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As a user, Facebook is frustrating, and as an advertiser, it’s downright useless.
Humans are skilled at ignoring the visual vomit around them, and these are skills that have been perfected over many years of increasingly desperate advertising techniques – from the subliminal to the ridiculous.
Stealing 5 minutes to get critical updates on the latest cat meme is what Facebook is all about, and monetising that experience has mostly been limited to targeted advertising (selling your personal details to advertisers so that they can craft ads most likely to drive a response). But with just $10 of annual revenues from each of its 600m or so engaged users Facebook has a long way to go to satisfy its many Shareholders’ many expectations!
The real challenge for Facebook though is that economically it’s still a One Trick Pony with 8 out of every 10 dollars of revenue coming from advertising. So how does Facebook outgrow the rebounding economy in order to drive up shareholder returns?
I think they have three pillars of advertising growth ahead of them, each of which will likely trade off user experience for advertiser revenue:
More advertising inventory – as the rate of subscriber growth slows more inventory is required to avoid an overall slide in the supply of advertising space – meaning more of the Facebook page will be dedicated to paid media resulting in a poorer user experience
More personal advertising – Facebook will give as much data as it can to advertisers to make the advertising product more effective – meaning Facebook will go even further to leverage their users’ personal data
More interruptive advertising – as consumers get better at ignoring the Advertising Vomit, Facebook will push its products to become more interruptive, meaning you have to wait for them to finish or actively “push” them out of the way. A poorer experience but one that is likely to yield more clicks for the advertiser.
And yet, the real challenge here for Facebook is that it just isn’t a great place to advertise for most businesses. It’s neither a great Brand advertising platform, nor is it a great Performance advertising platform – and in this analytically informed world of Marketing, the investment required to evaluate the effectiveness of an advertising platform is lower than ever before – meaning most big advertising dollars have already come and gone.
After bottoming out during the past few months, the fortunes of some Group Buying businesses seem to be on the up, albeit a significant number have collapsed or been acquired in the past six months and the outlook remains grave for many more!
The fact that the sector’s nose is slightly up is in part due to the weeding out of weaker and often less scrupulous competitors who often served only to undermine the reputation of the sector as a whole.
In fact out of the 50 largest Group Buying businesses assessed in April, only 29 remain intact just 6 months on. And given only 10% (5) of those businesses were acquired that supports the view that smaller Group Buying businesses are of limited real value. In such a crowded and undifferentiated market lifesaving investment is tricky too given a lack of brand equity, good will or asset strength (off the shelf web sites are common and subscriber base overlap with top-tier competitors is often well over 70%) resulting in the collapse of underperforming and debt laden Group Buying businesses.
A quick browse through the sites of the 29 still standing uncovered indicators of pending doom for some.
Here are the choking canaries of the Group Buying world:
Group Buying remains a $1bn future industry in Australia, regardless if that industry seemed to lose its way and stall when it was only half way there. Regaining lost momentum will be down to the leading players showing the way once again with a combination of brilliant marketing and a commitment to helping consumers discover great business products.
The strongest already have their playbook (Living Social, Cudo and Ourdeal) and will extend their positions in the coming 6 months through a focus on back-to-basics Group Buying offers like quality restaurants, high value vacation offers and utility products such as Cudo’s Meat Merchant.
Although I suspect another 15 from April’s top 50 will be gone by April 2013, leaving only a dozen or so standing, I think I already know who they are, I wonder if they do?
In 1999 the ever cheery Brits (of which I’m one) were flabbergasted when their #1 Son Richard Branson lost a bid for the National Lottery. His manifesto for the People’s Lottery was based on it being run as a Not for Profit meaning that profits would be provided as donations to the lottery commission over and above the standard fun-raising efforts of the National Lottery. Even though these additional donations would exceed $1bn each year the Lottery Commission said no, instead they chose Camelot who had no such altruism in mind.
Surely something’s afoot, why would the Purpose driven Lottery Commission choose greedy toes Camelot over goody two shoes Branson? Isn’t that Greed before Good?
Not that simple.
The Lottery Commission figured that without the benefit of a Profit Engine behind Lottery Ticket sales, they’d be worse off taking the $1bn contribution from the Virgin effort. That their interests would be misaligned and the overall donation pool would be smaller as a result. A decision that has since been vindicated several times over.
If the collective interests are balanced, doing good doesn’t have to be unprofitable.
Recently I co-founded a business called BeyondCover. On one hand BeyondCover is an Insurance reseller for Global Underwriter QBE, selling CTP (The mandatory Motor cover in Australia), General Motor and Travel Insurance, on the other hand it raises money for causes by rewarding Cause partners when they introduce a new Insurance Customer.
