Interviews – UtilitesDB

Q&A: Peter Fader

Peter Fader is the Frances and Pei-Yuan Chia Professor of Marketing at the Wharton School of the University of Pennsylvania. His expertise centers around the analysis of behavioral data to understand and forecast customer shopping/purchasing activities. Much of Mr. Fader’s research highlights the common behavioral patterns that exist across these and other seemingly different domains. His work has been published in (and he serves on the editorial boards of) a number of leading journals in marketing, statistics and the management sciences.

PERFORM: The Internet has created an explosion of data about consumer habits and preferences. What are companies doing right or wrong in applying this data to their marketing efforts?

FADER: One thing they’re doing wrong is trying to collect more data. Companies have more data but not necessarily more knowledge than they did even 30, 40 years ago, when data was a trickle compared with today’s fire hose. Back then, data was hard to come by, and companies had to utilize what they had much more extensively. And then they’d sit around and say, “Boy oh boy, if we had data on this or that, here’s what we would do with it.” And that process caused them to think more deeply about what their customers did or the results of their marketing actions, and it caused them to try to stretch the data.

Today you get all this data coming out of the fire hose, and the best you can do is come up with a top-line summary and move on. Companies are data rich but knowledge poor, and they keep thinking that fancy software is going to do all the knowledge creation for them, but it hasn’t really happened that way.

PERFORM: So it’s really that they don’t have the people power?

FADER: Exactly right. If you pick on the broadcasting and advertising industries, they used to hire people with graduate degrees to make more sense of this. But when times get tough, who are the first ones to go? It’s those geeks and nerds in the back room. These staffing issues are a very big part of the problem.

To go one step further, look at advertising agencies today. They rarely hire M.B.A. students, much less Ph.D. students, anymore. That used to be pretty routine. There were good business skills going into advertising. Now it’s the creative types – they’re good at what they do, but they have their limits. They keep thinking it’s a whole new world and the old rules don’t apply. Actually, the basic patterns are largely the same now as they’ve been, well, forever, as far as customers doing something and then doing it again on a repeat basis.

PERFORM: You’ve been quoted as saying that all metrics are not created equal. Which ones are the most relevant and insightful for corporate marketers?

FADER: I’m interested in forward-looking metrics. Take an example. A lot of companies are looking at metrics like, how many of our current orders come from repeat customers? That’s a classic backward-looking metric. You might find that 90 percent are repeat customers, but is that good or bad? What would that number be for Crest toothpaste, 95 percent? That doesn’t necessarily mean it’s a big, healthy, growing statistic. The point isn’t that Crest is bad. It might be that you have chased away most of your customers, and there are a few who have stuck around and you’re getting a lot of orders from that small group. It doesn’t mean you’re doing well. That’s a backward-looking metric.

A forward-looking metric in that same domain would be, “Of all the stuff we sell this quarter, how many people will come back and buy again next quarter”? If that number is 90 percent, that would be huge. A lot of people would say it’s the same thing; it’s just quarter-on-quarter buying. But in one case you’re looking backwards, and in the other you’re looking forward, and it makes all the difference in the world. In general, I want metrics that ask, “Based on what we’ve seen so far, what do we anticipate next”? A big hot topic these days is companies setting up dashboards. The basic concept is sound, I can’t knock it, but so many of the metrics on the dashboard are purely backward-looking and tell you what was going on but aren’t necessarily a good indication of what we can expect to happen in the future.

Another issue gets back to the whole fire hose thing. People look at data that’s excessively aggregated and gives very little indication of what’s going on below the surface. The only way to really make sense of it is to assume that all customers are the same or you consider only the “average” customer. It turns out that customers in any industry are incredibly different from each other, and there’s as much action in how they vary from each other as there is in what their average tendencies are.

PERFORM: But the Internet is supposed to give us so much information about individual behaviors.

FADER: That’s right. For example, a company will come to me and boast that their online conversion rate is 20 percent. A pretty high number, but to me that number doesn’t mean anything. Does it mean that 20 percent of our customers always buy when they come to the website, and 80 percent never do? Or does it mean that every person has a propensity to buy 20 percent of the time? Or is it somewhere in between? It’s very important to understand the spread across customers.

When it comes down to it, what’s marketing all about? It’s all about recognizing and capitalizing on differences among customers. It’s segmentation. So if you just tell me about the average customer, that’s not giving me any information about the nature of the segments, and so I really don’t know what to do with the data. That’s a classic example of what we’re seeing: many, many more metrics, aggregated up to a level where they become basically useless.

PERFORM: What are common misconceptions about using data mining and business intelligence to improve customer relationships and support marketing campaigns?

FADER: I have a love-hate relationship with data mining. For the things that it’s good at, it’s great. But let’s make clear what it can and can’t do. Data mining is superb for classification tasks. The classic example would be credit scoring – we get a new application and want to figure out if this person is a good credit risk or a bad one. So we look at past customers and dozens of characteristics, and we find out that this new person matches in certain respects and, therefore, goes into bin A versus bin B. Data mining is good for looking at patterns and saying this thing is an A or a B. But it’s not good at longitudinal tasks. It’s OK for determining that this customer is a risk to churn during a certain period, but what if you turn that question on its head and ask when is this customer likely to churn? It might not be this period, it might not be next period, or it may be three and a half years from now. Data mining tends to fall apart for those “when” questions.

PERFORM: How can marketers collect data that will generate the type of forward-looking metrics you discussed earlier?

FADER: The data’s fine; it’s just using it in a better way. Data doesn’t kill companies; people do. You don’t have to use all the numbers out there. It’s a matter of picking just a few numbers to tell the story most effectively, not just in this situation but across other situations.

People come to me boasting about the size of their data warehouse. They have 600 measures collected on every customer and every transaction, but I’m thinking to myself that 597 of them are probably useless. I’d rather not clutter up servers or, worse yet, people’s minds with data that’s not going to do much. I don’t want to have measures unless they lead to specific, forward-looking questions that I can ask and have relevant answers for, not “nice to know” sorts of things.

PERFORM: How does multichannel marketing make that job even more complicated?

FADER: It’s a blessing and a curse. It gives us more opportunities to see what a customer’s about, which is nice, but it’s also a great example of this tendency to collect all this data across each of the channels, rather than coming up with appropriate summaries that give a clearer picture of what’s going on in each channel as well as a raw picture of the customer. “Multichannel” is a word that didn’t exist a few years ago, and so many people are rushing into this whole notion that if we can touch a customer in multiple ways, then all of a sudden they’ll be a better customer. I’m not so sure I agree with that.

PERFORM: It’s true that there are all these new online tools emerging, and marketers feel a lot of pressure to stay up-to-date and use those tools in their daily jobs. What worthwhile technologies are being overlooked?

FADER: That’s a good question. Some very good methods were invented back in the 1960s under the frequently maligned rubric of direct marketing. No one wants to be a direct marketer; it makes you think of Ginsu knives and things like that. But those people were smart. If they only had sparse data available, they would make use of it. And they would constantly run experiments, so they knew what to manipulate, how to present this manipulated set of factors to the customer in an unobtrusive way, how to read the results and how to act on them.

The companies I admire most are the ones that still embody those principles, firms like Capital One and Harrah’s, and Tesco from the U.K. It’s not that they have more data or bigger computers, but they ask questions the right way. And they pay homage to the classic old direct marketers. One of the biggest disappointments of the dot-com era is how many companies didn’t see themselves as direct marketers. If you’re on the Internet, it’s all direct marketing, but they think that’s old and dated.

PERFORM: You sound like a Luddite!

FADER: No, a Luddite is someone who rejects new stuff, saying the sky is falling and so on. I’m totally into the new stuff. If you give me a new source of data, I’ll capitalize on it. But I’m a traditionalist, which means that most of what we need to know has been learned already, in terms of techniques and basic customer behavior patterns. I’m into new gadgets and always interested in reading about cool new data sources, but I worry about people who are getting their hands on them who haven’t learned to walk before they can run.

PERFORM: When you see a company, for example, establishing a presence in Second Life, is there any value in that? Is it just about raising awareness and having more visibility?

FADER: I’m into raising awareness and creating visibility. That’s mass marketing, which I’m a great fan of, and again, this makes me sound like a Luddite. Too many people are into this notion of one-to-one marketing. In most contexts, one-to-one marketing is inefficient, if not impossible. Coca-Cola cannot have a one-to-one relationship with its customers, and if it wanted to, it would be too expensive. The best approach is to use careful mass-marketing programs and run experiments to find out what ads work under what circumstances and so on, but not necessarily trying to cater to the needs of every individual, which raises two problems. One is the inefficiency, and the other is the amount of randomness that surrounds each individual.

