Tag Archives: media buying

The Death Spiral of Startup CMOs

I’ve met with a lot of CMO/VP Marketing types at startups. Generally speaking, they do not have a long shelf life. I was curious why so many startup CMOs leave the company after a short period of time, so I dug in a bit to figure out why. I found that it’s partially due to bad hiring practices for startup executives (which I have previously blogged about), but even more common was that big brand traditional marketers have a tough time “scaling down” into the scrappy, digital-first world of startups tactically.

The traditional marketing executive is more likely to be a brand marketer from a large company than an online marketing or growth person from a startup. These marketers have built careers deploying big budgets and leveraging a few channels that really matter to tell the brand story. The main one of course is still TV. TV is great for brand building, but startups cannot wait for multiple years of investment in brand advertising to start to pay off. They typically will run out of cash before they start seeing a return on the investment in TV. (This problem is particularly acute if you’re a startup that is live only in a few cities and gradually expanding across the country — i.e. most marketplaces.)

How does a marketing executive get a quicker read on effectiveness, especially if their startup doesn’t cover the entire country? One way I’ve seen marketers try to solve this problem quickly is to buy local TV brand advertising in a test market and compare to a control test market where they have not bought TV advertising. They measure if brand metrics improve in the paid market during a three month test. If brand metrics improve, it should be leading indicators for sales to improve.

On paper, this makes sense, but in practice, it is the first trigger of the CMO death spiral. The problem is twofold. First, the cost of local TV is 10x more expensive than national advertising. That premium is hard to make up. Second, TV brand advertising is generally not very effective and even harder to drive quick results. With a typical brand-based buy, ads will run at many different times during many different, popular shows. So even though many people will be watching and thus exposed to the brand, the viewers’ focus is on the show and not on a call to action.

In short, big brand marketing executives have used large budgets for a test and gained small bits of exposure for the company. That exposure usually doesn’t transit into brand lift or sales, and the founders quickly lose confidence in the CMO. From there, I’ve seen it is a matter of months before they either get fired or lose their budget, which will make them leave.

But its not all fire and brimstone! There are savvy ways for marketers with big brand backgrounds to be successful at startups. For one thing, start by testing national, direct response TV. This type of ad buy targets people who are watching TV because they are bored — not because they are super engaged with the show. In this scenario, ads run at off-peak times or on less popular networks and only cover a small percentage of the country. You get the data on the exact times and areas where the ads run. Then, you can watch for an immediate response in website/app traffic right after the ad, and track those users to see what they end up doing. Agencies that sell direct response typically offer data science services to measure the impact, and you can augment their reports with tools like Convertro or C3 Metrics that do it.

Grubhub and Seamless are both good on-demand startup case studies before they merged: Seamless bought national, direct response TV ads while the service only covered 20% of the U.S. population. Grubhub did it with only 40% coverage. Seamless then used all the website traffic data outside their coverage areas to determine where to launch next. At Grubhub, we saw a response immediately during some of these ads airing, and could actually calculate not just brand lift surveys, but CPAs due to transactions.

A broader lesson here is that traditional target marketing can be expensive as the people selling advertising have learned that traditional marketers will pay a premium for it. And while that math still works for a CMO of a CPG brand, it won’t typically work for a startup.

What is the the best way for a CMO to be successful and stick with your company for the long term? First, they need to find ways to reach the target market they want to reach in a cost effective way. (I go deeper into this topic on my post on remnant inventory.) Seamless reached an insane amount of people in New York with DRTV ads, so it didn’t matter that some people in Boise saw them, too. Secondly, CMOs need to work on other ways to add value to the business besides telling big brand stories. Depending on the business, that can include understanding customers better, building communities, performance marketing, or product driven growth.

Currently listening to Children of Alice by Children of Alice.

Data Mining for Media Buying (Media Buying Part II)

Read part 1 of of my series on media buying.

In my last post, I talked about evaluating the targeting options available in a media buy, and really making smart choices about how targeted you need to purchase your media. Now I’d like to talk about using data to enhance the media buying process at each step of the process. No, I don’t mean the incredibly irrelevant Nielsen data that you have to pay a bunch of money for, nor do I mean the statistically irrelevant traffic/audience measurement tools that are available for cheaper or free (Comscore, Compete, and Quantcast exist, but they are so wildly inaccurate it is not worth making decisions based on their data).