The key to having the right incentives in place lies within the nature of Philanthropists. People who regularly support Good Causes are good people, they take fewer risks, cause fewer accidents and pay their bills on time. They make pretty good Insurance customers too!
Reinvention is bloody hard, rarely has a big business managed to pivot wholesale to a new them without causing a catastrophic collapse of their core along the way. History is littered by once great corporations hollowed by their failure to recognise the need for reinvention.
But this isn’t a cautionary tale featuring Kodak and their resistance to the Digital age, although that is a good story! This cautionary tale concerns those businesses that recognise the need for change but fail, fail because their big company DNA rejects the wide eyed organism growing within.
Clayton Christiansen describes the issue as the Innovators Dilemma. The central theme of his argument is that big businesses innovate within the constraints of their own expectations. Big business’ expectations demand an aggressive and predictable return on capital as well as a degree of polish that small businesses and startup entrepreneurs happily live without.
Those expectations limit their ability to innovate to the Sustaining kind only, meaning incremental improvements that result in incremental bottom line impacts. The new breed of competitor, i.e. startups, don’t live with those constraints and can therefore galvanise their new business around an untested way forward.
It’s rare that a great product would win without the support of great service, so why then are the two so quick to grow apart?
The problem, I think, is success.
Scale and its associated economies support the development of a product but rarely do they support the development of the accompanying services. There are exceptions, of course, but not many; McDonalds is one, Apple another, Sadly I’m at a loss to think of a third.
It’s worth noting of course that Apple and McDonalds are are notable exceptions to the rule, albeit for vastly different reasons. McDonalds is a very, very large franchisor, and the “product” being sold does not come in a bun, the product is the Franchise. The Franchisee buys a proven recipe for fast food and efficient service. If McDonalds didn’t have control of the entire McD’s ecosystem through a tightly wound Franchise Agreement it would be impossible to maintain its brand of high-margin consistency that allows it to continue selling to franchisees at a premium.
Apple, on the other hand, is all about brand, and that brand extends through the product supply chain to the lifestyle, which includes the process of purchasing and ownership. Prior to Apple seizing control of its supply chain the service part was delivered by 3rd parties, now it is a powerful pillar in the house of Apple.
When a typical business grows, investment is poured into improvements in the production process, reducing the cost of goods and improving margins. The same can’t be said for service, great service at scale is costly, and returns to scale are minimal. In addition, training great service to new staff takes time, so the gap between product uptake and service delivery can grow rapidly if the growth was sudden and unforseen.
Improved margins are seductive, investments in service are not, and so the conflict begins.
As a business owner, you can get ahead. At a minimum there should be a record kept of a consistent service KPI such as Net Promoter that can serve as an early indicator of customer sentiment taking a turn for the worst. Where growth is happening at the expense of service the growth should be arrested until the issue is identified and resolved, hard as it may be to do so.
Positioning your entire business as a product is smart, have a McDonalds-like operating manual with detailed descriptions of service procedures and quality standards, or emulate Apple by asserting service as a key part of your brand, then live it with every touch-point!
To favour growth at the expense of service is a short term win, the positive sentiment that propelled growth in the first place is already evaporating, allow that to continue and chances are your brand will never recover.
Group Buying helped good businesses access revenues that had previously eluded them, improving utilisation, buoying their P&L and promising a sustainable new revenue stream from this exciting new consumer channel.
But now that the sector has waned and desperate Group Buying businesses have become fixated on stack ‘em high sell ‘em low product chuff – those once buoyed businesses are left feeling a little queasy.
Just one of the problems they face stems from prepayment, one of the headline benefits touted by most group buying companies (including me).
Although quick access to cash is manna from heaven for most business owners, prepayment has left behind a tequila-like side effect.
The problem is this. A top priority for all online businesses should be around Funnel Conversion, i.e. the ability for the business to convert leads into dollars, however in a world of prepayment, conversion becomes somewhat unimportant. In fact, if breakage (unused vouchers) is a profitable exercise for the merchant, higher conversion may actually mean lower short term profits.
Now that Group Buying is providing an ever declining proportion of revenues, many online businesses that signed up to breakeven or lossmaking campaigns in order to grow their subscriber base, now find they are unable to monetize that base due to poor site performance, especially in the area of conversion.
Faced with lower than expected revenues, these companies often head back to Group Buying to find that like-for-like offers work only half as well as they did before. Now the business is in a pickle, the drug is half as effective, risk its brand by doing twice as much? Surely you know your drug dealer is never your friend?