Today’s hope is that if we collect all this data, we can figure out what this customer over here is going to do next and we can, therefore, tweak our pricing and our product offering to be just right for them. But then they go and do something crazy and unexpected. The primary tenet in the way I look at customer data is to acknowledge and embrace all the randomness around actual behavior. When I’m scanning the shelf deciding what brand of orange juice to buy, a zillion factors are driving that decision, but only a few of them are measurable or observable. A lot of them are seemingly minor, temporary things, such as: “Is one of my kids sick?” or “Am I starting a new diet?” – issues that you just can’t collect as data.

PERFORM: What do you think are some of the best ways to measure the success of a marketing campaign?

FADER: The first thing, which I think a lot of people would agree with, is you have to look at incremental impact. One thing that drives me bananas is when someone’s reporting on a campaign and they talk about how many units they sold during that campaign. That doesn’t do me any good because it begs the question, “How many would you have sold in the absence of the campaign?” You need to have baselines for what would be happening under a business-as-usual scenario, some known expectations before you start manipulating things.

The second thing is what I alluded to earlier – running systematic experiments. If you’re going to do a particular promotional campaign, vary different characteristics so you can differentially assess how well things are working. I mentioned Capital One earlier. At any given time, they’re running about 40,000 different experiments, and I’m not exaggerating. Everything from, are they using real stamps or a postage meter to is there a return address, and do they emphasize the interest rate or the annual fee? They’re manipulating every possible fact. So while you might think, “It’s just another piece of junk mail,” it’s actually a very, very carefully designed step in this broader experiment. They run it and read the results and then go back and do it again. Too often, people see it as a one-shot deal, like, “This promotion is different from all the other ones we did, so we’re going to get certain results and then we’re going to move on to the next one.”

But you don’t learn what’s effective that way. You have to be much more programmatic about designing and then in making inferences from promotional campaigns. You have to view it as just a step along the way. At most companies, they say, “That’s nice, yes, we’d love to learn, but we have a budget to meet, and we’re on a tight schedule, and we don’t have time to sit around and manipulate factors and things like that.” That’s the usual reaction, and that’s a terrible mistake.

Q&A: Larry Weber

Larry Weber is chairman of W2 Group, a global marketing services ecosystem that helps CMOs in their new role as builders of communities. In 1987, he founded The Weber Group, which within a decade became the world’s largest technology public relations firm. The Interpublic Group of Companies purchased The Weber Group in late 1996, and in early 2000, Mr. Weber was named chairman and CEO of Interpublic’s Advanced Marketing Services Group. His second book, Marketing to the Social Web: How Digital Customer Communities Build Your Business, was published by Wiley &Sons in June 2007.

PERFORM: How should companies measure the effectiveness of their social media initiatives?

WEBER: I’d like to give marketers some context around social media first. There are two things that they have to measure. One is how they’re doing outside of their own walls – on the blogs, the e-communities, the organic search, the reputation aggregators that are talking about you. Part two would be measuring the conversations and the content that’s happening within your own enterprise social network or your own social site. Then the question is how to go about measuring. The traditional ways of measuring how many downloads, how many people have visited [the site], how many links – those are all endlessly measurable like anything on the Web. The area marketers need to get into is engagement. Are people spending quality time, are they asking the right questions, and are the dialogues really thoughtful around the products, the businesses, the categories, and the issues that are happening?

Ultimately, what marketers are going to want to know about are the conversations people are having about the brand and the products so that we know what’s foremost in their minds. Then you can start to measure how much your content and relevance are being discussed in other people’s blogs or the top e-communities around your category.

A big automotive company once told me, “Larry, we’re mentioned in 9,000 blogs. How do we even begin?” I said, “No, we’re going to analyze this.” We got it down to 15 blogs that were really critical to their reputation, and we started to understand what those conversations were before we introduced the company into the dialogue. Now we can easily step back and see that they’re considered part of those 15 communities. They are transparent – open about who they are and what they’re trying to accomplish. So, it’s about deciding first what it makes sense to measure, and then performing the actual measurement.

PERFORM: Marketers are tasked with tapping into this rich Internet community, and there are countless interactive tools they’re supposed to be leveraging, but they also need to show the CFO and CEO there’s real bottom-line value behind these efforts. How do you quantify the ROI of social media marketing?

WEBER: I think the real ROI is going to come as communities get richer and deeper, and it’s going to be difficult. I have a story about working hard to get a positive story on the front page of the Wall Street Journal for a client, and the CEO said to me, “Well, it’s fine, but how much more sales will I have?” So there’s a bit of a leap here in dealing with social media. I like to draw a comparison between the new social interfaces of sites that are going to help create environments and your favorite store. You don’t go into the store knowing how much you are going to spend. You might have a budget, but you go in because you like to see what’s new, you like to talk with the people that work there, the other customers, etc., and you end up buying a lot more anyway. That’s not going at it from a transactional point of view. The return on investment is going to be that continuing growing audience of target customers. An example is IBM and the small community it’s built for CIOs of healthcare companies.
It’s a closed community. They keep feeding it fresh content. They keep getting more CIOs to join, so they’re expanding their target base and you can easily grasp the return on that investment. You can see the community growing and asking more questions. Then you can see if they’re buying more of your software, your hardware or whatever else you are selling. But the first return on investment is getting a vibrant, thoughtful and very focused community base, and then you move into the monetization side.

This isn’t the performance marketing of pay-for-click. I think performance marketing is going to evolve into two channels. One is going to be the actual transaction, like pay-for-click or pay-for-call, search and so on. The other half is going to be the influencing of opinion through content, and that’s going to be more of the social side. You will be able to get the measurement and the return on investment by seeing the size of the community, the richness of the conversation and then, ultimately, you’ll see if you are selling more stuff.

PERFORM: With that in mind, are marketing departments able to sell this up the food chain so they can implement these initiatives?

WEBER: Absolutely. Part of the problem is that most of these large companies are still organized like they were in 1950, around marketing and the advent of broadcast and one-way media. Now what has to be shown and illustrated is that, as the social media grow, the average person is going to belong to seven or eight communities on a daily basis and a couple of those will be professional. If you’re a thought leader in your category, you’re going to want that customer to be part of your community. I think you can illustrate to the C-level that, in order to get closer to your customer, to create better care for that customer, this is the choice of communications they have. There are loads of examples of companies that are doing this: IBM, Cisco, Visa International, Genzyme. I think it’s very easy to explain to the C-level executives that you’re going to build communities and learn about customers and get closer to them.

PERFORM: Do you think these social media technologies are elevating the stature of marketing within organizations?

WEBER: Yes, I think they are. We’re going to need to elevate it anyway, based on just this simple fact: $110 billion in broadcast advertising will be spent on television this year, and the most conservative numbers I’ve seen from Forrester and Advertising Age say that 25 percent [of television viewed] is DVR or Tivo’d. That’s only going to increase. You can’t tell me that a chief marketing officer is going to go in to a CEO and say, “I just flushed 100 million bucks of my $400 billion budget into television,” when for $2 million you could’ve built the community that gets millions of people to come and learn about your products and your thinking and where you’re going. A lot of that money is going to shift to a marketing department organized around social media and marketing.

PERFORM: How can the level of online community engagement impact the company’s brand sales or profits?

WEBER: First of all, you need a definition of branding for the social media age. My definition is the dialogue you have with your customer. The stronger the dialogue, the stronger your brand. Brands, because of the digital nature of all of our communications now, are becoming living, breathing things, so they need to be nurtured regularly on an ongoing basis. It’s like the store that’s open 24 hours a day.

I actually think that the cost of marketing is going to go down if it focuses more on content and less around paid media. You will have better sales and profits because you’re attracting people that are legitimately interested in the specific things you’re offering. If you make fishing equipment that’s really good, and there’s a website called “Bass Fishing in Northern Idaho,” that’s fabulous, that’s the place you are going to want to go to talk to people about what you are selling, not to Sports Illustrated. It’s going to impact the way you sell and the way you profit, by looking at the social media landscape and really building it.

A perfect example of the next generation gobbling up these ideas is one of the guys that founded MySpace. He raised $300 million, and he’s buying every little social media site he can buy, like “Quilting in America.com” and “Fishing in Northern Idaho.com” and “Bowling in Florida.” It sounds boring, but that’s where companies are going to have to communicate – not mass media but, instead, highly focused media, and that will bring returns in a big way.

PERFORM: How is measuring Web 2.0 and the viral nature of social media the same or different from measuring Web 1.0?

