If you are building a consumer internet business, you have probably spent 90 percent of your time on product development, building a team, chasing funding, and defending your decision not to get a “real job” to your mother. If you are lucky, then you spent the other 10 percent getting some sleep. The one area of execution that I typically see startups least equipped to tackle is advertising.
As I have written before, there is a dangerous and false notion that products sell themselves. They don’t. Your product will not go viral and anyone that bets the success of their startup on tweets is a fool (and will eventually have to admit to their mother that she was correct).
Advertising is to be taken seriously and you need to provision for both investment and time to learn how to acquire and retain customers online. There is no question that startups in countries like Asia have an engineering bias – and that’s a good thing. But we are far behind our counterparts in Berlin, London, New York, and Silicon Valley when it comes to the quality of our UX (user experience) and marketing execution.
I spent over a decade spending an average of US$20 million a year in advertising for my previous employer (now current competitor). That marketing investment was almost entirely online and distributed into 15 different geographies across Canada, Europe, the Middle East, and Asia. Having benefited from that responsibility at a young age I learned a thing or two about online consumer behavior, building a brand online, and of course the ins and outs of digital advertising on a global scale.
I also learned that messing up once in a while was normal, and success in achieving marketing ROI (return on investment) is done through the systematic process of spend, track, learn, adjust, and then scaling the investment when you see returns. Even today, I accept that 70 percent of my teams individual advertising campaigns will either fail or break-even, but it is our job to ensure that the 30 percent that work get the majority of the investment and can scale up fast.
It’s not dissimilar to the portfolio theory of a venture capitalist. They know most of their investments will fail but their ability to rapidly identify and ramp up investment in the winners is the name of the game. Treat your marketing tactics and campaigns the same way. Without some level of risk there will be no reward.
When I launched my startup into the very traditional bricks and mortar consumer financial services industry in Hong Kong, I had a theory that it could be built and operate entirely online. I had faith that consumers had evolved faster than the businesses serving them. I saw a disconnect between consumers demands and the stale business models that faced them. This was simply the opportunity.
8 Securities is new company going head to head with huge competitors such as HSBC and Bank of China. If we want to win in the long-term, we have to acquire new customers at scale, add value to their lives and strive every day to make them happy. In 2012 we will have spent approximately US$500,000 in advertising and 100 percent of that is online. Here are some lessons learned and recommendations that that I hope are useful for you.
It all starts with your value proposition
As a consumer internet startup, your paramount objective is to solve a problem for your customers. In doing so, you need to crystallize what differentiates you and precisely how that benefits your customer. Only once you have done this can you begin to think about your message to the market.
Defining your value proposition is no easy task. After nine months in the market we are still refining ours as we are constantly learning from our customers and striving to meet their needs. What we thought might be a benefit often has no resonance with customers, and only by listening do you really understand their pain point and the solution.
Your value proposition and your brand have a symbiotic relationship in that one can not live without the other. Your brand is your promise to the customer. Your brand equity is what is left after you subtract your brand’s value proposition with that of your competitors. Marketing can not be effective until you are very clear on how you will position your value proposition in the market and and ultimately in the mind of your customers.
Many “marketing professionals” maintain a false belief that brands can not be built exclusively online. Furthermore, many media planners are still very traditional in their thinking and will advise you that “offline” marketing is a necessity to build brand strength and trust (they also earn more from traditional media). Leave the “offline” advertising to your competitors that are dinosaurs and focus your marketing efforts online where your customers eat, sleep, and breath. With the exception of any public relations you are able to generate in the press or TV, I would ignore the offline channel all together at this stage. Marketing in print advertising, outdoor, and on TV is a luxury and certainly not a necessity for a company born on the internet.
Banner advertising and the economics of lead acquisition
The first online banner in history belonged to US telecoms company ATT. It was hosted on a website called Hotwired and got an astounding 78 percent click-thru rate. The average click-thru rate today is 0.07 percent – and falling fast. Online banner advertising is tough but if you crack the code it will give you a tremendous competitive advantage and a much lower acquisition cost per account than more traditional competitors.
The main advantage of banner advertising is that you can scale it at a rate not always available through paid search. There are three main variables you must optimize when running online banner advertising. First, you need to negotiate a viable CPM (cost per 1,000 impressions) if you are not running a pay per click campaign. Theoretically, an “impression” is defined as each page load where your ad is displayed in front of a real set of human eyeballs. That said, a vast majority of your purchased impressions will not be seen as we have trained ourselves to ignore advertising as we browse content. This is among one of the biggest factors why we have seen click-thru rates plummet.
