If someone were selling $100 bills for $50, would you need a budget to work out how many to get?

Marketing budgets CAN be this simple IF you can successfully test and measure results, and know that for a certain expenditure you will win a certain number of clients.  Naturally there is variability and changes over time, which menas you need to keep testing.

This is an article I contributed to Other Side Up on customer acquisition cost.

Customer Acquisition Cost OSU

The thing is, most businesses guess. Now, you HAVE to guess at some point in order to start (hopefully an educated guess). After that if you don’t measure and keep guessing, you might as well be gambling.

The choice over being a generalist or a specialist is a tough one.

For many businesses that don’t actively pursue a field, the default position is to be a jack of all trades because they don’t make a choice. You get pulled in all sorts of directions by clients and you follow. Normally you follow the money, wherever it is at the time. It is a short term solution.  In some ways you end up getting good at a variety of things, but you are seen as great at none (even if you ARE great…).

I remember meeting a guy at a business breakfast a few years ago and he had a business card with a business description on each side. One was for his role as a small business tax specialist. One was for his role as a MLM in acai berry juice. I wondered if you went to him for tax advice if you would have to sit through “the plan” at the end. (And would you get billed for that time?) . Perhaps he was an excellent accountant and perhaps he was an excellent multilevel marketer. If I needed either, I would probably search elsewhere and find someone that knew what they were.

Here’s part 1 and part 2 of an article I wrote on this for Other Side Up.

Nicheing part 1 OSU

Nicheing part 2

A couple of weekends ago our family was down in Darling Harbour while it was buzzing with hundreds of World Youth Day Pilgrims in funny hats as well as the normal crowd of ‘ordinary’ people in funny hats. So it was a typical day in the city and as usual there were a couple of street performers doing their thing (how come they are always English?) performing for the unworthy masses, alternatively heckling and praising the audience. Always funny to watch,..especially if you aren’t actually in the audience.
Anyway, there was a ‘statue guy’ dressed up in metallic silver jacket, mask, hat, pants, shoes, standing completely motionless (it must take years of practise to do that I wonder if my son would be interested in learning…) until he lurched out at a small boy who walked past, breaking the whole I-am-a-statue routine. So after frightening the kid half to death, he made a small lollipop appear from his palm and pulled it out from behind the boy’s ear, handing it to him.  The kid’s parents stood by watching carefully – up to this point they had just been hoping that the statue guy was a real performer and not a raving psycho. But once the lollipop changed hands, they started lunging for spare change (you don’t think the statue guy does this for the love of it, do you?). So the mum dove into her handbag and the dad into his pockets. A suitable range of gold and silver coins were produced and placed on the ground … and the boy left with his lollipop and a smile.

So, was this simply the act of an amateur street performer? No way! This guy is a professional – he knows people’s ‘hot buttons’ and how to push them, especially when it comes to parents with cash.

What he does – and with great effect – is use the power of reciprocity, which is a phenomenon that was first studied by social scientist Robert Cialdini in the 1970s. Cialdini was continually perplexed by his ability to fall for every door-to-door encyclopaedia salesman, used car dealer and con man, so he set out to study why he was such a sucker. He did this by going undercover, working with, and being trained by, various companies that used dubious tactics to persuade, con, and generally get their own way. He separated these areas of persuasion and compliance into six principles and published a book called Influence: The Psychology of Persuasion which has since sold millions of copies and is still used and cited by, well … everyone! Although he gives examples of unethical persuasion (I love stories about con men!) his underlying proposition is that having an understanding of the techniques will allow you to persuade people ethically and with integrity, and also make you aware of how others will try and persuade you. Knowledge is power!

All six principles of persuasion – liking, reciprocation, consistency, social validation, authority and scarcity – have lots of interesting implications, many of which are often beyond the obvious.

But the one we’re looking at – reciprocation – works like this: humans have a hard-wired reflex to return a good deed that is done for them. Your kid gets given a lollipop, you automatically dive for coins to return the favour. It’s done before you even think about it, it’s not something you consider or analyse. Click, Whirr – Respond. Someone gives you a birthday present, and you ‘know’ you have to buy them a better one on their birthday (damn that!).

There are a handful of interesting points about this. First of all, you can’t fight the urge to respond. It’s why you feel compelled to return a dinner invitation even if you didn’t really enjoy the other people’s company that much the first time round. To further investigate this, one study looked at what would happen if Christmas cards were sent out randomly. The results were remarkable – a mysteriously large percentage of recipients responded the following year by sending a card in return (‘We got a card from them, better add them to our list’). In one case, a ‘friendship’ (meaning a history of cards exchanged) developed between two families and decades later the daughter in one family went to stay with the other family while she attended college. (Cialdini still gives many speeches on his research, and the new implications of it, and apparently he was recounting this story once and a lady in the audience shouted out ‘That was me!’)

