How Much??? Really?!?

How much do we spend in the US on advertising? Well in 2007 we spent 283 billion dollars. Yes 283 billion. 

That may sound like a lot but this level of growth 0.7% versus 2006 puts advertising’s share of the 2007 GDP (2%) at it’s lowest level since the recession year of 1982. 

Even with an uncertain market advertising spend is projecting a 3% growth in 2008 fueled by the Summer Olympics and the Presidential Elections. Being interested in online spending I am very interested in the 2008 projections.

Below is breakdown of the 2008 projections. The data was based on a December 2007 report from Universal McCann’s Robert J. Coen as presented in the December 31st issue of Advertising Age.

  1. Direct Mail – $63B
  2. Broadcast TV – $48B
  3. Newspaper – $42B
  4. Cable TV Networks – $21B
  5. Radio – $18B
  6. Yellow Pages – $14B
  7. Consumer Magazine – $14B
  8. Internet – $12B
  9. All Other – $58B 

What may be surprising is the fact that online spending ranks 8th. Being in the industry our natural assumption is that online spending is in the top 3. With that said though this segment over the past few years has had double digit growth and is projected at a 16.5% increase from 2007. The next closest in terms of growth will be spend on Cable TV at a 6% increase.

The flip side is the reduction in spend on traditional mediums such as newspaper which is actually seeing a decrease of -1.8% of spend as compared to 2007 and Radio which is only seeing a 0.2% increase.

With the recent trends in online spending continuing to increase. The success of Google’s AdWords system and now with Microsoft commiting to a marketing focus now is the time to focus attention on the medium. 

This translates to very good news for online solutions and providers as well. Especially around social media based solutions. The need for social interaction with customers and users has now fully proliferated traditional business and the marketing dollars are now being fully allocated to deploying collaborative solutions as part of their integrated marketing strategy. I see this trend continuing into the near future.

Teaching & Learning

January 2008 will be 5 years for me as an adjunct faculty member of Wayland Baptist University. Initially I taught courses such as Principles of Marketing, Market Promotion, Consumer Behavior and Global Marketing on campus. Now I am a member of the Virtual Campus focusing mainly on distance education around Principles of Marketing and Human Resources Management. Each Semester (4 semesters a year) I get two new groups of students and begin the process of introducing them to the various concepts and provide insight into the latest marketing theory.

After interacting with thousands of students from across the globe I wanted to take a moment and reflect on the impact that this profession has had on me. In many ways teaching a course really enables you to emerse yourself in the content. When you are a student your main responsibility is to comprehend the information that is presented to you. When you are on the other side of the desk not only do you need to comprehend the information, but you also need to be able to apply the concepts to real world scenarios that are relevant to your students to truly enhance the learning experience.

What I have found over the years is that students want the information presented to them to be relevant to their lives in some way. So this makes my job even easier as marketing impacts everyone on a daily basis. It would be very difficult to go through a day without some type of message either directly or indirectly trying to capture your attention. Radio, Television, Print, Online… no matter where you go you are constantly being reminded about various brands trying to maintain their position or gain market share against competitors. 

Many of my students own businesses and this allows them to have a better understanding of how they can reach their target audiences and understand the many facets of their envrionment (Political, Technical, Competition, etc…)

I am very grateful for the experiences and the interact with all of my students. Thank you all.

Community ROI

Changes have been in the works over the past few years, dramatic changes and challenges are beginning to have an effect on traditional business. You look at software as a service (SaaS), service oriented architecture, and especially Web 2.0 and how organizations are trying to define new strategies. From my perspective, I focus a lot of time around discussing Web 2.0 and the value to traditional business. 

Some of the common questions that are raised are: how do I calculate ROI around community? What are the contributing factors? How do I know that it is truly beneficial for me to have a community vs. not having one? The most common mistake when calculating ROI around community is to focus solely on the activity of the community. Things like unique visitors, page views, session time, community click throughs, read-to-post ratios, are all very useful in defining the health of a community, but they alone do not translate into a tangible business value that you can hang your hat on. When reviewing ROI you have to look at economic indicators such as the incremental value of the community and conversion rates.

