Supernatural Agency: Online business tales

In a fascinating interview on behavioral marketing within a site Offermatica CEO Matt Roche talks about increasing the effectiveness of behavioral marketing within a site by tracking keywords used to get to the site and serving up specific homepage content that targets those keywords:

“So with MusiciansFriend.com, [when] someone comes to the home page we know nothing about them, so they get the home page. What if we repeat the keyword that they searched on to get there, just show similar information? That increased the conversions. We repeat your keyword so you have a connection.”

That’s the first step. Then they look at the behavior within the site and retarget the message when they return to the home page:

“Then we install affinity targeting that says when you go to the drums section and come back to the home page it will show you more drum offers. It increased the conversion rate in double digits on all the categories where we did category affinity”

Here’s where the real payoff for the merchant comes in:

“What was more important, in my opinion, was that the guy who was running the category for drums has never had his stuff on the front page. The front page is reserved for those departments inside a company that have the power. But if you suddenly say that the front page visitor is not just a MusiciansFriend front page visitor but a MusiciansFriend drummer, then you say, Mr. Head of Drum Merchandise, you tell me what I should show them. In the past you sat back and prayed people get to the drum section. Now he is leaning forward and saying, I know they are a drummer, [so] what should I be showing them? When the marketer becomes engaged, when they do something and see the result of it, then they do things that are in the end more engaging for the consumer.”

This is incredibly powerful stuff that is not technologically beyond the range of most serious site marketers because, unlike behavioral retargeted ad campaigns, it would not require sophisticated third-party server solutions. Anyone with a serious shopping or informational affiliate site should be thinking in these terms because this could greatly increase conversions and improve customer/visitor loyalty.

“The other good thing about the tech sector is that it is mostly debt-free. If anything, tech firms are over-capitalized, which is why they’ve been using their huge cash piles to buy back stock during the last few years.
Tech firms don’t have to borrow to fund their growth, which means they aren’t likely to get hurt if corporate credit standards tighten.”

That’s John Shinal from Marketwatch. His point is that in a market meltdown like the one we’re currently experiencing, tech stocks are a refuge because they don’t depend on debt to run their businesses. Why am I writing about this? Because the companies we’re building, and I speak collectively for any Internet-enabled start-up, are fundamentally different than businesses whose ability to function is largely based on their ability to borrow. We don’t make things, nor do we use debt to leverage investments. And neither does Apple, Google, Cisco, etc. They make things but they don’t really. Wha…?

They design and market things. Their computers, iPods, switches and server farms are not made by them, they’re made by contract fabrication companies in Asia. What they make is intellectual property. The interesting thing about IP is it is not capital-intensive, it is brain power-intensive and environment-intensive. By environment-intensive I mean that these companies have created a business environment that nourishes focused creativity, creativity that has a basis in market reality.

The businesses going down this week are banks, mortgage lenders, M&A companies, hedge funds, etc. These businesses are little more than gambling operations. They borrow (or convince investors) and gamble that the can resell the money at an incrementally higher rate. The past few weeks the house has called their bets and the markets have swooned. In the meantime, the tech companies have accumulated piles of cash from selling superior technology and automated digital services and are relatively separate from the fluctuations in capital markets.

Our business model is the same thing, albeit on a microscopic scale in comparison. We provide services that don’t require a lot of bodies and hardware to scale. We don’t need a line of credit, in fact we probably don’t need a real venture round (I may regret committing that to print- wait, there’s always Delete!). We really don’t need anything except time, energy and imagination (and a broadband connection).

“We could have put those resources into advertising. Instead, we wanted to work on getting people back,” Hsieh says. “We believe that the way to build a long-term, growing business is to focus on how to get repeat customers back to your site and purchase more often.”

That’s Tony Hsieh, CEO of Zappos, the online shoe retailer, explaining one of the ways they grew their business from $1.6 million to $800 million is seven years, in a current Marketing Sherpa article (the article expires as a free version on August 14th- I recommend you sign up for a free sub to get more of these great pieces on lead gen, CS, direct and other marketing issues).

As you monetize, you must retain and resell or all your efforts are doomed to endless repetition with slow growth. Repeat customers tell others and spread viral referrals. Keeping them happy is critical yet many affiliate sites and ad-supported sites do little more than place a ‘Join Our Email List’ form on their pages to capture return business.

Here are a few things you must consider to build a happy and growing database of repeat customers:

• Provide compelling, current content that is frequently refreshed. Include email and RSS update options.
• Do the Amazon thing: Create lists of ‘Customers Who Bought This Also Liked This’
• Have an application on the site that solves a time-related problem for your users so they give you permission to contact them on a predictable basis
• Amazing customer service. Affiliates may say: ‘we don’t do customer service’ but the fact is they are your customers. Find ways to get them to return to you rather than the merchant site.
• Reward referrals. Offer points, giveaways, free shipping, etc., for legit referrals.
• Don’t work with marginal merchants or advertisers who are not very specific to your site subject. Having a high quality central resource on a subject including great merchants and advertising that directly addresses my interests will encourage me to come back- it’s all content and should be vetted by the same standards used for your editorial content (if you have any!). Those Hormel Spam recipe ads I get in my Gmail account really don’t help the Gmail cause…

How valuable is a repeat customer? You don’t have to constantly market to replenish the one-timers, they will refer, they will buy again and again. $$$ and they represent a major business asset which greatly increases your value should you want to sell.

If your site doesn’t lend itself to encouraging repeat visitors and a loyal fan base I’d suggest you’re doomed to small time status. It’s time to change your plan.

Bear with me knowledgeable ones.

PPC arbitrage takes place when we bid on a keyword in a pay per click search engine like Google knowing that the revenue we will earn from that click will be marginally more than the cost of the click. In theory, if this works, it is a formula for making money; one many, many SEOs are utilizing. Like any arbitrage play, arbitrage itself is necessary to weed out inefficiencies in a market. It keeps them from getting too large and destabilizing that market.

So the arbitrageur (man, I always wanted to be one of these back in the eighties and now I are one!) must constantly seek new opportunities/inefficiencies because their own success ultimately creates their eventual failure. This is one reason why the eggheads at Google really don’t want to stop them- it is a self-regulating mechanism that their auction market needs.

So I ask myself: what is the big deal? Every marketer since the beginning of time has sought the sure thing in marketing, something where you put one dollar in and two come out; a money machine. Now Google offers it to us and the pundits somehow think it’s underhanded or something.

PPC is going to be a market driver for us but not in an arbitrage sense, although ultimately all successful advertising is arbitrage. We’re going to use it to gain market share rather than immediate sales because our model is almost entirely based on acquiring (free) users. Their value is long term and recurring rather than the classic PPC arbitrage:

• enter search terms
• see ad, click on ad
• advertiser pays for click
• searcher comes to site and buys something (or gets referred to a merchant and the advertiser is paid for the referral- lead gen)
• profit is greater than cost of click

Ours is more like:

• enter search terms
• see ad, click on ad
• advertiser (us) pays for click
• searcher comes to site and becomes a user
• user returns to site and buys over and over again
• cumulative profit eventually out weighs click cost and then becomes pure profit

This model means we might pay an outlandish amount for that click because we’re not tied to monetizing it once for a tiny incremental return. We are building an asset that will eventually result in another asset (think domain) becoming far more valuable.