I’m taking about your data. As a business, you likely have some data of customer lifetime value, historical cost per acquisition of a new customer, conversion rates from paid media sources, and repeat purchase rate. If you don’t have that, use assumptions or make numbers up as you go a long (I’ll explain that in more detail later).

As I said in part 1 of this blog post, every vendor should be able to provide some data of theirs to you about a potential media buy. This typically is an impression number. Impression data basically amounts to an estimated number of the maximum number of people who would see your advertisement. Depending on how they calculate this data (always ask), you may want to adjust the number (if they use a very conservative methodology, you may want to multiply it. If they use a shaky method that is not very conservative, you may want to only count a percentage of it). If you’re buying ads on the exteriors of buses for example, some vendors may use the bus ridership data to provide impression data. Those people may be likely to see the ad before they enter the bus, but this data ignores all of the pedestrians and drivers who also may see these ads. Keep that in mind.

Once you have impression data, you also have a cost quote from the vendor attached to the buy. From this, you can calculate a CPM (Cost /(Impressions/1000)). This is the standard cost measure for media buying, so it’s good as a comparison tool. Frequently, if you’re buying different pieces of media from the same vendor, the impression and cost data is broken out by each type of media. This can help you understand what pieces of media are the most expensive and may not be worth the price (more expensive does not necessarily mean more effective for you).

Once you have this data, you can estimate how many people enter your store, visit your website, call your number, or whatever your goal based on these impressions. That should be your conversion rate. If this percentage isn’t very small, you’re probably over-estimating. For example, one media buying/targeting option might generate a million impressions. I could estimate based on previous buys (or just pull a conservative number out of thin air) that 1% of those impressions visit my website, and from there 2% make a purchase. That equals 200 sales. If you don’t have this data or are a new business, estimate using industry benchmarks or whatever forecasts you have (2% is the ecommerce conversion rate average, for example). If another targeting option using that same approach projects to generate 100 sales for the same price, it’s probably not the option you want to choose of the two.

200 sales?! That’s great! Is it? This is where you should look at how much you paid for those sales, how much you earned from those sales, and how many more sales you should expect from those customers. Cost per acquisition measure how much it cost to acquire each customer. This should be compared to the revenue/profit of that sale and the lifetime revenue/profit you expect from that new customer (if it is a new customer. Keep in mind an advertisement may just drive existing customers back). If those 200 sales or the lifetime value of those 200 new customers equal more revenue/profit than the cost per acquisition, you’re possibly looking at a media buy you can pull the trigger on.

If that is the case, from a negotiation perspective, you’re sitting pretty. You have a deal you can bite on, and can just make some attempts to lower the price to make it even more profitable. A good way to make that attempt is to pretend those 200 sales or their lifetime value do not equal more revenue/profit than the cost per acquisition of the buy. If this really is the case (or you’re pretending it is), you can use this data to arrange a price more to your liking. One thing salespeople are not equipped to do is argue with your company’s data. If your data says this buy is not going to be profitable (or you’re pretending the analysis says that), they have to assume they won’t receive the sale unless they make it more enticing. This is one component not covered in Tim Ferriss’s ad buying negotiation tips that absolutely should be. Salespeople are not typically very analytical, so even if there are holes in your data, salespeople are not going to question your assumptions.

Once you’ve negotiated a better deal using data, it’s time to collect real data on how the media buy is performing. Is it profitable? Should I do it again? These are questions I hear a lot from advertisers they can know themselves with a little planning. Most advertising campaigns (except for extremely established brands) are meant to acquire new customers. At any point of sale, website confirmation process, or phone call, you can typically set up your system to tell if someone is a new customer. When you receive a sale from a new customer, just ask how they heard about you. On our website, any time a new customer places their first order, we have a one question survey that asks how they heard about us, and the answers are pre-filled with our marketing mix. 70% of people respond to that. That’s pretty good data. All you have to do is tally up that data to see if you’re receiving enough sales to justify doing the buy again. You can also track if these customers make repeat purchases. Refine your conversion data and lifetime value data for future buys with this data.

