Tag Archives: marketing

Loyalty Marketing Part I: Strategies and Segments

There seems to be a lot of confusion about loyalty marketing and how loyalty programs work. To an outside consumer, I guess the confusion is understandable. Most loyalty programs are branded as a value to the customer, a reward for their dedication. Most loyalty programs’ primary goals are not to add more value to consumers (though when they’re done well they do that too); their goal is to create more value for the company. I’ll break down how to think about loyalty if you are a business that is wondering if a loyalty program makes sense for you.

The first thing to understand is that every business has a loyalty problem; it just might not be the loyalty problem they’re expecting. To make this clearer, I’ll split consumers into four areas. Depending on where most of your company’s consumers fit is where you’ll spend your effort in thinking of a loyalty programs. The first thing to do is split all of your consumers into loyal and non-loyal and frequent and non-frequent. Loyal is defined by doesn’t use a close competitor as well as you for what your product/service does. Frequency is a bit more nuanced. Your product/service should have a target frequency you’re setting. For Pinterest, that might be daily. For GrubHub, that might be once or twice a week. You then can build a 2×2 matrix like the one below.

Each of these four buckets requires a loyalty program targeting different actions by consumers. Just to be absolutely clear, let’s go through that exercise for each segment.

Frequent, Loyal
Action: Keep consumers doing what they’re currently doing

Frequent, Non-Loyal
Action: Get consumers to migrate usage of competitors to you

Infrequent, Loyal
Action: Get consumers to use product/service more

Infrequent, Non-Loyal
Action: Determine if product issue can increase frequency. If not, ignore.

Now, we should talk about these strategies in a bit more detail. I’ll skip infrequent, non-loyal since it’s a combination of two other strategies, and probably implies a product or market problem.

Infrequent, Loyal Strategy: Incentivize Use Cases
In this segment, consumers use your product loyally, but not enough to your liking. This implies that there are not enough use cases for your product in the eyes of the consumer. That could be because these use cases do not exist, or because the consumer doesn’t perceive them to be relevant. If the use cases do not exist in your product/service, you need to build them into your product. Take, for example, Homejoy expanding into all sorts of home services after starting with house cleaning. If the use cases do exist in your product/service, but consumers aren’t using them, you need to invest in awareness or incentivizing a trial of them. For Pinterest, this might be upselling someone who uses the service for recipes to try planning a vacation with the service, or a web Pinner to try the mobile app. For GrubHub, this might be giving a discount for a pizza orderer to order sushi, or a web orderer to try their first mobile order, or a delivery user to try their first pickup order.

These opportunities might not exist or be worth the effort. When I worked at Apartments.com, we knew people would only look for apartments once a year or less. There was not much we could do influence that. What we could do was stretch our product to be useful for not just the apartment search, but also services you need once you find an apartment e.g. moving. Beyond that, there wasn’t much opportunity we could tackle, meaning we’d probably have to spend money to acquire those same users whenever they looked for an apartment again.

Frequent, Non-Loyal Strategy: Incentivize Platform Use
In this segment, consumers are very active, but don’t always use your product/service over a competitor. This is the most common type of loyalty segment because it’s easy to understand the upside. You can typically measure how much activity occurs off your platform. Here, you need to invest in an incentive to move those uses onto your platform. This typically takes the form or rewards points or punch cards.

Frequent, Loyal Strategy: Build Moat
In this segment, consumer are very active and don’t use anyone else for your product/service. These are your best customers. So, a loyalty strategy shifts from trying to increase how often someone use the platform to doing all you can to make sure these consumers don’t decrease their use of your platform or are wooed away by a competitor. This is by definition a money losing strategy to decrease risk instead of a money making strategy in the first two segments. Moat strategies can take many different forms and are frequently misunderstood. Some start out looking like the same strategy as frequent, non-loyal. One common one is to increase switching costs. One example of that is Facebook shutting off friend access to competing apps.

Many other moat building strategies get much more creative. They rely on looking at every possible risk to your consumers doing less of what they’re doing today and trying to address it. One of the most ambitious is Google’s launch of Android. Google makes most of its money from web advertising. They saw consumer attention shifting from an open, web platform they increasingly controlled via their browser Chrome to closed platforms on mobile owned by competitors Microsoft and Apple. So, they acquired and put hundreds of millions of dollars behind their own, open operating system in Android, which they charge no money for, but powers most smartphones all over the world. This is all so they could continue to control how people searched and saw ads in a mobile world.

So, we can go back to that 2×2 with our strategies now.

Now that you understand the segments and their corresponding strategies, you need to identify where the opportunity is for your product or service. The easiest way to do that is to run a survey to determine loyalty, and mine your user data for frequency. Then, see where the highest percentage of your users are.

This post covered how to identify which segment to focus on and the appropriate strategy to pursue. My next post will talk about making that strategy and implementation successful.

Read part 2 of of my series on loyalty marketing.

The Incredible Unbundling of Marketing

Having worked in marketing for almost a decade now, I have seen a lot of change. One of the most fascinating is the change of what people around me think marketing is and what it is not. To establish the baseline of how I think of it, and how marketers typically think of it, it helps to look at the official definition from the American Marketing Association:

Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large. Source.

Since that’s a mouthful, marketers tend to shorthand with a series of P’s (four to seven depending on who you ask). For products, those are product (the creating part of the definition), price (the exchanging part of the definition) , promotion (the communicating part of the definition), place (the delivering part of the definition), positioning (the value part of the definition), people (the people who do the activity), and packaging (another part of the communicating piece of the definition). For services, those are product, price, promotion, place, people, process, and physical evidence. These are consistent with how I was taught in my marketing undergraduate classes as well as those in my MBA.

If you visit that link above, you’ll notice the AMA also goes through the trouble of defining marketing research on the same page:

Marketing research is the function that links the consumer, customer, and public to the marketer through information–information used to identify and define marketing opportunities and problems; generate, refine, and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process. Marketing research specifies the information required to address these issues, designs the method for collecting information, manages and implements the data collection process, analyzes the results, and communicates the findings and their implications.

I’ll come back to research, but first, if schools are teaching what marketing is consistently, is this how marketing is being defined in the marketplace? At least in the tech industry where I’ve spent my entire career, increasingly no. Let’s break down some of these functions.

This is the process of creating something of value for customers. This is almost always its own organization lately, and with varying degrees of interaction with marketing. In technology companies, product managers are more likely to have engineering backgrounds than marketing backgrounds. I myself am a part of the Product org at Pinterest (though I was in the marketing org at every other company).

This is the process of determining the willingness to pay of different consumer segments, and setting a price that is attractive to the segments that are attractive to the company. Who owns this very much depends on the org. I have seen pricing owned by finance and sales more than marketing in my career.

Place is where the product/service is sold. In technology, the internet is the prominent place, and determining whether an app strategy makes sense is the key question people need to answer regarding place. Sometimes a marketing decision, sometimes a separate product org’s decision. For sales-driven companies, this is frequently owned by the sales org.

This is the act of making potential customers aware of and driving purchase of the product/service. Even in promotion, marketing functions are being splintered through multiple departments. PR is sometimes its own separate department. Many of the more direct marketing channels for technology companies (SEO, email, notifications, viral loops, conversion optimization) are unbundled into a separate product and engineering team typically called “growth”. Marketing still mostly has a stronghold on events, campaigns, and community management.

Positioning is the strategy of how a product is presented to potential customers. Many people refer to this as brand, but positioning includes functions of determining a market segment and deciding on a value proposition for that segment. Much of that can and should occur before a product is built. Positioning is about why a company exists and what is stands for. Much of this is still owned by marketing, but I have seen many companies independently position their product and create core values that do not reflect the positioning. This makes it hard to align market expectations with internal processes, and brands suffer as a result.

Packaging is the “coat of paint” that defines how a product is presented physically. It is every visual element of your product. This piece has mostly remained a marketing function, though I have seen separate design teams own this before.

This term has largely been replaced by the phrase “culture fit” in companies I have worked for, and is measured either by individual hiring managers or by HR or recruiting teams. As a result, this test has represented less about whether this person is a good reflection of our positioning to our customers and more about how well they will work with others internally, creating diversity problems.

These are the systems developed to deliver on positioning as someone experiences a service, like the line at a Chipotle or someone picking you up when you rent from Enterprise. These are increasingly managed by an Operations team.