So, the first point is that it is instinctive for humans to respond to kindness. In fact in business scenarios the effect is so well known that many companies have a ‘no gift’ rule so that their staff are not influenced by such factors. Think about it – have you ever bought something in a supermarket purely as a result of a product tasting? You walk past a stand set up at the end of an aisle, sample a product and before you know it you’re explaining to your wife why you have a packet of turkey sausages or sun-dried tomato flavoured cheese dip in the shopping.

The second point is that the principle works even when the good deed is uninvited. Krishnas were observed soliciting for donations in busy airport waiting areas by simply thrusting small flowers into the hands of passers. Interestingly, the majority of recipients were compelled to respond with a donation, largely just to ease their conscience. It’s a reflex – just like the parents diving to find change for the street performer, people couldn’t resist reciprocating, even though they didn’t want the flower in the first place.

Third, the exchange is often unequal. People respond with a larger deed than the original action. So, if you’re using reciprocity in order to gain a benefit you will often be successful. Think about the statue guy. A lollipop costs him about ten cents, but most people end up giving a dollar or two, even though they know the lollipop is only worth about ten cents and they could easily go up the street and buy a whole bag of them for less than they’ve just handed over!

As you go further into the subject, the implications start becoming more advanced. Apparently during negotiations a concession by one party has the same effect as a favour. And if you can orchestrate a concession, you can swing the balance in your favour, without having to do very much at all or even actually conceding anything. One technique is to make a large request that you expect the other party will say no to. When they do say no it has the same effect on them mentally as a concession by you would have … now they ‘owe you’ and are primed to agree to your next request. A few years back there was a Girl Guide who had set all kinds of records for selling cookies. She was so successful that she was asked to appear on the Tonight Show. When asked the secret to her success she said, ‘It’s simple … first I ask them if they would like to donate $10 000 to the Girl Guides, and when they say no I say, “Oh, well how about you just buy some of these cookies then?”’. Bingo … a sale. In another example, people were asked to sign up to give blood every month and become part of a program. A certain percentage agreed. Of those who refused the request, the level of compliance for a single ‘well can you donate now without joining the program’ request was almost double the rate of people who agreed without first being asked for the larger request. So the moral is start with a big request even if you think the answer will be no, because the chances of your next request being agreed to are higher. When you think about how powerful this is, it hardly seems fair does it?

As I said, I love stories about con men and one of my favourites is about a good old-fashioned con. A con man sits in a Western Union telegraph office … pacing … waiting … and every now and then approaching the window to ask if any news of a transfer has come through. It hasn’t (and won’t, because there is none). He then approaches someone else who is also waiting and strikes up a conversation – ‘Been waiting long? Me too’ – and listens to the other guy’s story about what he is waiting for. Then he offers the other guy a small loan, pitching it along the lines of, ‘Well I am waiting for quite a bit of money … but if it helps you I can loan you $50 until yours comes through’. The guy refuses, saying ‘thanks but no thanks’ and they both wait it out. The offer to lend money (even though it was refused) is the beginning of the process and the reflex emotion is one of gratitude for something being offered. The victim’s transfer comes through and he gets his money. At this point, the victim in the scam will be compelled to return the favour of offering to loan money to the con man – and such is the power of reciprocity. The initial offering created trust, even though it was not accepted and it is human nature to respond in kind. And in this story, the generous reciprocal offer will be accepted, the money taken, and the con complete.

Influence is one of my favourite topics. I can absolutely recommend that you invest a few dollars and buy Cialdini’s book. I am a huge fan of amazon.com (although I can easily spend a couple of hours in a Borders as well!). If you are in sales, marketing, or have a spouse, kids, a boss, employees, customers, suppliers, or are even just a human being, you’ll love it.

http://www.amazon.com/Influence-Psychology-Persuasion-Business-Essentials/dp/006124189X/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1217424698&sr=1-1

As an aside, I was in a workshop about web strategy last week.  The power of reciprocity was referenced, and the example given about using the power of this principle to obtain email addresses and contact details online – the example was ‘We give away a report and we get their details … this is reciprocity in action’. I disagree. This is an exchange, but it does not use the power of the principle. With an exchange of details for a report or something similar (pretty common on the web as the starting point of many email marketing campaigns – get those autoresponders working!), the power of the gift is diminished or equalled by the provision of personal details. Because the name/email is required, the web browsing party views this exchange as a complete transaction; that is, it is balanced. They are not left feeling as if they still owe the other party and there is no reflex drawing them to reciprocate. They gave their details, so everything’s even.