Here is an Excel template that can help get you started.

Data can make media buying a regimented, almost automated process that can come close to guaranteeing profitable media buying purchases. So, I challenge any one currently purchasing media today, what data are you using?

Buy American, I Mean Remnant (Media Buying Part I)

This is part 1 of a multiple part series on media buying.

Someone from a company that will remain unnamed reached out to me recently. They were doing their first media buy and knew they were in unfamiliar territory. My original advice consisted of finding out the core components of your audience you think you can use for targeting purposes, and target as well as you can. An easy example is drivers. Solid approaches to reaching only drivers and not many non-drivers is to invest in interstate billboards and radio ads (oh, don’t give me that, you know there’s no reason to listen to the radio if you’re not trapped in a car). Being smart with your money means going after the type of media that has the customer targeting you want naturally built in.

So this person went out and received a quote from the vendor that had the targeting they wanted. It was a ridiculously high quote that definitely needed to be negotiated down. To cover those bases, I linked them Tim Ferriss’s guide to negotiating advertising, which I suggest anyone read through if they haven’t. What I also realized was a mistake in my initial advice. Targeting, up to a point, is certainly essential to making the right choice in media buying and making it cost effective. But it is only appropriate up to a point. If you’re targeting beyond just a certain type of media and are targeting certain parts of that media e.g. not just advertising on the USA Network, but doing it during Burn Notice only, you will pay a premium for requesting that targeting (if they can even do it. Traditional media can be incredibly unflexible).

When considering premium targeting, you have to receive rates with the premium targeting and without and compare the benefits to the cost. Some key questions to keep in mind when using this process: what is the value of the highly targeted media, and what is the value of the less targeted media? If the answer to the latter is zero, then of course you’re highly incentivized to pay for the premium targeting. If the answer to the latter is some percentage of the value of the premium media, compare that to the markup you’d pay for the premium media. It still may be more effective to choose the less targeted media.

An additional question to ask is, if I only choose the less targeted media, what percentage of my media buy will actually hit the more targeted media anyway? This may be hard to calculate, but you can use some common sense assumptions. Essentially, if you feel that many other advertisers are paying for the premium targeting, it would be low. If the media vendor has to check to see if they can do the targeting you’re requesting or if the premium targeting is a significant percentage of overall inventory, it probably isn’t being requested by many other advertisers, and your chances of hitting that premium targeting are higher.

Much of the time, when you run through this decision-making process, you’ll find you don’t need to pay for the premium targeting, but of course it depends on the situation. If you’re finding that you don’t need to pay for the premium targeting, there is an additional step you can take to create even more budget savings and/or increase the amount of media exposure you purchase. That is asking for remnant inventory. Remnant inventory is simply inventory that doesn’t get sold during an advertising time frame. This obviously won’t happen for extremely high coveted media like Super Bowl ads, but for most other media, they are at least a few impressions that go unsold and make the media vendor no money. Because of this, they may be willing to offload this inventory for a very low cost or maybe even for free.

What you need to consider is, back to the earlier question, what is the value of remnant media versus premium or untargeted media? In most cases, it is still a significant percentage of the premium and pretty close to the same as untargeted media from a normal buy. Depending on the medium, there could be zero or a significant difference in the quality of the inventory, so be sure to be sure to evaluate what the characteristics of a remnant impression are likely to buy e.g. for the USA Network, it’s likely not during primetime. But, it might be during Burn Notice re-runs on a Saturday and still hit the initial targeting you were interested in.

A common strategy is to buy some untargeted media and then negotiate any remnant inventory the vendor may have as a bonus. This doesn’t lock them into providing you media, but if they have a request for remnant from someone, they’ll fulfill it versus the media being blank. Since, in many cases, there is little difference between the quality of paid and remnant media, and since many media vendors have a significant inventory that goes unsold, advertisers can significantly increase their exposure with no additional cost. This is also a way sales people at media vendors can circumvent pricing floors without raising too much of a stink.

Excel can come in handy for evaluating the overall effectiveness of a buy that could consist of premium, untargeted, or remnant media, and deciding which buy to go after. My next post will go into more detail about how to use Excel and data to enhance the media buying process as well.