Physical Evidence
With a service, there is a lack of tangibility to it, making it hard to value. Physical evidence re-inserts something physical into a less tangible experience to either create a memory or create an easier way for a customer to evaluate a service. This can be something out of the ordinary like a pink mustache with Lyft or a chocolate under your pillow at a hotel.

Now, let’s look at marketing research. In this case, I’ll discuss two newer disciplines encroaching on marketing’s stranglehold of these responsibilities.

User Experience
User experience teams frequently include their own research functions that do qualitative and quantitative analysis to identify problems and opportunities. Qualitatively, this occurs through one on one interviews or by monitoring individual product usage. Qualitatively, this occurs through surveys.

Marketing Performance Analysis
Data science or analytics teams have started to handle more of the monitoring of performance of product usage or marketing campaigns’ impact on growth. The rise of big data has made these processes require specialized statistical as well as technical skills.

Why is this unbundling happening?
I wish I had a stronger theory as to why this unbundling is occurring. Perhaps it is a reaction to years of abuse by advertising agencies and CPG companies trying to get us to buy cigarettes and saturated fats casting an evil stigma around the term marketing. Perhaps it is the technical founder re-imagining these skills with engineers at the core instead of MBA’s. Whatever the cause, marketing is being attacked on all sides, which has the result of redefining marketing with only the least impactful and measurable components, casting further doubt on the value of marketing.

What do we lose with unbundling?
I think the main thing one should worry about is whether an unbundled marketing structure or a bundled marketing structure is more effective, or at least knowing the trade-offs. The main issue that seems to occur with unbundling is that these separate functions lack a shared raison d’etre. Ways I have seen this manifest on the direct marketing side are growth experiments that violate brand guidelines, or a bias toward quantitative research when qualitative research may provide more insight. With operations, I have started to see as this moves further away from separate brand teams, efficiency trumps experience, and trade off discussions between those two things happen less often than they should.

The main issue with a bundled marketing organization is one of management. While the team is more likely to be aligned under one goal and set of rules, there are few if any people capable of managing a department with this large a scope that can have enough of an understanding of these functions to be valuable managers. This is both a failure of educational institutions to teach the “doing” element of marketing instead of just the strategy, a lack of on-the-job training to broaden employees’ view of the organization, and increasing complexity in performing all of the above actions. In this type of org, I foresee the strategy being great, but the execution being terrible because the strategy lacks an understanding of how execution really works.

Where do we go from here?
As I look through this analysis, I can’t help but feel conflicted. While I believe in the definition of marketing and experience some of the pains of these functions growing less and less aligned, I don’t see a rebundling fixing more problems than it creates in these organizations. So I can only hope that this post showcases the value of all of these elements working together, and that people working in these specialized roles start to take a broader view of what’s going on in the rest of the organization, start partnering more with these other teams, and create a better experience for the customer.

What do you think about the unbundling of marketing? How do you think we should react to it?

Thanks to Katie Garlinghouse for reading an early draft of this blog post.

Distribution Real Estate, or an Untalked About Element of Facebook’s Acquisition and Unbundling Strategy

Many have opined about Facebook’s two major strategies over the last couple of years. The first is their aggressive stance on acquisitions, a 180 from their acquihire only approach pre-IPO. This includes Instagram, WhatsApp, Moves, and the real outlier Oculus. The second and more recent is their unbundling of core functionality from the main Facebook app, as with a standalone Messenger app, a standalone Camera app (now being replaced by Instagram), a standalone ephemeral messaing app (Poke and now soon Slingshot), and a standalone launcher app (the miserable failure Facebook Home). One might think I am against such a strategy due to my previous post criticizing unbundling. What Facebook is attempting is something different though.

It is rare that companies get to a point where they start to pursue a moat strategy. A moat strategy makes sense when a core business is so profitable that the most sensible course of action is to build things around it to protect it instead of trying to increase value of customers or try to attract more customers. Google is a famous example of this with Adwords. Its core business is so successful that it pursues projects like free mobile operating system Android solely focused on protecting distribution of Adwords as the world shifted to mobile, and free web browser Chrome to protect distribution of Adwords on web as Microsoft tried to bundle browser (Internet Explorer) and search (Bing) together.

While an entire company ascending so far to the top that its main course of action is building a moat is rare; it is more common on specific distribution channels. Take, for example, search engine marketing and search engine optimization. Once you ascend to the #1 result for an organic search, a normal marketer might stop there and try to optimize other channels. But savvy search engine marketers are just getting started then. A savvy search marketer knows that a #1 result organically does not guarantee that all clicks go to one’s own domain. There are still nine other organic spots and the paid ads, which may still appear above your result. So hardcore search marketers start working on their next trick, owning more than one spot on the search result.

I pursued this strategy at Homefinder. We would take the #1 ranking for certain keywords like “Fayetteville homes for sale”. Once we achieved this, we would bid highly on Adwords as well to take a second spot on the page. Then, we would work with affiliate marketers to bid below us in Adwords to take the second, third, fourth, etc. spots on the page. If someone clicked on those listings, they would go to a different website (as Google only allows one paid ad per domain). But when someone searched on those domains, they were redirected to Homefinder. By pursuing this strategy, we could own perhaps five or so spots on Google for one search, making the likelihood of someone landing on Homefinder much higher than if we just had the #1 spot and nothing else.

The travel companies like Expedia are the masters of this, with multiple brands ranking on the top of Google that are all owned by the same conglomerate not very differentiated. Almost all travel purchases start with Google, so the travel companies maximize this distribution channel more than any other category. For example, Expedia has Hotwire, Hotels.com, and Trivago. Priceline has Booking.com, Kayak, and Agoda.

You might ask what this has to do with what Facebook is doing. Well, on mobile, Google is actually not the only search engine of note. The App Store and Google Play are just as important to optimize for. App store rankings are largely determined by recent download counts, but Google Play is a bit more sophisticated with many engagement metrics. Facebook currently ranks #1 for free apps on Google Play. Did Facebook stop there? No, it unbundled it’s Messenger app completely, which is now the #5 free app. It purchased Instagram, which is the #4 free app. It tried to buy Snapchat, which is the #6 free app. And it purchased WhatsApp, which is the #14 free app. When you already own the top result, you tried to grab as much of the rest of the top real estate as you can.

If Facebooked buys Pandora in the future, don’t be so shocked. This is not just true on the app search engines though. The home screen of the mobile phone is another limited piece of real estate that is incredibly important. Facebook is likely on the home screen of more mobile users than any other app. But it is still only one app among many one can click on when they pick up their phone. So Facebook is focusing on other app that already have wide home screen distribution. I had Facebook, Instagram, and Moves on my home screen. That means, Facebook had a 3/16 chance every time I opened my phone that they would receive some sort of engagement from me.

When you’re optimizing channels, I encourage you to think about the real estate you own on each one, and how you can own more. It’s an incredibly effective strategy even if you’re not quite at the moat building stage.

With Growth, Don’t Forget About the Long Term

Growth is an area for startups that is traditionally aggressively short-term focused. Development cycles are quick, results are measured in experiments as soon as things go out, and we react to all this data. Because of the nature of most startups, most marketing or growth tactics focus on acquisition as well. Getting more people in the door is almost every startup’s biggest issue.

This creates some challenges to doing long-term effective growth. I’ll highlight a few examples I’ve run into, and one tip on evaluating the more nuanced balance between short and long term growth.

At GrubHub, we added a feature for someone to sign up as a guest and order very early on as a company. The reasoning for this was simple. The easier we made it for someone to check out (or the easier it was perceived), the more likely an order would be completed and we’d make money. People visiting GrubHub are hungry, and hunger and patience don’t typically co-exist well.

Way off into the future, we started noticing our one month repeat purchase rate for new diners started to sink below our previous year’s levels. This had never happened before. We’d also continued to growth our repeat purchase rates year over year. Obviously, we were bringing in more new diners, so we thought it could be a natural decline in quality as you target less early adopters and a bigger base. So, the first thing we looked at was our repeat purchase rates by referral source. Most of our referral sources were down, so it wasn’t one new channel that was causing this.

Then, we cut the data by guest vs. Facebook vs. account creations. Over half of our new diners joined as guests. When looking at the data this way, it was clear that guest repeat purchase rate was declining rapidly, but the other types of accounts were doing well with driving repeat purchasers. So, we faced a decision. Do we remove the ability to order as a guest and potentially lose half of our new diners?