WEBER: That’s easy. Web 1.0 is very transactional. You had that first generation of what I call “the quick economy.” That’s eBay, Amazon, Google. Now we have the e-social economy, with MySpace, Facebook, You- Tube. In less than 36 months, they became three of the eight most-visited sites in the world. That’s amazing. The measuring there is going to have to be around time spent, around segments, because now in these kind of sites, and even on corporate sites, it’s segmented by content, by topic. So if you want to measure content and its impact on sales, it’s going to have to measure engagement, conversations that are happening, not transactions. For now, there are the basic tools like Technorati that at least let you know what’s happening, what conversations are going on and where they’re going. And then there’s new software, architected tools like Neighborhood America and Prospero for building communities. There are increasingly more listening research tools too, such as Kavaa.

So the marketer has to be attuned to new applications and new tools that are going to go deeper than the surface tools we have right now like Technorati. It’s a good beginning, but there’s a long way to go. Remember, when TV advertising began 75 years ago, it was just some guy holding up a box of detergent saying, “This gets your clothes cleaner,” and that was about it. That evolved into all the complex advertising we have today, and this will move much more rapidly. We’re in the first inning, so to speak, but I would argue that marketers that don’t pay attention to this now do so at their peril.

PERFORM: Are you hearing in your conversations that this is a cause for panic? Is it a time of excitement? How is this changing the way marketers approach their jobs?

WEBER: I call it pandemonium, the true definition of which is “ordered chaos,”but it’s scary because it’s change. When I have to be blunt with people, I sometimes say, “Madison Avenue is the Berlin Wall of marketing.” At some point it’s going to break down because it’s not where the audiences are and they don’t want to see ads in that way anymore. It’s all going to be more permission-based and social in nature, and it’s not something to be afraid of. It’s actually very logical. It’s just that we have got to change.

We’re going to have to reorganize our departments, we’re going to have to reorganize our spending, we’re going to have to understand that the customers are in control, and we’re going to have to make our marketing fit that. It’s black and white; it’s an evolution. Paid media will be less important, but it’s still going to be there. And paid search is going to be important, and it will continue to grow. But so will the whole social link to communities of interest around what your company does.

Performance is going to be a combination of creativity and content, and the actual paid media and numbers. That’s a good angle for looking at social media and marketing, yet not as flaky as it sounds. It’s where the people are going to be, and that’s where you have to engage them.

Q&A: Alex Kormushoff

As senior vice president of worldwide field operations at SPSS, Alex Kormushoff is responsible for leading the sales, services and marketing organizations for SPSS. He joined the company in 2005 as senior vice president of global services, bringing with him more than 26 years of executive management experience in the information technology industry.

PERFORM: How are predictive analytics important to performance marketing today?

KORMUSHOFF: The global marketing landscape has changed dramatically, and forever. There’s parity now – in economics, finance, technology, accessible skills, manufacturing and engineering – on a worldwide basis. This forces organizations to compete for mind-share and wallet-share, which together point to one thing: customer relationships.

Predictive analytics can help organizations capture and evaluate data to understand customers better, predict future behavior and – most importantly – take action to drive optimal outcomes. This gives marketers in particular the ability to develop more effective programs that support a continuous dialogue with customers. This way, they can more clearly anticipate customers’ wants and needs, and be proactive in satisfying them.

In general, a predictive analytics approach to marketing puts an end to guesswork in favor of more informed and actionable decisions.

PERFORM: How are you defining predictive analytics – and how does it differ from business intelligence?

KORMUSHOFF: Predictive analytics helps connect data to effective action by drawing reliable conclusions about current conditions and future events. If we’re talking about customer data, it’s looking at the full 360-degree view of the individual: you collect information on them through a continual “dialogue” and analyze both historical and dynamic data, make predictions, take action and then complete the cycle again and again.

Although business intelligence, or BI, looks at what has been happening and what is happening right now, predictive analytics looks at what’s most likely to happen next and maps out how best to act on that prediction. Some organizations take blocks of information – say, transactional data – while we propose a more holistic and dynamic approach to driving better and more informed decisions. This means looking at all data – descriptive, behavioral, transactional and attitudinal. How do you capture the attitudes? Through a dynamic dialogue with your customers.

PERFORM: What types of organizations can benefit most from this approach?

KORMUSHOFF: There’s relevancy for all walks of life – the notion transcends industries. But there are some commonalities we see from organizations that really embrace data-driven decision-making. We’ve seen these as typically large enterprises with lots of individual customers, who want to have (or already have) a direct relationship with their customers. Although predictive analytics is probably most “needed” in fast-moving, highly competitive markets, we’ve seen it applied with remarkable results to something as conventional as the public utilities industry. In fact, we find that the public sector is embracing predictive analytics more and more – to improve security, spot possible fraud or waste, and evaluate social programs.

PERFORM: Of your customers, where has there been the most success in applying predictive analytics to improve performance marketing?

KORMUSHOFF: We at SPSS see most success when predictive analytics is applied to customer-focused processes – and when there is a commitment to the customer relationship. And by relationship, we mean just that: an enduring, two-way dialogue characterized by trust, commitment and alignment that meets the mutual expectations of the company and customer.

The ideal state is to have this “personal relationship” with a million people, on the same terms, with a similar level of intimacy. Employing technology without people doesn’t work, but employing people without technology doesn’t scale. Modern technologies enable these personal conversations with a very large number of people; they allow enterprises to engage in a real and close dialogue with thousands of their clients or prospects on a one-on-one basis. A dream for years, customer relationship management, or CRM, is now possible, and one that, obviously, fulfills the promise of performance marketing as well.

PERFORM: Are there specific steps involved in getting started?

KORMUSHOFF: Some organizations have pockets of predictive analytics, with data mining or feedback mechanisms in place – but the concept of taking this across the enterprise is relatively new. In order to inject the power of analytics to influence everyday business, you should define a plan that is iterative with quick wins that will buy you a ticket to move on to the next thing. The idea is to foster a cultural shift, or journey, that builds and evolves over time.

The key to planning is to begin with the end in mind. Try to pull away from a static model/reporting mind-set to understand how we make decisions and drive business processes. The pitfall to avoid is putting an analyst in a corner, having them build some wonderful model and then finding a use for that model. We recommend, instead, that you select an area where there’s an opportunity for success – for example, customer retention – and access and gather data around that issue to extract insight for fuller understanding. But the big thing to keep in mind even from the start is how to act – how to take the data and insight, and put it to use. Keep that in mind, right from the beginning.

Unfortunately, although there are time-tested methodologies, there is no blueprint, no road map to predictive analytics success because each organization is unique. But we have gathered the expertise and experience to effectively solve crucial business problems.

PERFORM: What kind of return on investment (ROI) can one expect from applying this approach to marketing campaigns?

KORMUSHOFF: I really love this question. We’ve had customers who’ve experienced 10-fold, 100-fold, even 1,000-fold ROI – typically in about 10 months. We’ve also had organizations that apply it to turn what was a service center into a profit center for their organization – in one case, bringing in an “extra” $200 million in the first year alone.

It’s not an exact science, and each organization differs. We did have an outside agency – Nucleus Research – interview several customers to try and arrive at a “norm,” and were pleased when they confirmed that it was one of the highest ROI scores they’ve seen from a technology company.

PERFORM: Any advice for interactive marketers out there?

KORMUSHOFF: I think the step toward performance-driven marketing is the right one, so if this publication caught your eye, you’re on the right path. The added advice I would give is to really start to apply this beyond a rules-engine approach, and consider using predictive analytics to improve the performance of your existing systems. You can assess customer lifetime value, risk or fraud in near real time and guide each interaction or online experience more appropriately. The interactive channel is a prime spot to start this, but I’d keep in mind from the start how to expand it across multiple channels, so folks have the same brand experience – and you have the same benefits – across all lines of communication.

Q&A: Gayle Guzzardo

Gayle Guzzardo serves as chair of the lead generation committee of the Interactive Advertising Bureau. As senior vice president, product management, of Q Interactive, an online marketing services provider, she is responsible for the strategic vision and product development of the company’s online lead generation, email network and analytics teams and its media division, which includes the company’s branded Web properties, including Cool- Savings.com. Ms. Guzzardo holds an M.B.A. from the University of Michigan Ross School of Business and an undergraduate degree from Northwestern University.

PERFORM: First, how do you define online lead generation?