The key is to get the fundamentals of your businesses working right before looking to Group Buying or any type of Marketing for that matter. Ensure that the purchase funnel is converting 60% or more of the people who hit “Buy Now”, that your Subscription Channel is effective, and your email strategy is delivering appropriate Open, Click and Purchase rates.
When cloaked by the shiny veneer of Group Buying dollars your site performance will look a whole lot better than it really is. Time to sober up, shake off that hangover and see if your bedfellow looks as good as you remember.
American Express recently published a report into the impact of Service on Customers, focusing on how the new socially connected consumer behaves versus their less connected counterparts, the findings are startling.
One data point out of the report that should provide cause for concern is that an unhappy Social Media Savvy customer will voice their complaint to 53 of their friends, often through Facebook and other channels.
Amex also report that more than 80% of Online Savvy consumers say they’ve bailed on a purchase because of a poor service experience, compared to 55% overall.
It isn’t all bad news though, customers reported that they would be willing to pay an average of up to 13% more for products and services if the business provided excellent customer service – that’s a healthy return for showing you care.
The report concludes with tips for better service:
1) Great service starts with the people who deliver it – Motivate and enable your employees to go above and beyond for your customers.
2) It’s all about relationships – Good service comes down to forming relationships with customers. Look at customer service as an opportunity to deepen your connection with your customers, not just as a transaction to be completed.
3) Make it easy for customers to do business with you – Listen to your customers and use their feedback to improve your product and service.
4) Exceeding expectations is easier than you think – Customers aren’t unreasonable and don’t except every problem to be solved instantly. They simply want to be treated like individuals, know that you genuinely care about their issue, and are working hard to address it.
5) Listen to your employees – They are closest to your customers and understand the most about what customers want and need. Don’t miss out on their incredibly valuable insight.
6) Seek opportunities to make an impression – Understand and act on the notion that every customer interaction is an opportunity to create a connection and to drive customer loyalty and engagement
What’s clear is that the service expectation is increasing and consumers expect more than ever to be able engage with businesses directly or via social media when they have a gripe – sadly though, the number of businesses that can engage in this way is relatively flat.
The full report including a nice Infographic is here
Group Buying is all about hard bargains on great experiences, the web sites (and there are a few) trade exposure to a large audience for a discounted offer and a share of the revenue gathered. Check out most of these sites and you’ll see they are typically focused on the discounts they can negotiate on behalf of their members, crowd-power put to work! These same companies often regale in the millions of dollars they have “saved” on their Members’ behalf, reflecting the margin businesses have given up in an effort to attract a new audience.
But businesses tell us at Cudo that they are being pushed too far by aggressive Group Buying reps, and that they are disappointed by the quality of customers they attract, often finding they are seasoned voucher buyers rather than reflecting their typical audience.
And regardless of their intentions prior to running an offer, a business that has been pushed to its limits will have no choice but to minimise its losses during the process, especially when faced with a lower value customer who is less likely to come back once the vouchers is spent.
Minimising losses means one of two things to these businesses, delivering the service more cheaply to preserve some margin, or hoping the Voucher buyer never shows at all, also known as Breakage!
In fact, some Competitors’ commercial agreements even include a clause intended to maximise the value of Breakage, where a higher percentage of unredeemed vouchers is good for the Group Buying business.
But this is hurting the industry as a whole.
The Group Buying company typically controls contact with the end user, meaning they alone can communicate with the purchasers and encourage them to redeem their unused vouchers, however they are not incentivised to do so, the featured business should be focused on maximising the number of new customers they touch but may be hurting so badly after loosing the battle to preserve some margin that they hope no one ever shows! That said, they are not in a position to talk to voucher buyers even if they wanted to!
Group Buying cannot be about discounts alone, it has to be about incentivising customers to try new things. This is a sampling exercise, not a fire sale. Screwing a business in the name of growing your Member base is counter intuitive, because over time the best of the businesses we want to work with will want nothing to do with the Group Buying category as a whole, hurting the more reputable business out there.
And Consumers know that owning unredeemed vouchers is a lot like having a wardrobe full of clothes with Sale tags on, at some point someone will say “enough” and the buying will grind to a halt no matter how good the discounts are. We are focused on Experiences at Cudo, offered at a no-brainer discount, and we get that the future of the industry is hinged on our customers actually participating in those experiences, not just for the growth of the businesses we feature, but for the future of Cudo and for the industry as a whole. We will continue to focus on redemption at Cudo, and never encourage Breakage.