We decided to test redesigning the signup page, amplifying the value of creating an account, and hiding the guest option at the very bottom with a link that said “I don’t like convenience. Sign me in as a guest.” We monitored overall conversion rate, and repeat purchase rate. What we found is that conversion rate did not decrease and the types of diners that were creating guest accounts historically began creating real accounts. What we also found is that our repeat purchase rate went back up. Something about selling the value of GrubHub as a service and not just a one time transaction made these people stick around. This was the first time we learned that something we did to make it harder to acquire a new customer could actually beneficial for our business over the long term.

We had a similar issue on the paid marketing side once at GrubHub. It might sound silly now, but group buying sites were all the rage as distribution channels a few years ago. The organization really wanted to try it as a way to boost demand in emerging markets for us. We had never really discounted our product before, so there were some serious concerns as to the long term effect of that, but we tried it anyway.

We gave $10 off $20 worth of food at any restaurant, and we got a ton of new customers. Those that used the coupons the first week also became great customers of GrubHub. Our one month repeat purchase rate for them was great. The company quickly wanted to scale the program to other cities. But I had recently instituted a new way to track any marketing initiative. The process was to track every initiative after one week, one month, and six months. Our one week and one month data was great, but when we did our six month look back on these sites, the data changed. What happened was that the people that used the coupon immediately were still good customers, but the many people who waited until the coupon was expiring to use it were not. They never returned. So, the overall program had a poor LTV that did not justify the acquisition costs.

I highlight these two examples to point out that it’s easy to sacrifice the long term growth of a startup with short term measurement and initiatives. Don’t be fooled. Measure everything you’re doing on short and long term effects, and think about the long term impact of something you might implement to shoot up short term numbers. Don’t let acquisition zeal ruin your retention. The one week, one month, six month rule is a great way to prevent short term growth decisions from taking you down a negative path. Find out what those cycles are for your business, and be diligent about measuring them for any acquisition channel you try.

Movie Marketing Exercise: Nightfall

About a year ago, I was asked to respond to a marketing movie challenge. I had fun doing it, so I thought I would share what I did.

The Challenge: It’s 2016. The average film costs $50 million to market, and that cost is passed onto theaters in licensing fees. You run a film distribution startup that needs to make a film successful by spending only $500K in marketing. Build a marketing/project plan to show how you would do it. Assume that your startup has already secured some contacts at major theater chains and just needs to get them excited about a film’s prospects to get them to lease the ability to show it at their theater(s).

Exposition: Movie distribution is always going to be a hits-based business, and whether you’re spending $500K or $50 million, if a movie doesn’t appeal to its target audience, it will not be successful. So, a considerable amount of time needs to be spent evaluating films for distribution that we think we can create hits out of. Now, just because a film is good does not mean it will be a hit. Any top 100 films list is littered with films that largely went unnoticed or unappreciated at the box office. So, this new company needs to have expertise in both access and ability to pick quality projects capable of being “hits”, and a marketing approach that can create these hits at a fraction of the cost of the Hollywood machine.

Since film selection is such a key component for success, I had a hard time defining a campaign without defining a specific film the campaign would be for. You would market a comedy much different from a romantic comedy or a thriller. So, I created a fake project.

The Project: Casey Accidental Films has secured the distribution rights for Nightfall, an adaptation of the Isaac Asimov short story. Nightfall is a story about a civilization on a planet relatively similar to Earth, except that it is in constant sunlight do to a rotation of six suns. At a similar time, archaeologists as well as astronomers and religious scholars discover every two thousand years, there is a period of night. Seeing as how their civilization is only around two thousand years old, they have no idea what to expect, and, based on psychological studies as well as pre-historic texts, they begin to predict that darkness will cause total chaos. What they do not understand though is that it is not the darkness that will cause chaos; it is the discovery of millions of stars that show how their world is just a small speck in a vast universe. That realization is overwhelming to a people who have only known one planet and six suns their whole life.

CA is excited about Nightfall for a few reasons. First, since it is based on an award-winning novel, it should have a somewhat built-in audience of literary junkies who want to see how it is adapted. Second, it is in the sci-fi genre, which is riding high after the success of Star Wars VII last year. Third, it seems a prime candidate to create both an interesting viral awareness campaign and an immersive film experience, which CA expects to be the core elements of their marketing strategy for all of their films.

Campaign Themes: With only $500K to work with, Nightfall will not be buttressed by an aggressive TV and billboard campaign like most other movies. One thing that movie marketers do well is they maximize anticipation utility, a concept that states that consumers do not just gain value/happiness from the consumption of a product, but from the anticipation of that consumption as well. So, this is a part of the film marketing mix we want to adopt instead of re-invent.

To make up for the fact that we will leverage another key concept from economics and psychology: scarcity. Scarcity increases the value of an object/experience according to economics, but what’s more important for our purposes is that scarcity makes something remarkable, a key component to get people to, well, make a remark about something. To be successful in marketing a film, we have to optimize for remarkability. To do this, we will design an experience created by few, but remarked upon by many.

This process will have to be customized for each film. For a comedy, it might be about creating full-fledged profiles to interact with for all the major characters on all the major social networks to create comedic experiences outside the film, or crowd-sourcing jokes for the film. For a science-fiction film, we want to optimize for themes in our campaigns that match the film. In this particular case, mystery and intrigue is what we want to deliver.

Leveraging the mystery of the story, we would hope to gradually reveal all aspects of the film to the potential audience: the name, the release date, the theme, the special experiences attached to the film. This process should expand anticipation utility, and get many moviegoers invested in the film before they even see it. A great film can create evangelists after the film by the film being so good people recommend it. We also want to create evangelists before the film to get more people to see it in the first couple of weeks as movies typically make most of their revenue in the first few weeks. To do this, we need to get fans involved.

The first thing we need to get fans involved is a series of hooks that intrigue them to research the film further. Most films do this by just posting video teasers and trailers before other films or as commercials on television. Without a budget to grease the palms at major theaters to show Nightfall as a trailer before other films or a commercial TV budget, we may only get trailers spots for some theaters that are about to show the film in a few weeks, limiting the anticipation utility we can create. So, we need to get evangelists to show their friends the teasers and trailers by sharing them with their friends on social networks like Facebook and Twitter. To attract evangelists, we need to do something intriguing they’ve never experienced before.

Once we have attracted evangelists, we will need to keep the story going for them by gradually revealing more information. This information makes sure the anticipation does not subside as well as gives them more information to share with their friends as well as discuss with others online. While we do not want to create any experiences that facilitate discussion as that would make the campaign less mysterious, a critical factor in the success of our campaign will be these discussions occurring elsewhere online, like in science fiction/film forums, on social networks, and in the press. The idea is to create variable rewards by always revealing new elements of the campaign in different ways so our evangelists do not get used to them and become less excited by them.

We cannot expect just an advancement of the mystery to be sufficient though. Our viral campaign needs to also create a level of status for people to who are the most engaged, both in their ability to share the clues as well as an ultimate reward at the end. This reward needs to be a unique experience worthy of the effort to drive tons of word of mouth and email sign-ups to our website.

For the actual release of the film, we do not want the movie-going experience to be similar to others as well. We want it to both unique, a viral driver in and of itself, and, ultimately remarkable. So, we will try to work directly with theaters to create a unique vision. This is a vision that will customize the theater for the climax of the film and allow moviegoers to use their cell phones, tablets, and wearable technology during the film as an enhancement to the experience. In almost every industry that has been fairly static for the last 30 years, there is a strong push to reject all the available technology that helps us in the rest of our daily lives. Classrooms disallow cell phones and tablets that could facilitate learning. Movie theaters ask people to turn off their cell phones before the movie. It could be a great social experiment to try the opposite and could create a ton of viral buzz in the process. We will also give as many people as possible during opening weekend a treat when they leave the film, thus hopefully invoking the peak-end rule whereby people largely just experiences by the peak, which will be where the customizable theater comes into play, and the end, where the treat is given.