GUZZARDO: In the simplest terms, online lead generation is the act of the consumer filling out a contact form and giving explicit permission to be contacted by the advertiser. Typically, consumers registering on a publisher’s website are presented with one or more lead generation offers. They select the offers they’re interested in, and are then shown a series of forms describing the offer in more detail, with additional fields for them to fill out. If they complete those fields and are still interested in the offer, they hit Submit on that contact form. If they’re not interested after receiving more information, they can hit a Skip button at the bottom of the form. All the data points being shared with the advertiser should be clearly disclosed to the consumer.

PERFORM: So it’s obviously more than just registering to be able to read the content on a website?

GUZZARDO: Yes, typically there will be additional offers and details so the consumer can determine if they’re interested. If so, they take another action or two and give permission to share their data with the advertiser. The traditional payment structure is cost-per-lead, and the publisher hosting the offer will be paid for every valid lead submitted. After the consumer submits the completed form, the publisher collects the data and sends it to the advertiser in an encrypted format.

PERFORM: How big is the online lead generation market, and how quickly is it growing?

GUZZARDO: Online lead generation is the fastest-growing online ad vehicle. I’m quoting May 2007 data from a report by the IAB and PricewaterhouseCoopers, which said that online lead generation revenue comprised 8 percent of yearly revenues, or $1.3 billion in ad spending – up from 6 percent in 2005, a 74 percent growth rate year over year in the category. What’s even more interesting is that it’s growing faster than search. There’s so much press about how search is exploding, but online lead generation is actually growing more rapidly. Search was up 32 percent during that same period.

PERFORM: Is online lead gen included when people speak generically of the growth of online advertising?

GUZZARDO: It should be, yes. The IAB and PricewaterhouseCoopers track online lead generation as a separate category and have done so for the last two years, so they’ve really worked hard to establish its name in the industry. The category is definitely taking off, as evidenced by the large increase in ad spending year-over-year. Online lead generation should be part of the vocabulary of any media buyer, or marketer or agency, just as search or display should be.

PERFORM: What are some possible customer acquisition opportunities with online lead generation?

GUZZARDO: What’s important with online lead generation is you’re actually getting a lead or data for which the consumer has specifically said, “I’m interested; contact me. Here’s my data in order for you to do so.” That’s very different from – let’s take search again – where advertisers pay for a click, which is anonymous. You don’t know anything about that consumer, and if they leave your website after clicking on a link, you don’t have permission to contact them again. That’s why online lead generation is so effective – because the consumer is giving explicit permission to contact them.

PERFORM: How can advertisers incorporate that into their other online marketing efforts? What should they look for in a lead-gen partner?

GUZZARDO: There are providers that specialize and have developed an expertise in online lead generation, and there are certain qualities advertisers should look for when working with these partners. The first is targeting and optimization. The more the offer is targeted to the relevant consumer, the better the quality of leads the advertiser will receive. Providers should also be able to develop custom look-alike models, for which the provider analyzes the characteristics of the advertiser’s leads and creates a targeting model to find additional consumers who fit that same profile.

Secondly, consumers should be able to give explicit permission to share their data, and advertisers should only work with publishers who agree not to share that data with other providers (reselling leads and personally identifiable information without the consumer’s knowledge).

Thirdly, data validation or verification: meaning a consumer may fill out a form, but that lead is only as good as the data within it, so publishers should check for a valid physical address that’s CASS-certified [Coding Accuracy Support System] by the U.S. Postal Service, that the phone number is valid, the phone number matches the name and address provided and the name has been screened for anything bogus or profane. Advertisers should only work with providers offering those services.

Lastly, it’s key that the advertiser can test and optimize their creative. My company has a creative services team of 12 people, whose focus is to create and optimize advertisers’ campaigns in order to improve their ROI.

PERFORM: What are some challenges the lead-gen space faces – say in regulation or best practices?

GUZZARDO: I think the biggest challenge facing lead generation today is consumer disclosure, meaning publishers should disclose all the personal information they are collecting from the consumer. The consumer should fully understand the data they’re sharing will be passed to the advertiser or third parties in some cases. The consumer should understand how their data will be used and by whom; they should be allowed to skip offers easily if they’re not interested. They shouldn’t be forced to complete forms. The publisher should also be able to provide lead codes, meaning if the advertiser is looking to optimize their campaign, the publisher should be able to track where those leads originated from and be able to optimize the campaign according to those lead codes.

Overall, the biggest issue facing lead generation today is probably disclosure to the consumer of how their data is being collected, how it’s used and how it’s shared – and being very up front about it.

PERFORM: Is anyone in the lead-gen space working to establish standards and protect consumer privacy?

GUZZARDO: Yes; the IAB Lead Generation Committee is the preeminent organization that’s been taking a leadership stand in establishing such practices. Last year, we published an IAB Marketer and Agency Guide to Lead Quality. At that time, generating a quality lead was the biggest issue facing lead generation.

Data verification and real-time data delivery are also key to generating the highest-quality leads. In August 2007, we published the IAB Data Transfer Best Practices, outlining proper formats and security requirements for files sent from publishers to advertisers. The committee is now working on a publisher best-practices document, focusing on consumer disclosure. There have been some concerns raised in the industry by the FTC. We’d rather have the industry self-regulate, which is why the IAB is taking the initiative to publish these best practices, hoping the industry will follow.

PERFORM: Is online lead-gen missing any components you would expect to see emerge in years to come?

GUZZARDO: I’m really excited about the future of online lead generation. I am confident that over time, more and more companies and big brands are going to participate and realize the value of it. It’s going to continue to evolve over time and grow and I predict double in size year-over-year and become just as big as display advertising.

Q&A: Scott Berg

Scott Berg is responsible for working with HP’s business units to establish a congruent global media strategy as it relates to traditional, emerging media and technology. He has been honored as the first U.S.-based client media judge at the Cannes International Advertising Festival in 2004, and was named one of Advertising Age’s Media Mavens in 2005 and was on min Magazine’s Sweet 16 list in 2007.

PERFORM: To what do you attribute the new focus on media by advertising clients?

BERG: There are a number of different things, but I would highlight a few. The first is budget. Certainly, media tends to be the largest area within an advertiser’s overall budget. There’s a significant focus by executive management on the return on investment that the media budget provides. So you’ve got a consistent pressure point for companies to continue to make their media more efficient and more interesting, and to try to drive more value for end customers.

Second is content digitization. All types of content are becoming digitized, including video, audio, etc. So most people are starting to change the way they consume the media itself, and the Internet, and all the digital opportunities you have there, have expanded the number of media outlets that you can attack. This has also given the consumer total control. They become their own disk jockey when they own an iPod. They become their own television programmer when they own a TiVo or DVR device. They get to choose what shows to watch, what music to listen to, when they want to listen to it and the order in which they listen to it, etc.

Tying right into that is this shift to interactive, and I would narrow that even more to broadband. We have seen consistently, when customers move to a broadband connection, they’re able to consume much larger files and much more expressive types of content, and they can get it immediately. You tend to see substantial increases in Internet consumption overall. Of course, everybody is still focused on the metrics portion of the business: How does media perform, is it performing selectively, is it not performing, and, if it isn’t, why not and where should we move our media investments?

So customers are moving into different forms of content, and their media consumption habits have dramatically changed over the past few years.

PERFORM: As you’ve described, there are a lot of new media channels available. How is that changing what advertisers expect to achieve? Have their objectives changed, or are they evolving?

BERG: It’s always evolving. I would say most advertisers today desire, first, integration – being able to integrate the content and the messaging between different media types. Second, media needs to be scalable. It’s no longer efficient – or even possible – to advertise and create content for one particular niche publication. It is now becoming much more cost-effective to go after the long tail. This is happening as we speak, but you’ve got to have some scale. Third, it’s got to be optimized to show results. It needs to be completely efficient, meaning it doesn’t cost you a ton of money to get into it and, the efficiency also considers how much human capital time it takes to manage the project itself. Fourth, media today has got to have a metric around it. Fifth, it needs to be easy and simple and elegant so an advertiser can get to market quickly.

PERFORM: Easy to create or easy for your targets to consume, or both?

BERG: I think it’s both. For us, we want something that’s really easy to develop and easy to execute in the marketplace. For the customer, it’s about making sure that the piece of information or content is easy to access and easy to consume.

The other big focus is on automation. Digital advertising typically takes much more human capital time to work on, get it completed and get it executed. Human capital at most companies has not increased enough to be able to manage the increase in workload, so it’s critical to get more of the tactical functions automated. It is a serious goal that companies like us are looking at from a buying perspective, meaning how we buy and sell media and advertising. If it can be done in an electronic format to reduce the time and expense, that’s all the better.

PERFORM: Can partnerships help achieve all those things?