Incremental Value is the difference between the value created by a business with an online community and the estimated value that the business would generate in the absence of community. There are a few guidelines that serve as baseline factors when calculating ROI. Research shows that Community members make up only 5% of the overall customer base, but this group accounts for 30% of the purchases and average transaction size is twice as large for community members as for non-community members. One of the biggest factors in calculating Incremental value is the referral factor. Community members are twice as likely to refer others to the site and the retention rates are 50% longer for community members than for non-community members.

With that in mind I began the process of creating a formula that took into consideration variables such as Advertising Dollars, Potential Market, Current Market Over Time and Direct and Indirect Growth to both Community and Non-community Members as well as accounting for retention and Word of Mouth. The end result is the following:

(A+(Nt/M) (b)) (M-Nt) = Community Member
(A’+(Nt‘/M’) (b’)) (M’-Nt‘) = Non-Community Member

Here are the variables
A= Advertising Dollars
M=Potential Market
Nt=Current Market over time
b= Direct Growth + Indirect Growth (CMs)
b’= Direct Growth + Indirect Growth (NCM)
r = Retention = 10% or .1
w= Word of Mouth Referral = 5% or .05
c= Content = 5% or .05

b = referral + 2(.005) = r + 0.0115
b’ = referral + (.005) = r + 0.01/2

So with this in mind you can look at this practical example:

Nt/M (M-Nt)

Nt= 10,000
M= 1,000,000

10,000/1,000,000 (b) (1,000,000 – 10,000)
b/10 (990,000)                                           

b=.1 + 2(.05) + .05 = .25                             b= r + 2w + c
b’= .1/2 + .05 = .1                                       b’ = r/2 + w

CM (10K, 1,000K) = (.25)(99,000) + 10,000 = 34,750
NCM (10K, 1,000K) = .1(99,000) + 10,000 = 19,900

Thus based on the criteria referenced above, having a community will yield a 74% increase over time as compared to not having a community based on the sample size.

In future posts I will look at another example of ROI calculation based on the average value of a Non-Community Member compared to the value of a Community Member. This will focus on monetizing the community and assumes a product based community. This requires an understanding of the average transaction per customer, total customers (projected or actual), potential market and the current conversion rates of the product. I will also review how Subject Matter Experts and Word of Mouth is calculated to come up with the 5% referenced above.

 

 

Viral Marketing & SMO

Viral Marketing is now one of the most powerful ways to market online. The key to viral success comes down to interruption vs. invitation. Traditional media such as television has the potential to reach hundreds of millions but the message may not resonate or be clearly discerned by the prospective target audience due to the “noise” and passive positioning associated with this type of delivery. The beauty of viral messaging is that it has a much better chance to get the users attention as the message is either coming from a trusted source, a recommendation, or meets the search criteria defined by the user.  Also, this type of message is available on-demand which gives the user ultimate control over when and where consumption occurs.

One viral aspect that is getting a lot of attention is online video. If you are reading this you have more than likely viewed a user created video on YouTube or some other site and you are not alone.  Online video is beginning to garner more attention from average viewers with 4% of people over the age of 18 watching videos daily and another 14% watching at least once a week. Research shows more organizations will be shifting marketing dollars to producing and positioning online videos. The reason for the shift is that video ads show a propensity to generate higher ad interaction and longer ad viewing (2/3 of the way through on average) this in turn leads to higher click-through rates.

So as an organization you may be thinking about focusing on online video or maybe you are looking to tie into user generated content and incorporate your advertising. If so, you need to focus on a few key factors. As with any type of marketing activity consistency is the key. Ensure that you are intrinsically linked to your brand, your video should require online interactivity and it needs to have synergy with offline marketing material. The other key factor revolves around the concept of Social Media Optimization or SMO.

SMO is the process of optimizing your online media presence by becoming more visible through searches within online communities and community web sites. The concept of SMO is to increase the chances of your video being distributed more widely through community search engines. This is very important as this is the key driver for this type of viral strategy.

As you consider your viral strategy it may become clear that you need a solid community presence associated with your brand. This is where branded community offerings can be applicable. Integrated platform (Blogs, Forums, File, Photo Galleries, Video & Podcast support, RSS) that streamline the positioning of an online community. Let me know if we can assist you with your community or viral marketing needs. We would be more than happy to assist. Feel free to contact me with questions at tedwards@blackfin360.com