Launch Phase (T-minus 180 – T-minus 167)
Our main option for a hook that starts the campaign is to re-create “nightfall” at public events. A few moments of darkness in a crowded area followed by a cryptic message is a remarkable occurrence that should drive people to tweet, share, snap a photo, etc., even if the message is not yet one of excitement, but of confusion. Ideally, we could create such an occurrence at a major league baseball game of the LA Dodgers. The plan would be to shut the lights off at the entire stadium except for concessions for about ten seconds, then use the big screen to display a cryptic teaser message for the film. LA is the best place to start a campaign like this because it is where most of the movie press is, and we need them to organically discover and unravel the mystery of the film in the same way as our evangelists so their larger audiences can also become attracted to the film.

We want all of these cryptic experiences to drive people to social networks so the viral drivers of the message are always right beside the message. With Dodger Stadium, the message on the scoreboard would not advertise the film. It will be a first clue in a mystery to discover that there is a film coming soon that these people need to see.

Ad copy on scoreboard:
Beware the stars.
[Clock countdown that runs extremely fast so viewers are not able to see when the clock started]

The hashtag is the clue to go to Twitter to find out more information, and we hope we can drive thousands of Twitter searches from this message. The LA Dodgers have the highest average game attendance in the MLB at just over 43,000. 1,000 social media comments about this would be a little over a 2% conversion rate, which may be a little optimistic, but is not impossible.

If people search on Twitter for #nightfalliscoming, they will see a sponsored tweet about the search results from a new account called @bewarethestars that reads, “Nightfall is coming. Find sanctuary here http://bewarethestars.com.”

The landing page at bewarethestars.com will be completely black except for one sentence in white:
Website copy:
Beware the stars. Enter your email address here to learn more about how to find sanctuary.
Email address: ______________________

If users sign up, they will see a message that states:
Thank for heeding our warning. Use this link to warn others. Those who warn the most people will be the first to find sanctuary. Not everyone can be saved! [Promotional URL]

Underneath this is a progress bar that shows how many people they have warned who have heeded their warning. The milestones are scrambled in an ancient text that is unreadable though. This is consistent with the film where ancient texts warned of the impending nightfall, but they were in a language the scientists could not translate. These promotional links link back to the same URL bewarethestars.com with some tracking code at the end to keep counts of how many successful referrals these early evangelists who signed up will drive, developing some link equity. Our goal is to rank #1 for the terms “beware the stars”, “nightfall” and “nightfall is coming”, which will be our main promotional messages, within two weeks because as of this moment we have no Google presence at all. That is okay for this time, as we want Googling about this mysterious message at Dodger Stadium not to reveal much.

During this time, we will also post our first Instagram post, which is a picture of one of the scoreboards, and our first Vine, which is a video of one of the scoreboards. We also will create our Facebook page which has a cover of the scoreboard and the darkness around it. We will pay for sponsored grams, Instagram’s new native ad product, and sponsored Vines, Vine’s new native ad product. These ads are just images and video of one of the scoreboards at the stadium. Our estimated spend here is less than $5,000 and targeted to the LA area for one day, but we could spend more if we like what kind of engagement we are getting. The Twitter sponsored search will remain live through the release date of the film, as much of our promotional material will only mention the hashtag.

At this point, we will have executed four ad expenditures: Dodger Stadium nightfall re-creation, Twitter Sponsored Search, Sponsored Gram, and Sponsored Vine. We hope these tactics generate considerable organic social media activity and press. If these tactics together do not generate 1,000 email sign-ups, we may have to revise our strategy. Fortunately, we can track sign-ups by Twitter, Instagram, and Vine to see which methods, if any are driving sign-ups. Another important thing to measure at this point is sentiment. Our hope is that people find these cryptic messages intriguing, but if the sentiment implies they are annoying, we will have to scramble to create a different style of campaign. Twitter searches and RSS alerts for our keywords plus Dodgers should provide enough information to understand sentiment without having to pay for expensive tools like Radian6.

Film Experience Setup and Key Partnerships Phase (T-minus 180 – T-minus 134)
Everything about this film will try to create a unique experience people won’t forget and will talk about to others. In order to deliver on that, we need help to nail the actual movie viewing experience. Our two tactics will revolve around working closely will theaters carrying the film and student organizations to create a unique viewing experience for the climax of the film, and working with online ticketers to upsell viewers on a truly immersive experience, which requires us knowing their email address and viewing time for the film.

T-minus 180 – T-minus 150
The key scene of the film is the eclipse and the subsequent emergence of the stars. We want to re-create that type of experience in the theater as much as possible, and get theaters excited about having that added feature and ultimately wanting to show the film. We start talking to colleges that have courses in film set design, and offer them an opportunity to for a special project that is once in a lifetime. Students will have a chance to create a special installation for a major film. The reason we use students is because they will trade the opportunity for money, and our budget would not allow us to pay professionals. Students submit their portfolios, and then we work with various students groups across the country to come up with a design that fits the ceiling of a typical movie theater room that replicates the sudden appearance of millions of stars. Students will be listed in the credits for the film for doing this as well as be able to say they had an internship at a film distributor. Students are sworn to secrecy about this project, but we know they will leak what they are doing to their friends, and that is fine. We like that things that seem like secrets leak to people who are likely to see the film. Depending on how light we can get the costs for the installations and how many students across the country interested in set design we can get interested, we will try to install this in as many of the major theater locations showing this film as possible.

T-minus 140
The first goal is just to install it in a theater where movie theater reps can see it. We work with one student group winner, and get one theater built out in this fashion, and shows it to theater reps. Fortunately, they like the film and the experience. With the film experience and the marketing plan we lay out for the theaters, we lease lots of copies of the film, but have two requests for them: that we have the ability to augment the theater showing the film so that it has a special ceiling we develop ourselves, and that they ask patrons to keep their phones/iWatches/Google Glass ON instead of turning them off. Theaters, desperate to create some sort of excitement that will drive people to the theaters, and their theater specifically over others, agree, but we know we likely lose some theaters with these requests.

T-minus 134
Fortunately, by 2016, online booking of theater tickets is how the majority of movie tickets are bought, and we partner with the major online ticketers like Fandango, MovieTickets.com, and Moviefone to email the purchasers of tickets with their receipt an invitation to make the film an immersive experience by asking for their email address. This one is likely costly, around $50K. We expect the conversion rate to be small, but with this group as well as the group we expect to be on our email list, plenty of people will receive the experience, and those who don’t might want to see it again being opted in to that type of experience.

Story Advancement Phase (T-minus 166 – T-minus 86)
After the launch phase, story advancement phase introduces new marketing tactics as well as amplification of the successful tactics from the launch phase of our campaign. Phase 1 tactics include more stadium blackouts and more sponsored social media posts. New tactics includes additional social channels, email marketing to the sign-ups from phase 1, SEM, online display, and content marketing for social media and SEO. While we do not necessarily need all of these channels to drive awareness and interest for the film, we want our audience to never be sure where and when information will be revealed about the film.

T-minus 166 – T-plus 28
Our next phase of social will leverage the rise of ephemeral and random photo sharing to drive additional cryptic messages about the film, and will expand our geography to the entire U.S. The first destination is SnapChat. Creating organic content for SnapChat will not be very useful as we will not be trying to develop relationships on this channel. What we will is a native ad platform on SnapChat call a Sponsored Snaps (note: this doesn’t exist yet, but something like it will by the time of this case) where we can target users based on demographic information to show them a message for ten seconds before it disappears. Savvy SnapChat users who are interested can save screenshots and try to interpret the messages. The messages will just be random words related to the film. There will be dozens: Nineteenth Theptar, Apostles of Flame, six different suns, the name of the newspaper in the story, etc. We will also use random photo sharing app Rando to target random U.S. users to send the same random photos.

T-minus 159 – T-plus 152
Our email marketing campaigns begins shortly after the second phase of our social media advertising. Depending on how many people signed up, the top 5%-20% of referrers to the site will receive an email with a link to the teaser hosted on bewarethestars.com (and, a week later, everyone else on our list). The teaser is only six seconds long, and shows grainy video of a red star being covered by a black moon, slowly creating an eclipse, similar to the video here. The clip ends with the title of the film, the hashtag, the website URL and the date “Nineteenth Theptar”, which is the fictional date in the book for the nightfall. Underneath the trailer is the same progress bar with the first message decoded that says “teaser”. The other milestones are still in an unreadable, ancient text. This shows the evangelists that they unlocked something special for their participation. These people will be given another promotional URL to share the teaser URL. If someone arrives at this page, but has not given their email address, they will need to give it to see the teaser.