BERG: Yes, you need to have partnerships to make any and all of this happen. However, most companies can’t partner with everyone, because they just don’t have the resources or the time. So you look for those types of partners that can provide a very unique opportunity no one else in the market can. And you tend to focus more of your attention on the bigger players or the niche players that are really focused in on something specific. It’s a significant challenge right now in the media landscape, especially for magazines and print companies, because you tend to have an almost commoditized type of a market, and that raises some challenges. However, if they’ve established and grown their interactive side, there’s still huge opportunity for them to provide significant value.

PERFORM: An IBM online survey of consumer digital media and entertainment habits found that consumers are now spending as much personal time with the Internet as they do watching television. What media types do you see winning and losing the fight for media dollars?

BERG: I don’t necessarily agree with the IBM press release. The information I’ve seen shows that the consumption of television content has actually increased. I think more people spend more time watching television; they just spend less time watching commercials.

PERFORM: Or they’re not watching it on a television set.

BERG: Yes, you have the two takes here. The commercial content is available, but with DVR technology and TiVos, most people fast-forward through it to get back to their programming. The same thing with the Web and more content moving online. You have companies such as Joost following a very interesting model of providing content in a television format via the Internet. What are the differences and changes with that? Well, I can watch television or content anywhere around the world just by logging in to Joost.com. I’m not tied to my own television. You also have products such as Slingbox, which allows you to connect back to your television via a broadband line on your computer and be able to access your own television or DVR and watch TV from across the world. So the way we consume media is different. In some respects, I think television has actually stabilized and is doing fairly well. The print publications, especially monthlies – what I would call mass consumer publications – are still struggling a
bit. I think they’ve plateaued somewhat, but print is taking the brunt of the pain.

Another media channel that has been hit hard is radio, because that content can be easily distributed via the Internet. You also have changes going on in that marketplace with satellite radio. Overall, the listening audience has gone down significantly. So radio has taken a big hit, and I’m seeing outdoor [advertising], such as traditional things like billboards, begin to take some body blows as well.

Digital content, of course, is doing extremely well, and I would say using the Internet as a platform device is key. Traditional search is going to continue to do well for a few more years, because you’ve got many more companies trying to enter that marketplace, including a lot of smaller players. But I see that plateauing in a few years.

The area that has some of the most potential is mobile, specifically mobile search. It is basically a whiteboard type of an environment right now that has yet to be built. I think mobile has a lot of opportunity, and the handheld device itself – as a connective device back to other types of content – will also be very, very interesting as it starts to move forward.

PERFORM: What do you see as the downsides of this shift in media focus, and what do you think needs to happen to solve those issues?

BERG: The downsides, frankly, are significant. Most people think it’s been a joy ride for advertisers, but it actually has not. Anybody who tells you it’s been easy probably has got something to hide. This is a very challenging shift, and the first obstacle is resource management. As I mentioned earlier, it takes much longer to do some of these new media things than it took with traditional media types. The impact is much larger, naturally, but the time it takes to get there is significant.

PERFORM: Plus, there’s a learning curve.

BERG: Right, and that’s the other thing: education. You have a lot of people on the traditional side of media who have learned about interactive and understand interactive now and they have a pretty good handle on it. The challenge I see is the people who have only grown up in the digital age and are now entering the work force, and they’ve never dealt with traditional media before.

PERFORM: That seems the opposite of what you usually hear as the problem.

BERG: Exactly. My concern is that, if you take a look at media budgets, and HP is a good example, we spend about a third of our media budget on digital, which would include interactive and so on. But still we have two-thirds of our budgets in traditional media types. Having people understand digital is absolutely critical, but they’ve also got to understand how you implement it and tie it into traditional media as well. There is a place for everyone. It’s just that the pieces of pie have gotten smaller. Talent acquisition is extremely tough right now. Digital talent and search talent is very difficult to find, because it’s a completely different skill set. These are people that in many cases haven’t received a formal education in marketing. They’re engineers and mathematicians and computer scientists that we’re hiring into marketing. And sometimes you don’t necessarily want a marketing person; you want somebody who’s very technically oriented. There aren’t enough of those people coming out of higher
education today.

Another challenge is the various metrics among the different media types. You have all these new media types coming on board, and they each have their own set of metrics which sometimes are not congruent with other media types – whether traditional or digital. So it can be a real struggle to understand the value of each media type.

That leads to the final downside of the media shift. If you have independent metrics, you can understand each one on its own, and you can understand whether it worked or didn’t. But it’s difficult to determine the interplay between one media type and another. How does television influence interactive? How does interactive influence a newspaper? How does point of sale influence mobile? How do all those things work together? The models that have been created are all being challenged now because you have different media types coming out at such an accelerated rate.

One more challenge is international talent integration. For most of the marketing done today, if you’re a major advertiser in the market, you really have to think of it as an international audience. People look at HP.com; they don’t necessarily look at HP.com/Europe or something like that. You really have to understand the differences on the international market, and that’s an area where we also need more talent.

Q&A: Mike Jacobs

Mike Jacobs is chief services officer for iMarketing, an online marketing agency serving clients like Yahoo, Dow Jones, eMusic and AA RP. He is a consultant to several hedge funds and was previously co-founder and marketing director for Expression Engines/Bigfoot Interactive (sold to Epsilon in 2005). More information about iMarketing is available at www.imarketingltd.com.

PERFORM: How do you see Web 2.0 technologies fitting in with performance marketing?

JACOBS: It would probably be helpful to start with some definitions, because many people use these terms interchangeably. We define Web 2.0 as the next generation of online services, generally focused on collaboration. Social networking and wikis are prime examples, and older concepts like viral and lead generation are being included in the discussion as well.

Performance marketing is ROI-driven marketing. In theory, all marketing should be driven by ROI, but that isn’t the case right now. Performance marketing focuses on generating revenue to directly impact the bottom line. While brand-focused marketing can eventually help in driving revenue indirectly, performance marketing is generally executed with specific time frames and transactions in mind – sales, subscriptions, etc.

So far, Web 2.0 – particularly the version being sold by agencies – has had little impact on performance marketing. Web 2.0 creates avenues for connecting with consumers, but the commerce hasn’t yet followed as much as the hysteria has.

We’ve seen social networking sites selling tons of ad impressions without resulting in enough sales to justify the cost. When it is so easy for a consumer to create content – through a blog or a MySpace profile – the odds of that content actually being worthwhile are low. Even where page views are generated, you usually see low clickthrough rates and even lower conversion rates. There are some niche players who can use this kind of inventory – ringtone players being one example – but most large-scale advertisers are just not seeing the return.

This lack of performance is generally ignored for two reasons. First, marketers are too often getting caught up in the hype and not looking at the results. They are running campaigns without a clear view of goals and metrics. Second, numerous entrenched parties promote and profit from this confusion. Google, for instance, blurs the distinction between search and non-search media when selling to advertisers. A marketer may think he’s only advertising to users who searched on a particular keyword, but his ad could end up on a blog, on a MySpace page or even on a cybersquatter landing page. He may also pay the same price for these clicks – even though they are worth less – because AdWords makes it difficult to see or optimize the different traffic sources. Until marketers get smarter and demand accountability, these trends will continue.

PERFORM: We’re also seeing a lot more agencies out there offering to create buzz and develop viral campaigns. Does that fit in with your view of performance marketing?

JACOBS: Short term, going strictly by the numbers, no. Viral may never fit into performance marketing because it is nearly impossible to directly attribute results. Viral can enhance many campaigns and products, but it is not a marketing strategy unto itself.

I can’t tell you the number of potential clients who have come to us and said, “We don’t want to spend real money on marketing because our product is going to be viral.” But consumers are on to us. They know that we want them to sell our products for us. After years of getting hit by hundreds of “tell a friend” and other referral options – many making unfulfilled promises – consumers are weary of viral marketers. Furthermore, you need an established base of users at the outset. Viral growth is hard to start with just a handful of users.

“Buzz marketing” often confuses cause with effect. Many large interactive agencies offer “buzz measurement,” which isn’t marketing at all, let alone performance marketing. Talk comes from usage; not the other way around. Consumer feedback can be helpful, but measurement of the buzz often only measures the success of your acquisition campaign.

Some agencies will claim they can reach out to thousands of influencers on your behalf, in theory to drive activity. However, what they usually don’t tell you is that each of those same influencers got 100 similar Emails that day, often from the same agency. Even when we see a resulting product review or blog post, the results just don’t show. Look at referral sources for new customers. Track the referral rates from within the product itself. The numbers rarely match the story. Viral marketing can work, but what is being sold today as viral rarely delivers ROI.

