Christopher Herot's Weblog

Customer Acquisition Panel at Future Forward 08

My vote for the most useful panel at Future Forward 08 was one moderated by Doug Levin, entitled New Strategies for Customer Acquisition.

The speakers were:

• Paul Gaffney, Desktone
• George Grey, SnapMyLife
• Brian Halligan, HubSpot
• Nabeel Hyatt, Conduit Labs
• Bill Lucchini, Intuit

All were remarkably candid about the challenges of acquiring customers in the cost-efficient manner dictated by the current environment.

While there was some debate about the return on investment in "marketing" there was complete agreement on the importance investing in acquiring customers.  The difference, the panel agreed, dwells in being analytical about comparing the cost of acquiring a customer to the lifetime value of same.  While acquisition costs are declining, there are pitfalls, such as overpaying for Google Adwords.  As Nabeel Hyatt put it, in an auction system it is easy to overpay, especially where there is always some new company with $10,000 to spend trying to build market share.  Even if they go bankrupt trying, they will just be replaced by another company who is equally unconcerned about losing money on each customer in the hope they will make it up in volume. Brian Halligan pointed out that there is no substitute for putting "remarkable content" on one's Web site and thus making it a magnet for customers.  Hubspot hired a former New York Times reporter and a musician to create content for their site.  Halligan did allow as to how "turning up the knob on Adwords" could be effective for a month or so, but that was was not a sustainable practice in the long run.  Of all the panelists, only Bill Lucchini was bullish on paid search, perhaps illustrating how it works better for a company such as Intuit with deep pockets.

The freemium model was popular with the panelists.  While customers may not be sensitive to the difference between $0.99 and $3.99, offering something for free can increase the number of downloads by 15x. Offering multiple levels of features at different prices can alleviate the inevitable problem of over-charging some customers while undercharging others.  Hubspot offers a free Web site analyzer which generates an email lead from a third of those responding.

There was a lot of discussion about metrics, especially the importance of determining the cost of acquiring a happy customer. Several speakers said their sales compensation plans included some sort of clawback on commissions for customers who signed up but later dropped the service, thus incenting the salespeople to make sure the customers understood what they were purchasing and were a good fit for the product.  Doug Levin mentioned that sales at Black Duck started to take off after they methodically deconstructed the sales process and found 64 discrete steps that could be improved.

In summary, customer acquisition requires a combination of talents: creative, which can be outsourced, and analytical, which needs to be closely aligned with the business.  It is an area that is only ignore at one's peril.

Why Expensive Wine Tastes Better

Economists Hilke Plassmann, Baba Shiv, Antonio Rangel, and psychologist John O'Doherty have come up with one explanation for why that bottle of Opus One tastes better than the usual Mondavi Cabernet: knowing the wine is expensive increases the activity in the medial orbitofrontal cortex (mOFC) and the rostral anterior cortex (rACC), the areas of the brain that experience pleasure.  In a recently published paper, Marketing actions can modulate neural representations of experienced pleasantness, they describe an experiment in which they put 11 Caltech graduate students in a functional magnetic resonance imaging (fMRI) machine and gave them five samples of Cabernet Sauvignon to taste.  They were told that the purpose of the study was to measure the effects of degustation time on perceived flavors.  Unknown to the students, there were really only three wines, with two of them being offered twice at different prices ($5 became $45 and $10 became $90).   Not only did the subjects reports that the more "expensive" wine tasted better, but their MOFC and rACC showed increased blood oxygen levels when presented with those wines.  Interestingly, the portions of the brain associated with taste were not affected, suggesting that the mOFC integrates the "bottom up" sensory components with the "top down" expectations, a mechanism similar to the well-known placebo effect.

 

In the Wall Street Journal Lee Gomes shed some additional light on this topic with some experiments he did at the Home Entertainment Show at CES in Las Vegas.  He set up a room with two sound systems, identical except that one system connected the speakers with $2,000 worth of cable from Monster Cable, while the other used ordinary 14-gauge hardware-store cable.  Of the 39 people who took the test, 61% preferred the expensive cable.  More telling, the audiophiles at the show were more likely to pick the expensive wire, although they found it a just noticeable difference.

It's possible that the wine experiment would have turned out differently if the subjects had been wine experts.  The lesson for the rest of us is that it is often possible to get improvements in quality by paying more money it may take an expert to notice the difference, but if we are given good reason to believe we are getting a better product we really will enjoy it more and not just imagine that we are enjoying it.

You can draw your own conclusions as to how this applies to wine, Starbucks, $1,600 handbags, and Harry Cipriani.

 

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Addendum:

Thanks to Adam Carter, I learned that Monster Cable changed their name to just be Monster and the old link broke. You can read the whole story here: https://www.wiringo.com/what-happened-to-monstercable-com.html.

Charline Li on Facebook

At Graphing Social Patterns Charline Li of Forrester Research gave a talk on Big Brands & Facebook that had useful information for brands of all sizes.  One of the more startling data points she presented was that according to Facebook's data, only 6% of it's US users are 35+ years old, but Nielsen's stats say the number is 45%.   WHen asked later, Charlene said one plausible explanation for the discrepancy was the sampling method used.  In any case, her advice was that things were changing rapidly and that whatever works this year would almost certainly require adjustment to work in the future.

In addition to presenting a load of interesting statistics, she offered some examples of brands that we successfully leveraging Facebook as a platform to communicate with customers and not merely advertise to them.  One of the best was Ernst & Young, who in order to further their program of hiring 5,000 college graduates every year has one of their recruiting executives answer questions from students.  In contrast Wal-Mart keeps trying but may just not be the type of business that college students want to brag about being associated with.

Some other advice:

• Create useful apps than model what friends do naturally
• Plan out how to make the app viral (a recurring theme at the conference)
• Get feedback once you launch

 

Emotional Adoption Curve

One of the most interesting and useful presentations at ETel was not about telephony at all, except in the most general sense.  Jeff Bonforte of Yahoo had to abandon his original presentation at the behest of his lawyers and instead gave an excellent discourse on understanding the emotions behind consumer adoption of new products.  In an update of Geoffrey Moore's Crossing the Chasm, Bonforte called attention to the emotions behind the behavior of each segment of the adoption curve and gives them new names:

• Lovers
• Irrational
• Efficient
• Laughers
• Comfortable

The Lovers (Innovators in Moore's lexicon) are the techies who buy the product because they find the technology intrinsically interesting.  They can send misleading signals to the seller because their emotional response to technology is the opposite to that of the larger population.  They look on solving tough technical problems as fun.  This 3% of the market is likely to acquire product X through the "X Club."

The Irrational (Early Adopters) feel the same emotions are the general population, but feel them with more intensity.  These are often negative emotions such as anger, fright, or loneliness.  The strength of these feelings can lead to buying behavior that is not economically rational, such as installing Skype because one hates the phone company,  The good news is that once the technology improves, ordinary people who feel the more moderate versions of the same emotions will also be motivated to buy.  There are plenty of targets for these emotions, such as taxes, banks, telcos, health care providers, government services, airlines, lawyers, Microsoft, the opposite sex, and "The Man" so there is plenty of opportunity.  This 22% is likely to purchase product X at The X and Y Store.

The Efficient (Early Majority) will purchase when the technology becomes practical.  This 25% goes to Best Buy.

The Laughers (Late Majority) are Yahoo's core constituency.  This 35% goes to Costco.

The Comfortable (Laggards) are the 15% who go to Walgreen's or Safeway because the Costco parking lot is too confusing.