True use of the power of reciprocity on the web would be to give freely, safe in the knowledge that the giving of the gift causes the reflex need to return the favour. And because the return is often larger, any investment you need to make in giving the gift would be a wise one. But this does cause issues on the web because if you give a content-based gift (say a report or a whitepaper), and the recipient navigates away from your page then they are gone and you have no real record of them. So a name capture device is important for other reasons, but it is not about using reciprocity, it’s more about permission (opt in) marketing. If you do capture names and want to use the principle, then give people something else after you have their name – a surprise of some sort (a larger free gift). This creates the need to respond, and if you have the mechanisms in place this will prime you them for you to make some sort of (hopefully) more commercially profitable transaction.

Shouting at everyone…

As a population, we are bombarded with messages every day – the actual number is hotly disputed, some say 3000, some 10 000, but whichever way you look at it, there’s an awful lot of information that we haven’t asked to receive being shoved in front of us each and every day. As a coping mechanism, we have learnt to tune most of the ‘clutter’ out, especially if we’ve seen it before. We have developed ‘advertising immunity’ – the ability to filter through information without even seeing most of it.

So when the majority of advertisements aren’t even getting through, what options do marketers have to get through the clutter? Some go for saturation – placing more and more advertisements, increasing the noise (and not just figuratively either, they really do increase the volume of their ads) and ultimately reducing the effectiveness of each ad. Some make ads that are increasingly outrageous and attention grabbing, thinking that this will be the silver bullet they need for market penetration, but although people might remember the content of the ads they’ve seen, they often can’t recall the name of the advertiser – while such ads they create excitement about a type of product or service and increase awareness of the need for it, they fail to point customers in the right direction, and people buy wherever they can find the product. So, the agency wins a Golden Pencil, the advertiser spends millions on making people laugh (but not buy), and most of the customers run straight into the arms of the competition. Ouch.

This type of marketing – or advertising to be more precise – is known as ‘interruption marketing’. The aim of the game is for the advertiser to make you stop and look at their ads … on TV, on a bus, in a magazine, one the web, even with skywriting. The options are virtually limitless, and so are the numbers of ads competing for attention. As the noise escalates, so does the cost of getting people’s attention. And it’s a game that very few can afford to play long enough to succeed.  The ones who do succeed interrupt people constantly with new offerings almost every week, spending more on better directors, getting bigger sets, choosing stranger places to put their ads, becoming more controversial, trying to be funnier than the other guy, and sometimes, just trying to out-weird the other guy. (As I write this there is a well-known chocolate company showing an ad (in prime time no less) with a gorilla playing the drums to Phil Collins’ In the Air Tonight – which he’s listening to on those little white earphones (that most people would recognise, I’m sure). What does it mean? Who knows? It’s interesting, it’s weird, it’s certainly different. But does it make me want to rush out and buy a bar of purple-wrapped chocolate? No more than normal.) Some companies will keep switching from one form of media to another, from paying kids to lurk in forums and rave about products to going back to good old-fashioned direct mail.

But does any of it actually work?

Seth Godin likens this type of advertising to trying to get married by wearing the best suit money can buy, having a team of the best copywriters work on pick-up lines, having a comprehensive analysis done to find the location of the most demographically suitable prospects and then going there and asking people one at a time to marry you. Sure, you get to talk to a lot of people, but how many of them are going to say yes?

So what’s the alternative?

Whispering in the ears of a select group…

Permission marketing is about not interrupting people on an ongoing basis. It’s not about trying to compete with the existing clutter, but rather going around it. To continue the marriage metaphor, permission marketing is the equivalent of dating – you venture a smaller request that’s easier to say yes to than ‘Do you want to get married?’ So you ask someone out for a cup of coffee. Assuming all goes well on that first date, you up the ante and ask them out for dinner, then a movie, a weekend away … the relationship has a chance to build organically. It’s about turning strangers into acquaintances, acquaintances into friends, friends into customers and customers into loyal fans that will stay with you for life.

Permission marketing does involve interrupting people – but just once, right at the start. You ask them out for coffee by offering something of value in exchange for their permission to continue building the relationship. It’s about asking a customer to raise their hand and opt into the dialogue, then filling their hand with something of value that makes them want to come back for more. And then you ask them on another date … and another … and another. The great part about permission marketing is that you both know why you’re here. The ‘pitch’ is out there in the open, with each message building on the one before it and being keenly anticipated by the people you are marketing to. It’s a long-term dialogue that yields long-term results, and because of its almost limitless potential to be personalised it becomes symbiotic – people stop feeling as though they need to be on the defensive while they are being ‘sold to’ and start feeling as though they are worth more to you than just the ‘quick sale’.