PERFORM: That goes back to the first point, which was, people really don’t know what they’re talking about sometimes when it comes to Web 2.0.

JACOBS: Absolutely. Many marketers are simply acting out of fear. Web 2.0 isn’t well-defined, yet execs worry that they need to be doing something in the space, even if it means they are spending money without results. But that isn’t performance marketing. When the results justify the cost, only then should the money follow. The smart marketers will choose the channels that deliver, even if it means watching others get cut on the bleeding edge.

PERFORM: How about developments in the lead generation space? How do they impact performance marketing and affiliate marketing networks?

JACOBS: Lead generation is one of the core developments in performance marketing. It appears nearly risk-free on the surface, in that you only pay for results. But lead-gen for the most part works only for select categories of advertisers, like mortgage, education and debt consolidation. A close look at lead-gen companies will show that they are almost exclusively focused on these areas, and they have not really had a major impact on e-commerce sites.

There are also very significant risks that are not being taken into account. In reality, lead-gen reduces only CPA risk and creates additional risks like brand and lead quality. The value of leads for even the same offer can vary dramatically by source, yet lead quality rarely seems to factor into the equation. Even where folks are scrubbing lists to produce valid leads, it still doesn’t mean that those consumers actually have an interest in the product. Even valid leads can differ in quality, and incentive sites are a big part of the problem. If a consumer is told that she’ll get a free iPod when she signs up for The New York Times, she is much more likely than a non-incentive lead to cancel her subscription soon after. Leads from different sources have different values, and these need to be accounted for. Companies need to look at the track record of a given vendor or channel – pay rates, cancellation rates and lifetime value. Unfortunately, most aren’t.

The lead generation firms have also been stealing share from the affiliate networks for years. Linkshare, Commission Junction and other affiliate networks have had trouble understanding their place in the value chain. For years they changed direction repeatedly, trying to be technology companies, then marketing companies, then search companies, then technology companies all over again. Meanwhile, they ignored their core offerings – tracking, payment, access to affiliates and overall accountability.

At the same time, other players, particularly the lead-gen companies, built their own technology. And they did so with lower overhead and focused only on the most profitable segments. The high-volume offers now appear on the CPA networks, and the top affiliates have moved to where the money is. Much of the remaining revenue streams have been under attack by Google AdSense and similar automated revenue-generation options for publishers.

The affiliate networks have responded by acting like CPA networks; Linkshare bought a lead-gen company in 2007 and is now trying to roll out its own lead-gen offering. But it might be too late. Tracking technology has been commoditized. You can even rent the technology and build your own affiliate or-lead gen network with just a few calls. I think we’re going to see continued consolidation in this space.

PERFORM: Given all the available tools for Web analytics, data integration and business intelligence, shouldn’t marketers be able to see which campaigns work and which don’t?

JACOBS: The tools and data are readily available, but marketers are simply not using them. I’ve seen multimillion-dollar online media campaigns run by top-tier Web properties with no tracking whatsoever. And I’ve seen millions of dollars’ worth of campaign-tracking technology go unused.

This might be a generational issue. Marketers coming from the off-line space not familiar with the metrics just don’t know what to look for. Many have outsourced the tracking function to IT, which makes as much sense as having coders develop promotions for your website. Campaign data does not belong with IT, it belongs with marketing.

Marketers need to take responsibility for learning the systems. More effort is put into setting up the tools and telling the boss they exist than learning how to analyze the data. People from the top-tier tracking solutions have told me that most of their clients don’t look at CPAs for their online campaigns. That is a very scary notion. Both technology and marketing dollars are being wasted.

PERFORM: As different service providers emerge to help companies with these various marketing initiatives, is there going to be consolidation, or are marketing departments going to continue juggling multiple third-party agencies? How do you see the competitors in this space shaking out?

JACOBS: Right now, I think the marketplace is too blurred. It is very easy to confuse who is who within the ecosystem. Companies of all sorts are trying to grab whatever share they can, regardless of whether or not they should. Conflicts of interest are almost the rule.

You have a lot of lead-gen companies whose pitches sound a lot like agency pitches. You have development shops treating campaign management as an extension of creative, when it really isn’t. You also have single-channel agencies trying to give broad strategic advice. Even the vendors and tracking solutions are getting into the mix, building their own account and campaign management offerings.

The worst trend comes from the vendor side. They don’t just want to sell you media, they want to “manage” your campaigns. This is a clear conflict of interest. Vendors are handling creative, talking about audiences and steering “strategy” in many cases. However, their goal is to generate high CPM [cost per thousand impressions] for their media, not ROI for their customers.

You also have agencies essentially outsourcing their interactive work to these vendors. Here you have the same conflicts of interest, yet clients don’t realize it because they think the agency is looking out for them. But the hands-off agencies rarely know enough to do so, or they don’t want to potentially risk their relationship with Google.

Other traditional agencies are partnering with channel-specific agencies, which leads to multiple teams managing different campaigns in silos. I’ve rarely seen this end in anything but disaster. With no accountability across channels, the campaigns often work against one another. The most frequently seen example is search campaigns conflicting with affiliates doing search. Done properly, with a view to overall performance, these are extremely complementary channels. Done poorly, you will drive up CPAs with no increase – and sometimes a decrease – in overall volume.

I think much of the challenge for traditional agencies is in adapting to a world in which everything is measurable and interactive. Online marketing – and performance marketing in particular – contradicts the approach that’s worked for those agencies for years. In the past, they just crafted one big message, segmented the market from the top down and then tried to cram the unified message through all the different pipes. This is push media.

The interactive space requires you to do a lot more listening than dictating. With pull media such as search, individual consumers can tell you exactly what they are looking for. Marketers can get unprecedented types of consumer feedback online, down to the campaign, minute or even specific search query. Companies now have data in droves, but rarely the experience and knowledge to use it.

In some ways, we’re moving backward. Some traditional agencies are falling back on older techniques that don’t actually work in the online space and setting the entire industry back. For instance, I’ve seen traditional agency types trying to overlay demographic information onto search without realizing they are making their campaigns less effective. Why guess that a site visitor is likely to be a golfer based on her age and income, when you can perfectly target ads to folks who are searching for golf equipment? The reason search costs more than other types of media is because it is almost perfectly targeted, so why revert to an inferior form of targeting and pay the higher media rates?

Too many people try to adapt what they know to the new paradigm, but some of it simply needs to be thrown out. Things are getting so bad that many of the media providers are making their products worse trying to adapt to these mistakes. MSN, for instance, now offers demographic targeting for search.

PERFORM: They’re basically throwing a useless tool at people who don’t know any better?

JACOBS: Yes. And there are other examples. I think day-parting – showing ads at only certain times – is another feature that has been sold in the wrong way. For instance, in a search campaign with a CPA goal, volume does not affect what a click is worth; conversion rates do. Yet MSN and Google are offering the day-parting option without the ability to see hourly conversion rates. Without the data, the tool is useless, but I’m sure it makes some traditional agency types feel better.

PERFORM: I suppose the positive spin is that this is one way of easing the old-school types into the Web 2.0 world, but it is a little misleading.

JACOBS: Right. It eases them in, but at the same time makes it tougher for those who are actually doing it correctly. This contradicts the goals of performance marketing and moves the conversation to the wrong place. Once a client hears a buzzword, it can be tough to get them thinking about anything else, even though the concept in question may not work for them.

PERFORM: Our whole conversation has been about the challenges facing online marketers, but can you boil it down to the biggest one for the next three-to-five years?

JACOBS: I think the fundamental question is: How do we integrate all of this data and all of these fragmented campaigns into one global brand? The different channels and media sources each have fairly specific attributes and customer feedback loops that we can optimize independently. But how do we match this up with trying to build and maintain unified brands? The days of marketing only being about full-color glossy pages and 30-second commercials are over. Now we might have just 30 characters to get our point across. It will be extremely tough to convey a full global message and graphic identity in a text ad on the right-hand margin of a blog. When the customer – not the advertiser – defines the marketing, brand takes on a new meaning.

There is no quick answer to this one. It’s going to take experience and data, and I’m sure we’ll see quite a few mistakes along the way. As I usually say, we’ve got to test, test and test again, and if that doesn’t work, test some more.

Q&A: Young-Bean Song

Throughout his career, Young-Bean Song has been at the forefront of analytic research and development in digital marketing. He currently oversees The Atlas Institute, renowned for its pioneering research in all things related to digital marketing. Young’s work also includes custom research for Atlas’ top agencies and advertisers.