T-minus 155 – T-minus 134
We take that same teaser and upload it to Vine, Cinemagram, YouTube etc. and pay for some sponsored posts. We also post it to our Twitter and Facebook pages so any followers can see it, but we really don’t expect to have many Facebook fans at this point. We also start buying AdWords for the same keywords we are targeting with a “media ad” that plays the teaser. Again, the cost here should be in the low thousands. We will also start buying full page takeovers on random websites where the screen goes pitch black for a few seconds, and then our message is revealed.

T-minus 120
Our next iteration of email marketing will be to reveal more of what the progress bar is actually tracking progress for. The next milestone will be release date, and will be personalized to how far away each user from having enough sign-ups to have that date revealed to them. Those evangelists that have already gotten that many users to sign up will see the release date in the email, and see the next milestone as “trailer”.

T-minus 100 – T-minus 86
Our most active evangelists will receive a new email with the trailer once they reach the next milestone, and anyone they share that URL with will have to sign-up at that URL before they can see it. Over the next two weeks, we will email everyone else on our list the trailer, and will replace our media ad on Google Adwords with the trailer, as well as post the trailer on our Facebook, Twitter, Vine, Cinemagram, Instagram, YouTube, etc. pages.

T-minus 85 – T-minus 0
Our next personalized email send will include a progress bar fully translated, and the end of the progress bar appearing to be a trip to the premiere. We will send progress bar updates every couple of weeks to evangelists to show how they are doing in their goals to win a trip to the premiere.

T-minus 70 – T-minus 0
Our next phase of the campaign will focus on content marketing to flesh out anticipation for the story. We create pages of content for specific pieces of the film on our websites. These content pages will start on very generic topics like the planet, some of the main characters, then go into more detailed elements like the suns, and minute story details. These topics correlate exactly to the random phrases we started advertising on SnapChat and Rando, so as more people start to see those sponsored pictures, we expect Google searches for these terms to rise, and for our pages to show up organically for them. The pages will have a mix of text describing the topic as well as video or images depending on the topic. We will use email, Twitter, and Facebook to drive traffic to these pages and people keep engaged on these channels. We will still not respond to any comments on Twitter and Facebook so as not to make the campaign less mysterious.

Sample Editorial Calendar:
T-minus 70: Lagash/Kalgash (the planet in the story)
T-minus 65: Nineteenth Theptar (the date of Nightfall and the release date of the film)
T-minus 60: The Tunnel of Mystery
T-minus 55: The Theory of Universal Gravitation
T-minus 50: The Apostles of Flame
T-minus 45: Thombo tablets
T-minus 40: Onos (main sun)
T-minus 35: Dovim (eclipsed sun)
T-minus 30: Trey and Patru (sun pair #1)
T-minus 25: Tano and Sitha (sun pair #2)
T-minus 20: Beenay (main character)
T-minus 15: Sheerin (main character)
T-minus 10: Siferra (main character)
T-minus 5: Theremon (main character)

Purchase Intent Phase (T-minus 21 – T-plus 28)
Most people don’t purchase movie tickets very far in advance, if at all, so we need to push hard in this area to make it an experience you want to plan for. For those that we already have their email, we will email them about the immersive experience, an interactive viewing of the film unlike anything they have ever experienced. This email will have a call to action to book now, which they will be able to do on our website. We will also have an option to tell us when they are seeing the film so that we know when to trigger the immersive experience. Those that purchase on Fandango, Movietickets.com, or Moviefone will receive an email from that ticket provider about the immersive experience and how to sign up. For those that check-in on foursquare or Facebook, we will leverage their post check-in ads (this ad is coming out soon for foursquare. I assume Facebook will follow) to ask them to sign up so they can get the immersive experience. This will cost us a few thousand dollars on a CPA model.

Film Viewing Phase (T-minus 7 – T-plus 28)
This is the time where we pay our most successful evangelists with a night they will never forget, and when we deliver a truly unique in-theater experience for our film amplified by the in-theater build-out and use of the devices most people carry with them to a film.

T-minus 7
For our premiere, we will invite our most viral drivers of email sign-ups as well as some reviewers and the cast and crew. The premiere will be held in one of the few “dark sky” parks in the world. These parks are some of the darkest places on land, and have fantastic views of the stars. There are two in the U.S.: Natural Bridges, Utah and Cherry Springs State Park, Pennsylvania. We pick Utah because we may be able to attract a couple reviewers from LA. The premiere will not need the illusion of stars above, as Natural Bridges will have the clearest view of the stars in the U.S. We will develop an enclosed theater where bright lights hide the real-life stars until the eclipse scene. We will invite ~50 of the most viral email sign-ups at an average cost of $500 a flight at an average cost of $100 for accommodations, which will be a ~$30,000 spend. The theater build out for one night will cost about the same. This is an event that, while few people were invited to witness, many will hear about through word of mouth and press.

T-minus 0 – T-plus 28
For the release date and beyond, if someone has signed up for the immersive experience, they will receive emails or push notifications (if we have them tied to an app like Facebook or foursquare) so they get emails from the characters in the film, copies of the ancient texts, gossip from characters not heard in the film. These would all be triggered sends from an advanced ESP like ExactTarget where emails would trigger off a start time for the film. The CPM’s on email are fairly cheap, so if we sent 10 million emails, it should only cost us something less than $20K. Viewers will be encouraged to take pictures and share them via timely messages as well to drive more social buzz.

For the premiere and opening weekend, after the film is over, we will try to do one last thing to make sure viewers leave with a positive impression. Social comments can kill or drive a film’s success in a few hours to a day. We want to make sure we don’t receive ANY negative tweets or status updates about the film and many positive ones. So, for the first weekend, when viewers leave the theater, we will offer them cherry lollipops almost completely covered in chocolate, simulating the eclipse of the red sun in the film. Thus, we will try our best to use the peak end rule to our advantage: an in-theater special display for the appearance of the stars as the peak, and the chocolate covered sucker at the end. Our hope is the quality of the film and the uniqueness of the experience drive significant social activity and positive reviews.

We can also email all of the people we received emails from who we know saw the film and ask them to review the film on their favorite social networks, Flixster, IMDb, etc. After a few weeks, we can also ask them to see it again. We can attract them to a second viewing with “Did you notice?” emails. We will continue to email the people who signed up, but haven’t seen the film to try to remind them.

Project Costs:
Social media advertising: $120,000
-Twitter sponsored search
-Sponsored Grams
-Sponsored Snaps
-Sponsored Randos
-Sponsored Vines
-foursquare post-check-in ads
-Facebook post-check-in ads
Dodger Stadium Blackout: $10,000
Two other sporting event Blackouts: $30,000
Additional technical development: $15,000
Google Adwords campaign: $35,000
Display Advertising: $10,000
Online Ticketing Partnerships: $50,000
Email Service Provider: $30,000
Total Premiere Costs: $60,000
Post Film Gift for Opening Weekend: $10,000
Set design raw materials: $100,000
Total estimated project costs: $470,000

Staff needed (all permanent members, so not included in per film budget):
Community Manager: this person will make sure all social posts are posted on time and correctly and manage the editorial calendar, with appropriate level of engagement.
Media Buyer: This person will buy all the advertising, coordinating bids on auction-based media like some of the social ads and Google AdWords
Email Marketer: To set up a complex triggered send campaign during the film showings and to send out coordinated lifecycle program before the premiere of the film
Copywriter: To write email, social, and site content
Designer: To design all of the web and social media content
Business Development: To get the tough deals like Dodger Stadium Blackout and Student Set Design Competition to happen
Full Stack Developer: To develop film website and assist with deep integrations into ESP (additional technical development budgeted because this person is probably not a unicorn)

Three Phases of Scaling Startup Marketing

Quite a few people have asked me recently how to scale their marketing efforts. The short answer is: as leanly as possible. I have realized that while many entrepreneurs intuitively understand that statement, they do not understand what that means in terms of what types of marketing you try and in what order. I have developed a framework to easily identify how to think about this process that scales across different types of startups that I will present below.