Many online properties where you will want to advertise still operate on a CPM basis and that includes Yahoo. For the sake of this example, let’s assume you negotiate a CPM of $5 on a site that generates quality traffic that you would like to target. If you invest $5,000 then you are purchasing one million impressions for your ad.
Second, the quality of your advertisement is critical. The most common mistakes are banners that try to convey too much information, don’t have a clear call to action, or don’t visually stand out from the background. We usually find that we have to change our messages and creative two or three times before we get it right.
In terms of media, your creative can span simple flash all the way to expandable video ads. We have run a number of video based campaigns on Yahoo and LinkedIn and saw a CTR (click-thru rate) of over one percent. Most of the videos we ran would drive interaction from over 50,000 unique visitors, but that of course is all a function of our investment level.
The benefit with video is that it’s a more effective medium to grab attention, to tell a story, and build your brand identity, but it comes at a greater cost both in terms of production and the media buy. For the purpose of this example, lets assume we run a standard three rotation flash banner. Let’s assume we beat the average and can achieve a CTR of 0.10 percent. If you invest $5,000, you have purchased one million impressions. If 0.10 percent click on your ad then you will have generated 1,000 unique visitors to your landing page (also known as the campaign page).
Finally, you need a great landing page on which your sole goal is to convert the visitor who clicks on your advertisement into a qualified lead or user. Don’t make the mistake of sending your leads to your home page as you need to isolate their experience to the objective at hand. The conversion rate of visitor to qualified lead really depends on your specific business and the information you are capturing. That said, you should aim for a minimum of 15 percent of your visitors to convert.
The fundamental elements of a great landing page are:
- Your call to action and design elements must be consistent between the landing page and the ad that was clicked. If the experience is not seamless and logical then your visitor is lost.
- Have a very clear headline and body copy. You must tell your visitor what it is and what you want them to do. If you are not promising to solve a problem for them then they have no reason to stay and will bounce off.
Plus, here are ‘101 Landing Page Optimisation Tips’ from one of the brightest minds in the business – so there are already no excuses for getting it wrong.
In summary, we have invested $5,000 in our example to generate 1,000 visitors to our landing page with a minimum goal of converting 15 percent, or 150, of those visitors into qualified leads or users. This results in a cost per user of $33. Do you expect the lifetime value of your users to be greater than $33? If so, the investment makes sense. Know your ROI and constantly optimize your lead funnel as there is always room for improvement.
Tracking and optimizing your advertising investment
Anyone that knows me would be right to say I am crazy about analytics and data. I have invested a great deal of time testing hundreds of tools to measure the entire life cycle of our customers from the point of advertisement to engaged customer. We currently track the specific advertising source that a customer clicked on and bind it to the customer’s activity so we can assess in real-time the revenues ultimately generated by the specific ad, the channel, and the campaign.
There are no endorsements here, but I wanted to lift the hood for startups so you can see what marketing systems we run. We use MediaMind for our ad serving platform. From this platform we host and deploy our banner ads across different websites and geographies. On a daily basis we track CTR, conversion, and revenue metrics on the specific ads and campaigns we are running. We are constantly optimizing our media mix based on this data.
To track interaction on our landing page and website we use Google Analytics. This provides invaluable insight in terms of how visitors are engaging and navigating our store front. Tools such as CrazyEgg provide a deeper real-time heat map so you can optimize the layout of your page.
The most important tool I use when it comes to lead acquisition and conversion tracking is MixPanel. MixPanel provides event driven funnels based on your defined flow. In our case, we measure leads from the point they arrive on the landing page through each of the six steps of our online application. I can see specifically where customers may drop out of our online application and work to make the process simpler. Once we generate potential customers online, we use Salesforce to auto route the prospect to the appropriate sales person based on language, geography, and product experience. This of course increases the sales conversion rate as you are matching customer needs with the person best equipped to help them.
We use Salesforce as our end-to-end CRM system. As a transaction-driven business we measure our revenue and core business metrics in an OLAP (online analytical processing) tool called MicroStrategy. For pre-revenue startups you can very likely tackle this manually until you reach a point of scale where it makes sense to invest in automation. Rather than waste time logging into all of these systems I publish them to the entire office in real-time through a dashboard called Geckoboard. As they say, you manage what you measure.
Focus on these three core areas and you will be running very effective and performance-driven online banner campaigns in no time. Remember, be prepared to take risks and accept that failing fast and pivoting is a normal part of the marketing process.