it’s no surprise that marketers would target women for household-related things or even men’s clothes. And because modern couples make joint decisions about big-ticket items, car marketers can’t even focus on men anymore.

But, with Father’s Day approaching, manketing has gone too far. The ad below was received by a female Twitter friend of mine:

This is creepy beyond words.

I’ve got three daughters. If the the 20- or 15-year old were to give me one of these products, I’d be pretty grossed out. If my 9-year old gave me one of these products, I’d hit the floor in uncontrollable laughter. If my wife gave me one of these products for Father’s Day, I’d be convinced that she had lost her mind.

I don’t have sons, but I can’t imagine one giving these to his dad. “Hope you like it, Dad, I love the one I have.” Uh, no.

Can you imagine the situation the other way around? “Here, hon, I got you Nair® Naturally Smooth Cucumber Lotion, happy mother’s day.” (The product name itself is wrong on so many levels). Guess who’d be sleeping on the couch?

Manketing is a trend that isn’t going to go away too soon. But, please marketers: Let’s draw the line somewhere.

Multicultural Marketing Malfeasance

I heard one of those marketing claims the other day that sends the MarketingTeaParty-O-Meter into the red. Tweeting from a WOMMA conference, @chimoose related the following stat from a DePaul professor:

“Hispanics, African Americans and Asians represent 30% of the population and get about 2% of the marketing spend”

Two questions immediately came to mind: 1) How did the professor calculate that 2% of the “marketing spend” is directed at those ethnic groups? and 2) Why is she making this point in the first place?

The answer to the second question is potentially touchy, because there are times when someone makes a point like the one above with the intention of implying some kind of  bias or discriminatory behavior.

I’m pretty sure that’s not the case here — I think the professor is simply implying that marketers aren’t focusing on the right opportunities, or allocating their resources appropriately.

There’s a problem with that conclusion, though. Any categorical difference that you can define — whether it’s ethnic group, gender, age, income level, geography — is only a valid segmentation dimension if it is a strong (and better) predictor of needs and behaviors than other characteristics (which may include not just demographic factors, but attitudinal dimensions and other behaviors).

Is there any proof that ethnicity is a better predictor than other dimensions across a range of products (or even a single product category)? Don’t think so.

But I actually wouldn’t argue that some marketing targeted directly at specific ethnic groups is wrong. The more important question is: How much of the marketing budget should be allocated to ethnic-specific advertising or marketing? Should it be proportional to the ethnic group’s representation within the overall population?

I don’t see how you could create an argument to support a “yes” answer to the latter question. While the professor might not argue for that either, I don’t see how you can support an argument that any percentage of the total marketing spend is the right percentage.

But there’s a whole other issue we haven’t discussed here, and it relates to the first question I posed above: How does this professor know that 2% of marketing spending is directed towards the three ethnic groups listed?

Exactly what constitutes marketing or advertising directly to an ethnic group? Does an ad or commercial have to be in Spanish to be targeted to Hispanics? If a commercial includes a person of a particular ethnic background, is it — by definition — targeted at that ethnic group? If a commercial has a mix of ethnicities represented in the ad does that count in the 2% that the professor alludes to, or not?

Bottom line: Claiming that only 2% of the “marketing spend” is directed at Hispanics, African-Americans, and Asians is simply not a valid, provable statement. Even worse, implying that the number should be higher — without any guidance as to how much higher — is simply bad advice.

Great Insights In Marketing History #237: Women Are People, Too

I will be the first to admit that not all of the findings, conclusions, and recommendations that I include in the reports that I write are brilliant, earth-shattering insights (OK, maybe not the first to admit, but, if pressed, I will own up to the fact). But I’d like to think that I try to add something new to my clients’ understanding of the world.

George Colony of Forrester has a acronym he used to use to describe this: SIDK. It means “something I don’t know”, and the idea is that when providing recommendations to a client, tell them something they don’t already know.

Unfortunately, it seems that not everybody is trying to live up to that bar.

The results of a recent study about how women are different, and how to market to them, is a shining example. Here are a few gems from the study, as reported in Marketing Charts:

1. Women are people. You think I’m making this up? According to the article, the firm that released the study said that marketers should be aware that “women are people and have personal feelings and social intentions.”

2. Women have the ability to perceive more than the metric of a product attribute or an instance in time. Apparently, women “appreciate the underlying pattern (idea) that gives rise to the fleeting moment.” Unfortunately, I’m a guy so I have no idea what this means.

3. For women, bigger is not necessarily better. This is a huge relief to me, personally. ‘Nuff said.

Not only are these some of the most ridiculous “findings” I’ve seen in a while, there’s something else about this that bugs me: They’re not actionable. The worst recommendations are those that tell marketers to  “remember” something, or to “be aware” of something. What does that mean?