Pre-amble I: The Three Costs

The first thing that’s important to understand before delving into this framework is that lean = with as little cost as possible, and that costs come in three areas: marketing expenses, development expenses, and payroll expenses. Marketing expenses are pretty easy to explain. If you spend $5,000 on Google AdWords this month, and each ad promised $5 off, your marketing expenses are the $5,000 for AdWords plus $5 times the numbers of conversions that redeemed the $5 off promotion. Development expenses are a little more difficult. If you outsource development, it may be easy to think that the development expenses are how you paid your developers, but that would be incorrect. The real issue here is the opportunity cost. Whether you have your own developers or outsource, if your developers work on, say, SEO initiatives, that is time they are not spending on new features for your customers, infrastructure scalability, et al. The third cost is payroll expenses. This is the cost relating to paying the marketing people on your team. Early on in startups, payroll can be the largest expense, so adding people to your team, especially in marketing, needs to be carefully considered as payroll expenses are harder to adjust than marketing or development expenses. The only way to adjust them is to fire someone or reduce their salary, and both can have a negative effect on employee morale and company culture.

Pre-amble II: The Metrics

After you understand costs, you need to understand the metrics on how to evaluate marketing decisions. For startups where a customer pays you for a product or service, this is a little bit easier than if you have yet to determine a business model. A couple key metrics for me (forgive me if some of this is basic):

CPA (Cost per Acquisition): For this metric, you take the amount you spend in marketing expenses, and divide it by the number of new customers you acquired. So, in our previous AdWords example, let’s say I acquired 500 customers with that effort. That would make my CPA:
Cost: $5,000 + ($5 * 500) = $7,500
New Customers: 500
CPA: Costs/New Customers: $15

Revenue/User/Time frame: The CPA is not very meaningful until you know how it compares to the revenue those new customers brought you. The important thing here is not to just compare the revenue of the initial sales of that customer if they are likely to purchase again. If they are likely to purchase again, use cohort analysis to determine how much in revenue those new customers will make you over a certain time frame. The obvious question is how long a time frame should I use to compare against CPA. The short answer is as long you can reasonably predict. So, if you have enough data for a marketing channel to accurately predict how much a new customers from a new channel will make for your business over a two year time frame, you should feel comfortable comparing to a two year value. In reality, a startup almost never will have the data to accurately predict that far ahead. At the start, you may only have three months of reliable data. Reliable means both statistically significant i.e. not just 12 customers, but a reasonably sized population, and a situation where historical customers are representative of the newest customers. Once a startup reaches some scale, the latter requirement is the hardest. As a startup attracts more and more new customers, it typically has to start targeting customers that are less likely be early adopters and less likely to experience the pain your product solves as acutely as those who found it early on. Both of which will likely make new customers today less valuable than new customers from a year ago, keeping all other variables static. I almost always advise startups to keep their revenue metrics to a year or lower. After a year, you are waiting a very long time to prove your assumptions correct, and need to start discounting for the time value of money.

Volume: This basically asks is a marketing channel generating 12 customers or 1,200. This will determine how to prioritize resources among marketing channels.

Potential: This asks if a marketing channel has room to grow, and just needs more budget/people/development resources to achieve that potential, or is it already maxed out.

Marketing Profit: In this sense, profit equates to Revenue/User – CPA. Channels that have high Marketing Profit are going to be the areas you want to invest more time/money/people in, if the potential has not been reached and the volume is significant.

Note: Some marketers may want to add in the promo costs not in CPA, but subtract it from the revenue side. I dislike this approach, as it increases variability on both sides of the CPA vs. ARPU model, which makes it harder to compare the effectiveness of specific marketing channels just by looking at CPA.

Phase 1: Product Driven Growth
Scalable, Measurable, Engineering Opportunity Cost Driven

The leanest way to acquire customers is not to spend any money on them and not spend any money on marketing people. The chief ways to do that are to use the product you have already built to acquire more customers. There are four main ways:

Product Quality: This is the case where your product is so damn amazing that every person that uses it naturally tells everyone they know about it, and that’s what drives growth. In another, this is the build it and they will come strategy. Also known as a pipe dream. But improving the core product every day helps grow it, and people sometimes forget that.

Search Engine Optimization: This is the process of designing your site to appeal to search engines to rank for relevant queries to your business. Depending on the business, this may be a large opportunity or a very small one, and a very crowded space or a relatively sparse space. The main question to ask is: are people on search engines currently searching for keywords that closely match the product or service I provide? If so, can I reasonably expect that by designing by site using Google best practices with some well placed content that I could rank in the top five for any keywords that in aggregate would drive a meaningful amount of new customers? You may offer a product with a ton of keywords, but heavily competitive for SEO e.g. consumer real estate, or a product with no keyword volume, but also sparse for SEO e.g. a technical solution for resin casting.

Referrals/Viral Loops: This is the tactic of asking current customers to invite others to the service, perhaps offering a financial or psychological incentive. This is a fairly low development tactic with high upside and little downside, so it is very popular.

Conversion Rate Optimization: This is the process of making continual changes to a website/mobile app/landing page with the goal of increasing the amount of visitors who turn into conversions. The only costs here are development costs, but the effects are very measurable. This may be difficult to do until you have enough traffic on your site accurately measure lifts in conversion rate.

Main constraint: Development resources
What should happen here: You start here, iterate as much as you can until your development pipeline gets too clogged. Then, as you wait for development to catch up, you move onto Phase 2.

Phase 2: Performance Marketing
Measurable, Scalable, Marketing Budget Driven

The next leanest way to acquire customers is to develop marketing systems that, once created, can scale from driving dozens of new customers to thousands with the only additional input being more marketing expenses. Early marketers in a startup can focus on marketing efforts that scale without having to hire more marketers and have vast potential. If you don’t have a business model yet, most of these tactics (besides email or push notifications) will be off limits, as you will have no Revenue/User/Time frame to compare CPA’s against.

Search Engine Marketing: This is targeted specific keywords on Google and Bing and bidding to show an ad for your product or service to potential new customers at the top of the page. Like SEO, you need to determine if the search engines have enough search volume to make this an effective channel. You also need to determine how expensive it is for you to bid on keywords and convert them. If there is a lot of search volume and not a lot of competition, this can be a very effective way to drive customers, and is very trackable to CPA goals down to the ad and keyword level.

Email Marketing: This is sending either mass or, preferably, targeted and personalized emails to your existing user base to either convert them into a paying customer or entice repeat purchases. This is probably the most cost-effective and under-utilized tactic for most startups.

Online/Mobile Display Advertising: This is showing banner ads on websites and mobile apps. Most startups use retargeting to reach people that have already been to their site but not converted. More sophisticated startups are experimenting with real time bidding to find ad impressions that are likely to reach their target market. The challenge here is determining effectiveness of spend as few people click ads, and correlating views to purchases is a dicey proposition. There is near limitless inventory to spend on if you can determine effectiveness.

Main constraint: Money and diminishing returns
What should happen here: You experiment with a few paid, scalable channels, find the ones that work, and scale them until you see diminishing returns. If your team still has bandwidth, then you have them contribute with Phase 3 tactics. If your team doesn’t have bandwidth to scale these techniques, but they work, you should hire a dedicated resource for them.

Phase 3: Brand Marketing
Non-Measurable, Non-Scalable, People Driven

These are techniques that have one-time value, and/or require not just increased investment, but also increased resources (read: people or development) to scale. They are also frequently going to only work in one market or for one type of customer.

Content marketing: Content marketing has many names, but is the creation of blog posts, articles, videos, of infographics that are of interest to your target customer. They can be great content to help rank for SEO, especially if your business does not have more direct keywords to target. It is even more impactful as content for social media or distribution to media outlets. It is non-scalable because if you want to do more of it, you have to produce more of it, and it’s time consuming to do it well unless it’s user-generated.

Out of home: This is the process of buying billboards, bus shelters et al. out in the real world and placing ads for your business in them. This can be very expensive, but also very valuable if there’s a way to use them to target a very valuable audience e.g. hungry urban professionals right before dinner in GrubHub’s case. It’s non-scalabale because only certain geographies will have good opportunities, and what will work in one geography may not even be an option in another.

Community management: This is either using a section of your site/app or more likely social media channels such as Twitter and Facebook to communicate with your audience in conversations they are interested in having with you. This is a great way to provide quality customer service and create evangelists. It is non-scalable as it requires a dedicated resource to monitor these channels, and as you scale, to keep up quality, you need to add more dedicated people for it.

Public relations: This is the process of getting news outlets to showcase you. It is non-scalable because it provides a bump, not an engine, requiring constant efforts to make it a consistent source of traffic.