PERFORM: There’s a proliferation of advertising channels on the Internet: search, display, rich media and social networks, to name just a few. How are today’s advertisers measuring their online campaign performance across channels?

YOUNG: When you talk about measuring the impact of digital marketing, there’s no shortage of data out there. The reality, however, is that people’s understanding of campaign performance is very limited. The industry standard that’s emerged over the last dozen years gives 100 percent credit to the last ad seen or the last click. Because of this, people’s view of what’s working and what’s not is framed in a very short period of time and only takes into account a single touch point. As this one touch point equals just one ad in one channel, clearly we have yet to measure the true impact of all digital marketing efforts. We’ve developed our Engagement Mapping model specifically to address this.

PERFORM: Audience or brand “engagement” is of paramount importance to big brands and their agencies. What specific types of engagement can be analyzed in the online world, and why are current models inadequate?

YOUNG: Until recently, online has been viewed as primarily a direct-response medium or channel. Brand advertisers are just now beginning to take online seriously and recognize the mainstream impact of the medium. The challenge is that, to date, they’ve had very little metrics that mattered to them, and the talk of measuring engagement has largely been theoretical. They’re looking for measures that have more to do with when, where and how consumers are engaging their brands than simply getting them to click on ads and purchase something from their websites.

PERFORM: So how is engagement measured under this new model?

YOUNG: We need to start with the tenet that not all ad touch points are created equal. Some ads are more engaging simply because they’re physically larger than others. Some are more engaging because their placements are more useful and relevant. There are myriad fundamental variables that can be measured in a standardized way to differentiate one impression or one interaction or one click from another.

For example, recency: We all know that ads that are closer in proximity to the sale have more impact and relevancy. The last ad standard can be viewed as an “extreme recency model” that gives all the credit to the last ad served. But what if the user were to see a dozen ads the day they purchased? Shouldn’t each one of those ad impressions get some credit? That data is available and useful to advertisers, but it’s being completely ignored and overwritten by the last ad model. Another example is reach and frequency. Brand surveys have shown that there’s a difference between reaching users once and reaching them multiple times. There have been similar findings about the impact of different ad formats. Banner ads, rich media, Web video and text all have different branding impacts, and even behavioral measures like click-through rates differ dramatically. Each of these elements can be isolated and measured and added to the engagement map.

PERFORM: How does a planner or analyst determine which of those factors are most important?

YOUNG: First, you have to understand whether the campaign is focused on branding, direct response or both. When you have direct-response goals, you’re going to care more about things like recency, and you’re going to care less about things like ad size and whether ads are rich or not. Another important consideration for direct response is the purchase cycle and whether what you’re selling involves a long purchase consideration or whether it’s a short, instinctual purchase. Ringtones are not purchases that people lose sleep over, whereas things like buying a new car or getting a new home loan require more time and consideration. The higher consideration products need longer frequency windows, whereas the low-consideration products depend more on recency. All this requires strategic discussions about your business as well as quantitative ones. There are a slew of analyses that can be conducted on your historical campaigns that can help steer many of the assumptions that drive reporting.

PERFORM: Engagement mapping seems to tie digital marketing more closely to the marketing fundamentals applied to traditional marketing. Is that a fair assessment? If so, what does that mean for digital marketers? What does it mean for more traditional marketers?

YOUNG: Given the way online success is currently measured, we shouldn’t be surprised that traditional advertisers see the online space as a purely direct-response world. But when you start talking to traditional advertisers and chief marketing officers (CMOs) about recency and frequency, and tying all these different touch points together, it changes the conversation completely. Online marketing becomes something that’s in line with how they view the world.

So these new standards that are emerging are not only going to be great for the people who have been investing in digital marketing for the last decade, they’re also going to help make this medium make sense to traditional advertisers. We’ll see more dollars come online as these new metrics become the new standard.

PERFORM: Will advertisers see a significant difference in advertising results when engagement mapping is applied versus the current “last ad” model?

YOUNG: The answer to that question depends on how much overlap and cross-channel synergy is occurring on a particular campaign. If you’re a large advertiser reaching a lot of people across multiple sites and multiple channels with high levels of frequency, you’re probably making some poor media decisions because of current reporting practices. For smaller advertisers, the change will be less dramatic but equally important from an insight perspective.

When people are being reached across multiple sites, that’s when that credit becomes fractionalized and shared across multiple sites and placements. Engagement mapping is not done at the site level, it’s much more granular than that. By granular, I mean at the placement and creative levels. As a result, you see conversion credit shifting from one place to another quite a bit more at those more granular levels. The more granular you get, the more credit you see shifting.

For example, in the diagram we’ve provided of an engagement map (Figure 1), Publisher A gets credit for about 5,500 conversions with the last ad model (on the left). With engagement mapping (on the right), the conversions go up by 47 percent when factors like reach, frequency, ad size and creative type are weighted and considered in the conversion process.

PERFORM: How big a leap is it for advertisers’ agencies to embrace engagement mapping?

YOUNG: From a workflow standpoint, there’s no additional work or cost. In fact, many advertisers today are already trying to use reach and frequency reports and intuitively give more credit to the rich media campaigns, even though they don’t appear to be performing on an ROI basis. Engagement mapping has standardized these efforts, creating a transparent, scalable system to accurately attribute conversions.

Q&A: Keith Pigues

Keith Pigues is chairman of the board of directors for the Business Marketing Association International and a member of the Executive Leadership Council. In 2007, he received the Frost &Sullivan Marketing Lifetime Achievement Award and was recognized by B2B Magazine as one of the leading senior marketing practitioners. Since 2007, Mr. Pigues has served as corporate senior vice president and chief marketing officer for Ply Gem Industries, Inc. He was previously VP of marketing at CEMEX USA , where he led all branding, marketing and market development for the U.S. operations of the world’s largest building materials company.

PERFORM: What are you hearing from your members about Web 2.0? Are most already implementing these interactive strategies, struggling to understand and/or implement them or somewhere in between? How are marketing budgets being shifted to address this?

PIGUES: Most business marketers are struggling to understand the impact of Web 2.0 and social media as it relates to their marketing efforts. Many feel that the hype behind Web 2.0 initiatives like video sharing, wikis and social networks is not justified in the B-to-B space. A few of our cutting-edge members like Kodak, Cisco and IBM that are willing to test this emerging space are finding some great results in better engaging their customers. I characterize the current state as one of uncertainty with a strong curiosity.

PERFORM: Most people are familiar with the consumer side of Web 2.0, but they are less clear on how so-called “conversational” marketing can be applied to B-to-B relationships. Can you provide an overview?

PIGUES: Yes, conversational marketing is included in the category of user-generated content. This includes blogs, forums and ratings. And, yes, the B-to-B applications are less clear because many B-to-B companies don’t actively and consistently seek feedback from their customers. Some believe this feedback mechanism lacks structure or statistical significance. I say, if a customer takes the time to provide unsolicited feedback, it’s worth seriously evaluating and acting upon.

Take industrial product manufacturers, for example. Rarely do they proactively and systematically ask customers what they think of their products or ask customers for help in developing the next new product. While this may have been considered too costly in the past, the new Web 2.0 tools can help many companies improve their conversations with customers by opening an online forum or wiki, which provides valuable customer feedback to help accelerate customer acquisition, retention and profits. We have seen some good examples of this use of Web 2.0. GlobalSpec [an engineering-specific search engine]; it does a nice job here.

PERFORM: Where should B-to-B marketers begin in evaluating ways to promote their products and services online? What are common misconceptions and pitfalls?

PIGUES: Unfortunately, many B-to-B marketers are falling short in the Web 1.0 world. They lack an understanding of the common best practices in serving the customer online. Some common misperceptions are things like: social media is for Gen Y; search engine optimization is black magic; my website is a great place to promote my wares versus giving the customers what they need in content and experience to make the best decisions. B-to-B marketers should begin by evaluating the basics of online marketing. The more advanced B-to-B marketers will benefit by understanding how buyers in their specific market desire to receive the information most helpful in their decision-making process. I think this is a good place to start.

PERFORM: Which so-called Web 2.0 tools/technologies do you think are most valuable for corporate marketers who want to extend their brands, engage with customers and, of course, drive sales? Which, if any, do you feel are merely fads, unlikely to bear fruit or succeed as part of long-term marketing strategies?

PIGUES: Comments and ratings are great almost anywhere. Providing an easier way for customers to provide real-time feedback on the product or service experience can help with branding, customer engagement and sales. This, of course, is not a new revelation. However, the Web 2.0 technologies can make this much easier and affordable. Also, RSS [real simple syndication] feeds for aggregation of content and news can help avoid the information overload that many customers face. Forums are a great way to access your customer base to get feedback, not only for new sales opportunities but also to examine issues related to retention and customer service.