In the world of the internet, which is like a sped-up version of reality (it’s a veritable marketing hothouse … direct mail with no waiting on postage and virtually no cost) you see this all the time.

You visit a site about knitting (okay, stay with me here … and imagine you like knitting) and before you know it you’re being offered a free ebook on creative knitting techniques in exchange for your name, email address, and permission to contact you again. Before you know it tips are bouncing into your inbox (knit one, purl one, knit one, purl one) and then a few offers for ‘special’ deals, then the request that you join the subscription for their magazine or wool club … all with your permission, of course. And because you opted in to this dialogue, you are more likely to read and respond to these offers than if they just showed up out of the blue.

Sales trainer Chet Holmes talks about educational marketing, highlighting that in any given market, only 7% of people are active buyers, 35% know they have a problem to solve but haven’t searched for a solution, another 35% don’t know they have a problem, and the rest are loyal to their current brand and won’t change. Permission marketing expands your audience from the 7% to the other groups, so your marketing casts a wider net.

What’s great about this process is that the people who give you permission to contact them have identified themselves as being interested in your offering, if they’re not familiar with your specific products, they’re at least in your field of view. Second, by actively participating in the process and providing you with their details they have lowered your future cost of speaking with them, making them far more profitable prospects than can typically be obtained through interruption marketing.

And it doesn’t just work online – anywhere that you offer up your details in exchange for something, anything, is an example of permission marketing, A club, an association, an offer of free information, opting in to having updated real estate lists emailed to you weekly, anything with automatic replenishment services (Amway is a great example of this) or where the next installment in a series is sent automatically (like those DVD series you buy off TV)  – these are all examples of permission marketing in action.

So how can you use this process to your advantage? How do you break the shackles of traditional interruption marketing and embrace the notion of marketing to people who actually anticipate and want to hear your message? The first step is simple. When you successfully interrupt someone and have their attention, stop throwing away the opportunity to turn that brief interaction onto a lasting relationship. Consider this – someone calls your business with some questions, which you cheerfully answer, offering as much information as you can. They thank you and assure you that while they’re ‘just thinking’ right now, they’ll get back to you soon. Do you know how much that phone call just cost you? Even forgetting that 90% of people who say they’ll call back never do, you spent money somewhere, somehow, to get them to ring in the first place! There is enormous opportunity cost in not creating the groundwork upon which to build a relationship with them.

If Holmes’s theory is accurate, over 70% of the people who make initial contact with you won’t be doing it at the stage in their buying cycle when they’re ready to actually purchase. If you depend in interruption marketing to engage your customer in a transaction at the ‘purchasing’ phase of their buying cycle, it’s going to be a pretty hit and miss affair – and usually more miss than hit. Permission marketing extends the length of your relationship with people; increased communication with them improves your chances of hitting the purchasing phase of their buying cycle and the strengthens their trust in your offering, making them more likely to purchase from you. The concept of permission marketing also ties in with Robert Cialdini’s premise of reciprocity in Influence – the Psychology of Persuasion – the more they accept from you, the more likely they are to ‘return the favour’ and buy from you. (You can read more about Cialdini’s ideas on reciprocity here.)

Attention is currency

In commerce, much like in dating, relationships are the landscape and attention is the currency. The permission marketing approach makes you a welcome sight, rather than an irritating distraction – and each contact is an anticipated next step in the relationship. What marketers then need to do is use their currency to create an asset out of the relationship.  Amazon is without doubt one of the best at doing just that. Amazon has brilliant software, which its system uses to build a profile about you, creating a relationship based on its quiet suppositions of what you like, what you are interested in and what you are likely to respond to. Even if they lose money (which they have done a lot of) their asset is still worth billions of dollars because they have your attention.

Attention is vital for success. In Japan (it seems like about 97% of weird stories originate from Japan…) there are vending machines that will give you stuff for ‘free’ if you give them your attention. You give the machine your attention, watch an ad and out pops a ‘free’ drink. That’s the price they’ve placed on your time, buy into the process (that is, give them permission to market to you by paying for the drink with your time) and you’ve agreed with them. It’s the just another step in the trend of the ‘Noughties’ that’s been dubbed ‘Freeconomics’ – giving people stuff for free in order to market to them and (hopefully) make money from them. You can take a look at a great article about this is at The Age and you can check out more about these vending machines at The Inventor Spot.