Marketing promotions: This is the process of a creating a compelling campaign that attracts people to your business, whether it’s a contest, event, etc.

Main constraint: People
What should happen here: Use your existing team to determine which of these is important for your company, and then staff accordingly.

Running All Three Phases

These phases do not imply that you focus all of your efforts on phase I, max out, and then move onto the next phase. The reality is that the constraints of the various phases set in quickly. So, it could that in close to no time at all, you are executing programs in all phases. This blog post just provides the framework for prioritization and best practices for maximizing how you grow your marketing programs.

The Power of Physical Evidence

Most people know the traditional four P’s of marketing: product, price, place, and promotion. Some may even be aware of other P’s such as positioning and people. But far less may be aware that for service businesses, there is a seventh P: physical evidence. Physical evidence is any kind of physical manifestation of a service. Unlike products, services do not have something you can taste or touch or view, so physical evidence is a tool marketers use to re-create that in a non-physical service. It can be as little as a receipt or the uniform of a company representative or a building’s design. It is used to leave a lasting impression on the person experiencing the service as well as potentially showcase that the person used the service to others.

An over-emphasis on removing the evidence

As entrepreneurs have started to build service businesses using the web and mobile devices, much of their efforts have been to replace the physical evidence of the old ways of doing things. Receipts? Don’t need those anymore. Customer service reps? Well, hopefully, no one ever needs to work with one, but if they do, they certainly won’t see what s/he is wearing. Building? There’s no need for them when everything can be accomplished by an app or a website. We’ll serve customers nowhere near our office and let employees work remotely. Punch cards? No one needs to carry those around now that we have apps that can store that information.

An over-emphasis on social promotion

This rush to eliminate all these reminders of the pre-online world has left a gap in many online companies’ marketing mix: any evidence that someone actually used the service that can remind them to come back or attract others. While every consumer web and mobile company seems to be falling over themselves trying to get you to tweet or create a Facebook update about your experience with them, which has been called the “exit through the gift shop” of the consumer web, few companies have tried to do the same in the physical world.

Word of mouth still happens offline

Many marketers have fooled themselves into thinking the atomic unit of much sought after word of mouth is a post about them on social media. The simple fact is that most word of mouth still happens via words, said through the, you guessed it, mouth. And that only happens offline. That realization is only half of it. Much word of mouth doesn’t come from people being so overjoyed by a service that they run and tell their friend about it. It happens because their friend sees them do something and asks them about it. For GrubHub, that might look like:

Clueless Friend: “So when are you going to order that sushi?”
Totally Hip You: “I already did. I just got texted that it will be here in 20 minutes.”
Still Clueless Friend: “Really? I didn’t see you make the call?”
Totally Hip You: “I didn’t. I used GrubHub.”
Starting To Get Clued-In Friend: “What’s GrubHub?”

What great physical evidence looks like

What physical evidence can help you do is generate more of those types of conversations in the real world. Great pieces of physical evidence do the following things:

1) Showcase the usage of the service in front of others, friends or not: When someone skips the line at an amusement park, they pass everyone in line on the way to the front, either advertising the service or making people ask how they did that and trying to find out

2) Become a showcase for the service even when not in use: Lyft’s pink mustaches stay on the fronts of cars even if no one is riding in that Lyft, or if the Lyft driver is just driving him or herself somewhere, leading people to ask what the mustaches mean.

3) Remind the original person who used the service to use it again: Punch cards get stored in wallets and remind and entice the person to make repeat visits just by seeing them or by there being a deal after a few more purchases.

Now, physical evidence is just one component of a successful marketing plan for a service. If it doesn’t match your positioning or your product, it will likely be ineffective. So, before you think about adding loud noises when someone opens your app (looking at you, Gilt), think about what the physical evidence will say about your product and if it will achieve one of those three goals listed above that is consistent with your company goals.

The Contradictory Nature of Mobile Unbundling and the Emergence of Niche Marketplaces

Two specific, but highly related, points of view are gaining widespread acceptance among venture capitalists in the technology industry. The first is succinctly explained by venture capitalist Albert Wenger in a post called Facebook’s Real Mobile Problem: Unbundling. The gist of the post can be summed up by this comment: “Mobile devices are doing to web services what web services did to print media: they unbundle.” Fellow venture capitalist Andrew Weissman expanded on this idea in a post called The Great Fragmentation. In it, Andrew goes further, arguing that unbundling might be a core feature of the internet.

A second, but related point, is the emergence of the niche marketplace. Venture capitalist Andrew Parker has a post called The Spawn of Craigslist in which he shows how the behemoth marketplace Craigslist is getting slowly disrupted in a vertical-specific way. Venture capitalist Chris Dixon expands on this idea, saying that the only way to be successful as an online marketplace now is to take a vertical-specific approach.

Together, these venture capitalists describe a future in which there is a specific app or specific marketplace for every need a user might have. Instead of going to Craigslist to find an apartment, movers, a maid, a freelance web designer for your home business, a date, and last minute tickets, a mobile user would instead have an app for Padmapper, TaskRabbit, Homejoy, ODesk, HowAboutWe, and WillCall. The key to being a successful venture capitalist then shifts from finding businesses that tackle very large markets e.g. Craigslist to finding businesses that target markets that could be much bigger with unbundling e.g. Airbnb.

All of these VC’s are clearly smarter than me, but I take a somewhat contrarian view here. I hope the above example points out the main problem with this theory. In the above picture, in order for this mobile user to accomplish his/her goals, instead of needing to just know about and have an app for Craigslist, s/he now needs to know about and have apps for six separate businesses. One other thing venture capitalists agree on is that mobile app discovery is hard, and that the amount of apps mobile users will download and use is limited by both device memory as well as human memory. This same problem faces the sellers of services on marketplaces. With no aggregate marketplace, it may be harder for a seller of multiple services to know which ones exist for which product/service they are selling. Marketplaces thrive on a multitude of buyers and sellers. Unbundling of marketplaces makes building that two-sided network harder.

Something has to give here. You can’t have a future where everything is accomplished online via a mobile device, consumer’s preference on mobile is for apps, there will be hundreds of specific services for anything a user needs that are more powerful than aggregate services, app discovery is difficult, and people will only have 41 apps per phone. I think there is some sort of equilibrium here. Even if app discovery is solved (and that’s a hard problem), the rate of successful unbundling certainly seems like it has to be limited by 1) the amount of space on someone’s phone, and 2) user’s inability to be aware of hundreds of niche services they may need at any time. If you think a recommendation engine could solve this with big data, I recommend you read this article about how successful that’s been for other services.

If I had to guess, I would surmise that user unbundling will not be a trend in and of itself, even if it is a trend in technology startups building new businesses. Unbundling will continue when either 1) the frequency of the activity that is being unbundled is high (my standard would be weekly), or 2) the advantage of the unbundling is exponentially more valuable than the bundled version of the same activity. For criterion 2, that advantage will also be a moving target where the advantage has to become greater and greater to justify phone/brain space as more apps improve their utility. Number of apps per phone will continue to grow, but a decreasing rate, and with that growth, there will be a decreasing state of awareness for both apps that are on a user’s phone and ones that are not. If you doubt this, just think of how many websites you visit regularly. Think hard. It isn’t that high, is it? Now think about apps? Even less? Me too.

So, what does this all mean? Well, my take is that high frequency services like chat or picture taking continue to become unbundled from any aggregate services consumers use for them because of the ability of mobile to create superior user experiences for succinct actions. But, marketplaces that aggregate niche activities that users need only occasionally can continue to thrive e.g. eBay and Craigslist. One should expect only a handful of the dozens of services hoping to disrupt Craigslist or eBay or Amazon to survive, because of fantastic user experience or a high frequency of use. Finally, one should not be so quick to anoint the niche marketplace model as the emergence of mobile presents as many limitations to their success as it does opportunities for growth.

Be A Silent Killer

Monologue from The Devil’s Advocate (1997), starring Al Pacino and Keanu Reeves (Warning: contains language)

In the business world these days, most startups seem to follow a similar formula to attempt to have success. Every press release will say something about a company’s “millions of downloads” or “10 million users”. Savvy journalists call these “vanity metrics”, in that they make you feel good and on the surface might impress people, but they don’t really mean anything (what metrics do mean something is another blog post entirely, but they usually start with “active”). They’re also easy to manipulate with money. It’s easy to get a million people to buy a $1 gift card if you’re paying them $10 to do it.