Preaching is not prescription. (This, by the way, is what really separates the pros from the amateurs. Amateurs preach crap like “firms need to be more innovative” or “firms need to experiment with social media”, while the pros provide specifics).

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Banks Are In The Bush League

Who’s got a higher confidence rating, banks or George Bush?

The good news for banks is that the answer is banks. The bad news for banks is that it’s close.

According to the November Rasmussen poll, 35% of the people polled at least somewhat approve of the way the President has handled his job. That’s actually up 2 points from the October survey.

On the other hand, a new study released by market researcher Morpace found that just 38% of consumers are very confident in the banking industry. And that’s down six percentage points from the firm’s September survey

Given the events that unfolded in the past two months, that’s hardly a surprising finding. But what is noteworthy, though, is the decline in consumers’ confidence with their personal banks. According to the article in Marketing Daily:

“Banks have been rolling out messages of reassurance to current and potential customer alike. According to Morpace’s VP of Customer Loyalty Tom Hartley, ‘What the banks [have been] doing is communicating with customer more, through email, ads and other sources, doesn’t seem to be working in restoring their confidence.”

My take: I agree with Tom 100%.

Plenty of smaller institutions — community banks and credit unions in particular — have seen a nice influx of deposits over the past eight or ten weeks. Why? Because of their “safe and sound” messages? No. Because consumers are spreading out their deposits across institutions.

And quite frankly, I don’t think anyone believes any financial institution that touts how secure it is. Not when the CEO of one acquired firm goes on TV talking up his bank’s “bright future.” Or when another bank runs full page ads in major newspapers telling us how safe it is, only for us to find out more recently that is, well, not so financially secure.

So what should banks do?

1) Ignore the industry surveys. The economy is in the tanks, and FIs seem to be failing left and right. Of course the confidence rating of the industry as a whole is going to fall. Big deal. Your bank’s score is what matters — not the industry’s.

2) Stop trying to advertise your way to a higher confidence rating. Banks will build back their confidence ratings as new and existing customers experience a higher level of service. You cannot advertise your way to greatness.

3) Develop (or re-develop) an onboarding program. As new customers come on board, the key to their long term retention will be made or broken in the next 6 to 12 months. It’s critical for banks to recognize the types of relationships these new customers want to have with them. Are they simply spreading their funds across banks for security or are they abandoning old banks and looking for a new primary bank to have a relationship with? Quit wasting money on newspaper and TV ads, and put it into some marketing analytics efforts to figure out how to grow the relationship with the influx of customers who are coming in the door (thanks to no effort on your part).

4) Stay away from TARP money. (Are you listening credit unions?) I don’t know how, and I don’t know when, but at some point taking TARP money is going to create PR problems for the institutions that took those funds. 

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Three Things Banks Need To Do To Improve Their Reputation With Consumers

While there are a lot of things that banks need to do to get back on track profitability-wise, there are three “things” banks need to improve in order to (re-?)gain their credibility with consumers:

  • Transparency. If the CEO of your company goes on TV (say, Jim Cramer’s show) and tells the world the future of your firm looks bright, and then two days later, other banks are picking at you like vultures on roadkill, then your firm is not transparent. Consumers (not to mention investors) are sick and tired of this crap. Come clean about your financial situation. And come clean about your product quality. And your fees. Be transparent. We know the difference.
  • Tangibility. The Financial Brand blog recently highlighted the branding efforts of one bank, who’s running a series of ads showing someone (as Jeffry Pilcher writes) “wrestling — literally — with some aspect of their financial life: a wallet, purse, or checkbook. The only blurb of copy — the headline — says ‘Take control of your finances.” Pardon my french, but what the hell does that mean? Exactly what, Mr. or Ms. Banker, are you proposing to DO to actually help us “take control”? Aspirational messages are nice, but at some point (uh, sooner rather than later), banks need to be a lot more tangible about delivering on this stuff.
  • Competency. Pretty soon, I’m going to get a call from my account manager at my bank, asking me to talk with an adviser from the investment firm that they recently acquired. (This could be any number of banks). My response is going to be “you want me to talk to an adviser from a firm that did such a *great* job managing its own money that it nearly went out of business before you guys scooped them up for 10% of the value they were worth a year earlier?” (This could be any number of investment firms). A bank branch rep I spoke to recently couldn’t even answer basic questions about the changes in FDIC coverage. My point: To improve their reputations, banks (and other FIs) are going to have to re-prove their basic competency regarding financial matters.

The reason I refer to these things as “things” is that I don’t know what else to call them. Measures? Perceptions?

Problem is, I don’t think any bank tracks these “things” today, so how will they really know if they’re improving on them?

Maybe the brand index methodologies out there will tell them. Not likely.

Fixing these “things” isn’t going to come from external measurement. It will happen because the management team will take control of the situation, make fixing their reputation a priority, and do something about it.

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