Knowing When NOT to maximize your ROI

I was just reading a fascinating discussion over on Jim Novo's blog about the effectiveness of social media sites versus chatrooms as channels for advertising.

One commentator made a suggestion that Jim could "do a bad job" with his cpc campaign...as in design ads to attract fewer, but more targeted clicks, as a means to better optimize his ROI. Of course, it makes perfect sense. It is like designing incentives that are only of interest to the audience that would buy your product.

Don't give away a palm pilot - everyone wants one of those. give away a demo version of your product, or a discount on purchase, or a whitepaper that compares and contrasts the features of your product versus the competition - something that removes barriers to purchase.

The advertiser is happier. The respondent is happier - because you are speaking to their specific needs. Can anyone tell me which stakeholder loses out in this equation? The publisher.

In my opinion, this is a relationship that must be considered when measuring ROI, that hardly ever makes it into anyone's calculations.

The supply of quality publishers depends on their ability to generate revenues from ads. I have had the experience at times in the past of negotiating so hard with a publisher, that they refused to renew the contract when it had run its course. So, ok...I got the client the best possible deal in the short term, but what were the long term effects? I had "used up" available channels to access my target audience.

A client runs SEM campaigns on Google and also a very successful Affiliate program.

They pay their affiliates 5% of revenues.

SEM on a cost per click basis that works out to roughly 20% of revenues.

Each represents approximately one third of sales.

I suggest to the client that they could afford to pay their affiliates 8%.

The first response is, of course,

Why pay 8% when their affiliates were doing it for 5%?

The most important step in the process is to recognize affiliates as an important stakeholder in the sales process. That one can "create" more lower-cost inventory by taking care of a particular stakeholder group, or encouraging its development.

So then the questions
1. how many more affiliates can be attracted at 8%?
2. how much can SEM campaigns be reduced in response? and what is the expected cost per acquisition at the new, presumably optimized (and therefore more cost effective) volume.
3. what is the associated cost of marketing to this stakeholder group to bring them on board in sufficient volumes?

It is a step...or rather a leap of faith, that requires some careful calculating, careful planning, and total commitment - that stems from the recognition of the multiple stakeholders that make your organization work.

Can you share stories of when it made sense for your business to pay MORE for customer acquisition?

SCRUM and Freedom from Preformatted Reports

A little girl watches her mother prepare a roast for Sunday dinner. Her mother lays out the piece of meat, rubs spices across the surface, and then carefully cuts the two ends off with a sharp knife, and sets them aside.

"How come you cut the ends off?" asks the little girl

The woman smiles knowingly, and explains that her mother taught her the process when she was a little girl, and it makes the tenderest, most flavourful roast.

The woman later asks her own mom why, cutting the ends off the roast makes it taste so much more tender, and her mom responds that she is unsure of the science involved, but that she was taught the technique as a young woman by her own mother.

At which point, the mystery having taken on more significant proportions, the woman makes a call to her grandmother and asks "Gran, why does cutting the ends of the roast make it come out more tender?"

The grandmother, who is approaching ninety, seems disoriented by the question, so the woman explains futher "You taught mom, and she taught me to prepare a roast by rubbing salt and spices into the surface, and then cut off both ends before putting it into the pan."

The grandmother, when she hears this begins to chuckle, "No dear, I cut the ends off so the roast would fit in the useless little roasting pan my mother-in-law gave me for a wedding present."

I am often reminded of this cautionary tale when I examine the institutionalized reporting structures in place in many organizations. With the competitive pressures of business and the volumes of data available, organizations often develop "institutional blindness" around their analytics. Reports become entrenched, and we forget the urgent needs that fostered them in the first place.

I recently stumbled across Marianina Manning´s blog Web Analytics Princess when reading an article about measuring User Generated Content by Judah Phillips of Web Analytics Demistified. On Marianina´s site, there is an article about Virtual Worlds London 2007 in which she relates comments from the CEO of of Habbo Hotels Timo Soininen. He is describing his implementation of SCRUM project management techniques in developing the virtual worlds in response to user metrics and player feedback. For those of you who are not rugby fans, the SCRUM refers to the team huddling together and moving as a unit in a tightly knit formation, allowing the collective to jointly determine speed and direction.

And I started thinking about applying SCRUM Project Management techniques to web analytics. Not just the design of systems, but actual report generation too.

I was struck by a sudden vision of a future of Web Analytics unfettered by pre-formatted (canned) reports. Today Application Developers shape our focus and our perception of our websites by pre-supposing what kinds of reports we will need. Google´s Conversion tracking shystem recognizes only 4 possible types of conversions: sale, lead, signup and pageview. Management measures performance success primarily by focusing on comparisons against historical data. Many web analysts have made the point that historical data is rendered more and more irrelevant the faster things change on the web.

Almost a decade ago, I worked on a project to develop an analytics tool that essentially stored all the data in its raw format, and allowed the analyst to specify all of the input fields to customize the report. The system had ZERO preformatted reports. It was totally flexible...(and also often crashed the database and the site, because that was before we´d caught on to batch processing or staging the data, or protecting against system overload).

The project was shelved. People couldn´t wrap their heads around the idea of total report freedom. It required a certain intimacy with the data and facility with the stats that proved a barrier to adoption. ....at least that's what I think happened :)

...but I think that, in the fast-changing world of web2.0, where user audiences are SO fluid, and their usage patterns are SO dynamic, a free-format reporting system, combined with a SCRUM approach to analytics, that seeks to identify the emerging patterns without presupposing the answers, may be the path to effective optimization.

I know this is a little out in left field. But the neural networks geniuses of the worlds are creating these capabilities....we just need to create the management practices and reporting/visualization tools to follow suit. What do you think? Is this a possible future direction for the next generation of WA? or am I totally out to lunch?