On the entrepreneur side, the tactic is typically described as “fake it ’til you make it”. A less suggestive name that still applies if you aren’t faking anything can be called “get hype”. Whatever you call it, it’s almost universally accepted as a good strategy. I don’t necessarily disagree that it can be. But, I think it might be on its last legs as a viable strategy for a growth business. The speed of business today is, well, let’s just say it’s hard to keep up with. The reason entrepreneurs fake it ’til they make is that, like puffery, as much as people know it’s bullshit, the tactic works. Blogs and other media outlets print those stats, potential investors, acquirers, and users read them, and the stories drive sign-ups, fundings, and acquisitions. The problem is that those three groups also can form another group: your future competitors. And, a future competitor adopting your strategy, or, put in a less polite way, cloning you, becomes almost a guarantee. It used to take years for this to happen. Now, it takes weeks.

Now, your little project that may or may not have some traction (and you’re telling everyone it does) becomes a “space”, and, before you know it, you’re in a race. A race where you don’t know what the track looks like, don’t know what the rules are, don’t know if your competitors are running or driving a Ferrari against you, and don’t know what you win if you get to the end first. Sound ridiculous? Well, let’s look at a case of it happening right now.

In my Design and Business Inspirations post, I wrote about Postmates, an on demand service for same say shipping. Postmates, originally a B2B business, was having trouble getting business customers with existing relationships with FedEx, UPS, and the like on board. But, they noticed that affluent San Franciscans were using the app to request food from places that didn’t deliver. They pivoted their service to “Get It Now”, a consumer app to request food or product deliveries from local businesses, delivered by bike messengers looking for extra gigs. They started getting some usage, shot out a bunch of promotions to drive even more usage, and hit the press on May 17th about their successful pivot. They picked up a few more stories from a couple more places, and things were looking good. Investors surely saw these stories. They’re now in a good spot to pitch to investors about a Series A to help launch this in more cities.

If you go back to that original piece of press though, you’ll notice Postmates wasn’t the only company mentioned. Here is way the “get hype” strategy starts to hurt. The press loves to compare. And every company these days, if they’re not already reading the blog your press is in, is monitoring mentions of their brand in press (see my How to Track Your Brand Online post for how). The competitive response happens in record time for Postmates. On June 21st, TaskRabbit launches DeliverNow, a direct competitor. On August 1st, YCombinator-backed Instacart launches for one-hour shipping for groceries. On August 5th, eBay launches eBay Now for same day shipping on all products. On September 6th, Business Insider declares same-day-shipping the next billion-dollar startup opportunity. This all happened in four months. Soon, it’ll start happening even faster. Postmates still has not even raised that Series A yet.

Now, one could make the argument here that this was bound to happen whether Postmates existed or not, and that all this competition actually helps raise their profile (a picture of Postmates’ CEO in sunglasses was the lead picture of that Business Insider article). You may be right. But, I bet it makes fundraising that much harder when every investor asks you how you’re going to compete with TaskRabbit and Instacart and eBay and Amazon and Shutl and numerous others. It’s really hard to tell if hype helped or hurt their chances of success. This is just one example. If you’re a geographic business and go after a “get hype” strategy, prepare for competition to pop up in other areas and countries copying your business before you even get there.

Okay, sorry for the long rant, but it’s needed to show there’s another strategy that Mr. Pacino more than adequately describes in the above video. If, instead of focusing on convincing everyone you’re successful in order to become successful, you actually spend the time doing other things that make you not have to pretend, what can you do? I call companies that do this silent killers, because you don’t know what they’re doing until they’ve already crossed the finish line and you weren’t even in the race. If you’re a silent killer, you can actively not seek press, actively not publish your numbers, drop that PR agency entirely and not alert future competitors as to what you’re up to. This allows you to build a defensible business before anyone knows what you’re doing and get a real headstart on any future competition.

Now, it’s hard for me to describe a good example of this for a current startup (if so, they wouldn’t be very silent now, would they?), but I can tell you about an example from the tech world. The press loves to talk about the tech giants, even though the giants change all the time. First, it was Apple and Microsoft. Then Google and Yahoo. Then Microsoft and Google. Then Apple and Google. Now, Google and Facebook. Facebook used a “get hype” strategy to achieve $100 billion valuations in private markets with many pundits suggesting they would crush Google despite profits a tenth of Google’s. Instead, Facebook’s hype crashed its IPO, and its market cap is over 50% below peak valuations. Every other “get hype” IPO has suffered similar fates (Groupon and Zynga, most notably).

Facebook Stock Performance

Facebook’s stock performance since its IPO (graph courtesy of YCharts)

Meanwhile, two silent killers have thrived. Amazon, which has been around for longer than Google, but until recently, has never been much discussed as a tech giant, wasn’t fighting it out in the press for mind share dominance. Instead, they acted like a silent killer. They had some engineers in South Africa innovate on cloud computing, entering a web services business with entrenched competitors that they totally out-innovated. With a debut in 2006, Amazon Web Services is now a $2 billion business, and one which no traditional web service company has been able to catch up to, despite having been working on web service solutions for tens of years longer than Amazon. Amazon Web Services was a not a “get hype” strategy. In fact, it probably couldn’t be. Most people still have no idea what cloud computing is. And that helps Amazon, because it means not just anyone can copy their strategy, because most don’t even understand it.

Amazon Stock Performance

Amazon’s stock performance since launch of AWS in 2006 (graph courtesy of YCharts)

Another example is LinkedIn. LinkedIn launched as a business social network well before Facebook and grew steadily for years while MySpace and Facebook secured all the headlines. Instead of just growing users via a “get hype” strategy, it grew a business as well. While CareerBuilder and Monster spent billions trying to entice job seekers to post their resumes online for job openings, LinkedIn figured out that network referrals, not application processes, create the best candidates, and built tools for recruiters based on that premise. LinkedIn users gladly gave the company their resumes as content to build their profiles. LinkedIn IPO’s well before Facebook did, and their stock price jumped from a $35 offering to over $100 on the first day. After delivering solid results quarter after quarter, its stock price is at $120, whereas Facebook is down over 50% from its IPO price, and Monster’s stock is down from a peak of $57 to just $8.50. Other silent killer IPO’s have performed well also (examples include Zillow and Palo Alto Networks).

Now, this is not to say that the silent killer approach is for everyone. For example, as much as he may have wanted to, there is no way Jack Dorsey, the founder of Twitter, could have grown Square quietly. There are just too many eyes on him. Nor do I want to imply being a silent killer is a strategy you can pursue forever. Amazon is certainly no longer a silent killer, nor could it stay that way after it disrupted web services with AWS and content distribution with the Kindle. But for most companies, no one cares what you’re up to until you try to make them care. Using hype to make people care is a strategy you should carefully consider the pros and cons of in today’s environment. You may be better off building a silent killer and shocking the world when you’ve already won a multi-billion dollar race no one else knew had started yet.

On Lagniappe

I grew up in New Orleans, and there’s a word in use there that isn’t known anywhere else. Mark Twain said it was “a word worth travelling to New Orleans to get”. It’s a French word based on a Spanish phrase, the type of co-mingling of language only possible in such a place as New Orleans. So, what does it mean, and why is it so powerful?

Everyone in New Orleans will define lagniappe the same way, as “a little something extra”. The real meaning’s a bit more complicated than that. For example, the other day I ordered from Leona’s on GrubHub. Every time you order, no matter what you order, they add in at least one of these mini-cupcakes they make for free. First off, they are delicious. Secondly, there’s no message about it, and you didn’t have to pay anything for it. It’s just there for your enjoyment. That’s lagniappe, that little something given to you for free that you weren’t expecting but is such a treat to find. This type of practice is common in New Orleans, but you rarely see it elsewhere outside of the extremely common baker’s dozen or the fortune cookie in Chinese restaurants, which, because they’re so common, are expected and therefore no longer really lagniappe.

This type of practice creates such an overwhelmingly positive impact on the experience, I don’t understand why the practice in business seems to stay limited to small shops in New Orleans and bakeries. A small gesture can go a long way in creating a memorable experience with your customer, and whether you deliver food, make doughnuts, or do management consulting, there is always a way to give lagniappe. So, what little something extra are you providing your customers? How can you give lagniappe?