Friday July 11th 2008

The Internet has already blasted out of the water three established marketing effectiveness truths, and there may well me more to come. Economists are having to review if the law of diminishing returns applies any more. But there is a sting in this wagging dog's tail

Three very well established, proven and recognised premium priced marketing practices - high reach , selective targeting & retaining existing customers, have dominated operations for many years

First, advertisers have paid and been prepared to continue paying premiums to reach more consumers. Just two of many illustrations here.

• You add a second TV spot to your first purchase and even if you reach the same numbers for the same cost, you are paying to reach folk who have already seen the first spot. As the campaign develops each additional spot reaches fewer and fewer new viewers and the price premium accelerates.
• Expand your retail distribution and the premium for those new outlets increases

Second, marketers pay premiums to reach selective, discreet, hard to reach audiences. A marketing campaign genuinely targeting "all adults" can go anywhere to reach them and therefore can select from the cheaper more discounted communication options. But try targeting audiences whose media exposure behaviour is eclectic and diverse, but who are key purchasing behaviour leaders, such as above average income or young adults and the cost premiums rise steadily

Third, we have grown up with the doctrine that keeping existing customers satisfied is the key to marketing success. Building strong brand loyalty and repeat purchase is what it's all about. Direct marketers "know well" that the cost of finding and signing up a replacement new customer is 8 times that of retaining the customer in the first place

The Internet has re-written these "truths"

1. The premium for reaching more and more prospects has disappeared. In internet marketing there is no cost for scale. No more postage stamps, no more space and slots to buy, no new stores to build and so on. The on cost for doing more is Nil
2. Everyone of any commercial significance is now internet connected. So the cost of communication is constant & independent of the type of audience you want to reach
3. Losing a customer and replacing with another is a zero cost. Check out the insurance industry, once a bastion of brand loyalty & repeat purchase. Replaced now by an internet betting shop algorithm. If they are short you pay less. If they are long, you pay more.

But there's a sting

By all means marketers rejoice for the Internet as it allows you to market at a no premium cost. Enjoy the profits while they last. But take care; you never get anything for nothing in business. Follow exclusively this low cost route to its logical end and as sure as eggs are eggs you will destroy your brand premium and become a commodity high volume, low margin business with only a series of unrelenting short term pressures to keep you alive. And what a life! Have a nice day.