The concept of Freeconomics has spread across a vast range of industries – many musicians are offering free downloads, you can exchange your details for free podcasts, e-books, software trials – the list is endless and it’s everywhere. Last week I got some sort of spyware on a computer in my office. My normal toolbox wouldn’t fix it – of course. My friend Google served up a program that would fix it and came in two flavours – free (good diagnostic, but no ‘fix’ mode) and a full-featured paid version. What was interesting was that instead of just handing over $29.95 I could register for anyone of half a dozen alternatives – all opt-in, permission based offers. It was refreshing to see! In the end though I wanted the solution faster than a series of opt in offers could give it to me and I used the plastic.  But the concept was fantastic!

Benefits

Permission based marketing can be more resource hungry than traditional techniques, but its cost effectiveness is also likely to be much higher. Resources are more targeted and communications more adapted to the audience. Put simply, an efficient permission-based marketing campaign will:

•    Improve response rates
•    Develop closer relationships with contacts
•    Increase the effectiveness of your marketing campaign
•    Increase consumer loyalty

Although there is little supporting empirical data from the business-to-business (B2B) arena, research from consumer markets does back up the benefits.

Get permission to start now!

Of course, as with anything, the most important thing you can do is start! So here are some quick tips on how to start your permission marketing process today:

•    Work out what you have that your prospects want, and that they’d exchange their details for. If you don’t have anything what could you put together with the resources you have? Use curiosity. Use novelty. Use a bribe. It’s all bait (the good kind).

•    Ask for permission! Capture their details – but make sure they know you’re doing it and why.

•    When prospects raise their hands, fill them with value – and it doesn’t always have to be expensive ‘stuff’. Perceived value can be just as important, so think about e-books, articles, white papers, podcasts and other low cost, high impact goodies.

•    Keep filling their hands with value – keeping the relationship going is vital.

•    Don’t pitch too hard. People know a pitch is coming – they are smart and have been sold to before, so keep it low key. Remember the idea is to grow the relationship.

•    Create something worth talking about. Think about Seth Godin’s Purple Cow – what’s yours?

•    Use situational permission. I know the example is old, but ‘Would you like fries with that?’ is a great example of situational permission. It’s asking the right question at the right time. (For the record, this question hasn’t been used at a McDonalds for years … since meals were bundled. But it’s still rolled out as a ‘killer question’, which always makes me laugh.)

•    Keep communicating, but not too much. Are you emailing too much? If you are wondering about it, you probably are.  The idea is to build a relationship where people look forward to being contacted, not make them feel like they are being stalked.

•    Give value with each interaction. Remember, you are putting your energy into the ’select few’ – even if that ‘few’ is a big crowd. Frequency of contact and value given each time will convert these strangers to friends. The analogy is used for seeds and a watering can. You have a hundred seeds, and enough water to water each one just once. Or, you can water ten of them ten times. What’s the best bet for getting that seed to grow?

•    Knock your customers out with value. Seth points out that Muhammad Ali didn’t become the heavyweight champion of the world by punching 20 guys once each. He won by hitting one guy twenty times. So, it’s all about knocking your customers out (not literally though!).

•    Never share your permission, because permission rented out is permission lost! Have a privacy policy and don’t break it – relationships are built on integrity and if you break the trust the relationship will crumble.

•    Hold a seminar on a subject that your prospects will like. Interrupt them to make the invitation, but allow the event to create a dialogue. No hard sell … just value. I have seen this work with small events where there is a specialist speaker in a room of just a dozen people. I have also seen it work in a room with 700 people and a dozen different speakers all presenting then selling, presenting then selling. People attending the event knew it was a pitch, but saw the trade off as reasonable given the value that was given away as well. Remember that what works in one scenario won’t necessarily work in another and the way you position it creates the expectation.

The way of the future

In a society where we are increasingly able to block out the ‘white noise’ that surrounds us, having the ability to gain people’s attention will be vital to success. It’s all about asking yourself where you want your marketing spend to end up – do you want to create a killer commercial and air it to millions of people, most of whom either won’t see it because of the new advances in technology that allow us to skip through ads on commercial TV now, won’t remember, or won’t associate with your company? Or do you want to clearly define your focus group and aim your permission marketing campaign toward the select few who are most likely to become actual paying customers? No, you aren’t going to win any awards without a big, splashy ad campaign, but you are more likely to identify and develop relationships with clients who have enormous profit potential – an isn’t that what marketing is meant to do?