At the moment, viral video and virtual worlds like Second Life appear to be fads; however, this could change overnight. I think it’s too early to count them out. If an innovator makes it work, a new technology could be all over the map in an instant. That’s the way the world works today.

PERFORM: Are your members changing the way they structure their marketing departments in response to the demands of the Internet? Are they working with more external agencies or working with them differently?

PIGUES: While most recognize the need to change, many are stuck with the same structure and continue to add one person here or a little extra budget there to explore more effective ways of marketing. Before we see significant change in the structure of marketing departments, there will have to be a shift in thinking regarding human behavior and decision making in the B-to-B space. The antiquated beliefs about how customers make decisions must be reexamined. When this new insight is more widely gained, I think we will see more rapid change in marketing structures to make them more effective. Most of the efforts in the past two decades have been focused on efficiency improvements – doing the same old thing better. Enlightened B-to-B marketers have discovered it’s time for a new, more effective approach to create demand and deliver value to customers.

The same is true with most agencies. They recognize the need to change, and a few are truly making the leap into more effective strategies and capabilities to help their clients create demand and deliver value to customers. Until we see a critical mass of B-to-B companies making the shift, we will likely see more of what is happening today – which is that many of our members are working with online/Internet specialists, as most traditional agencies do not execute well in the interactive space.

While our corporate marketing members are making some positive steps in the way they work with agencies and other external partners, rarely do we see a company taking all of its online initiatives in-house. At the very least, they hire a consultant to educate and guide them on best practices. Search and websites would be common examples. I do think the truly innovative companies will begin to define a new order of working relationships between B-to-B companies and their agency partners. Agencies that take a leadership role in this effort could pave the way for rapid change and gain a significant competitive advantage in the Web 2.0 world and beyond. This could very well be the next battleground for agency success and maybe agency survival.

Q&A: Dennis Morrow

As director of information architecture and usability, Mr. Morrow leads Web Associates’ holistic approach to combining user interface design, human factors and usability practices, resulting in positive user experience initiatives for the agency’s family of global brands.

PERFORM: What is the most common mistake you see companies making when it comes to their website design and usability?

MORROW: Common online oversights include using a font size that is too small or using inconsistent page templates or nonspecific page names. However, the biggest mistake that many companies make regarding their online properties is failing to connect with their site visitors. Obviously, there are business goals to consider, but balancing those objectives with user feedback enables a company to create engaging user experiences.

The user experience serves as the primary differentiator among online competitors. A user is more likely to return to a site built with his needs and interests in mind than a site that’s been designed by a business for a business. Ultimately, a site’s success or failure rests upon how well a company knows its online audience and satisfies that audience’s needs.

PERFORM: User experience is a common buzz phrase today. In your opinion, what is the evolution of the user experience?

MORROW: The evolution of the user experience has been the evolution of usability. Today’s Web experience is the basis for your customers’ overall perception of your brand and their relationship with your company. It’s all about people – human beings with human needs. We are continually trying to create new and better ways to connect with online users. Our efforts focus on demonstrating to the user that we know who he is and understand his needs. We want to guide him to success in the most effective and efficient way possible and, if needed, we will help him along the way.

While companies have traditionally focused on their business needs, usability is allowing them to place a much greater emphasis on their users’ experience. Usability testing has now become an integral part of the development cycle to ensure the desired results. And with advanced usability testing methods, we can validate the successful experience in the mind of the user. It’s not a one-transaction deal; it’s about a long-term, win-win relationship.

PERFORM: Why should companies test their websites for usability?

MORROW: In nearly every industry, companies are going to do some sort of R&D and testing during the development of a new product. The online space should not be any different. A global brand should never revise a world-class Web presence without gathering and validating the information it needs for success.

We’ve found that testing is a crucial point for gathering customer data. Without it, you are relying solely on the key stakeholders or the biases of whoever is designing the site. By proactively testing the application or design, you get concrete input from real users. You want to listen to your customers throughout the development cycle, and usability testing is a key part of that. We push the interactive envelope on a daily basis, and the success of these innovations wouldn’t be possible without the diagnostics, benchmarking and validation afforded us through usability testing.

PERFORM: At what point in the development cycle should usability be considered?

MORROW: While companies can certainly test a site or application after its launch, it is far more cost- and time-efficient to do usability testing up front. We recommend integrating usability tests throughout the entire development cycle.

For example, we start by using evaluative techniques like heuristic site evaluations and metrics analysis early in the discovery phase. More user-based tools, such as surveys, focus groups and ethnographic studies, are used during planning. As creative and innovative strategies are employed, multiple levels of prototype testing can be used to give us early insight into process and interface efficacy. Based on the results of these studies, we can make changes and test again as needed. By integrating usability methods, companies can provide the checks and balances necessary to refine their designs, resulting in positive user experiences.

PERFORM: What are some metrics used to measure the user experience?

MORROW: In the past, we considered conversions, click paths, time-on-task and satisfaction ratings. Today we additionally consider life-stage continuums as well as technographic, psychographic and affective profiles. Usability testing also lets us measure psychological and physiological responses, such as facial expression, eye movement and pupil dilation.

Integrating all of these methods allows us to leverage robust data sets to gain multiple perspectives so that we can analyze and tailor the user experience to match the key elements the client wants to provide to its online visitors.

PERFORM: How does one measure eye movement, and what are the associated benefits?

MORROW: We measure eye movement through a methodology called eye-tracking, which has been around for over a century. Eye-tracking patterns have been used over time to assess areas of interest in our visual world. Over the past few years, eye-tracking technology has evolved into a sophisticated, noninvasive research tool.

This usability technique employs special cameras to map the location and duration of a user’s visual fixation points. As test participants sit in front of what appears to be a typical flat-screen computer monitor, reflected infrared light pattern data is digitally recorded and analyzed. From that, we can ascertain visual areas of interest. This lets us refine the website design to maximize user engagement. The eye-tracking data combined with a retrospective “thinking aloud” technique gives us objective and subjective insights into what’s driving the on-page and task-based experience.

PERFORM: What kind of tangible results can you expect to achieve with usability?

MORROW: Usability isn’t just a catchphrase – it’s a way of thinking. Gathering, organizing and using information to optimize a customer’s experience helps to drive innovation. The bottom line is that, because you get a holistic view of a product before it goes into development, usability ensures that a product is easier to use, that it has fewer problems and that it is cheaper to develop. All in all, usability is just one tool to enhance the user experience. By incorporating usability practices, you are able to simplify, streamline and accelerate your development process while simultaneously increasing brand loyalty.

Q&A: Joe Melanson

In Mr. Melanson’s role as Aquent’s chief sales officer, he and his Enterprise Solutions team work with leading global companies to increase their capacity to execute marketing initiatives. Since joining Aquent, he has helped clients build their capabilities by leveraging Aquent’s services in consulting, outsourcing, staffing, technology and training. Joe has created customized solutions for content development, marketing analytics, creative execution, direct mail and other marketing challenges for a diverse group of clients, including HP, Target, AstraZeneca and Philips Design.

PERFORM: What trends do you see affecting marketers in the next five to 10 years?

MELANSON: There are really four key trends that we’re seeing in marketing that center around the theme of proliferation – audience segmentation, touch-point proliferation, product proliferation and globalization. With regard to audience segmentation, there’s been a significant increase in the number of segments marketing departments need to address. Fifteen or 20 years ago, you’d have an enterprise segment and a small business segment if you were B-to-B, and maybe segmentation by age if you were in the B-to-C space. Now we’re seeing microsegmentation and people addressing very, very small segments with tailored marketing messages.

With touch-point proliferation, technology has provided the means to go to market through channels such as new media, social media, viral marketing, creative utilization of events, PR, interactive media and the list goes on. Yesterday’s 30-second TV spot is still there, but it’s a smaller percentage of today’s marketing budget due to the growth in interactive, new online media and event marketing.

There has also been a massive influx in product proliferation – tailored products for specific market segments – in order to increase and leverage brand equity. The result of this effort is that we’re seeing profits increase as a result of having more than one product category.

Finally, we’re seeing businesses of all sizes and industries going global. With that comes the task of having to integrate versions of a product, tailored to specific geographies, requiring translation and additional marketing strategies. Despite the impact these trends are having on the complexity of the marketing industry, these deliverables are being executed at record speed. Where 20 years ago the marketing department might have had a very limited execution capability, today you have people within marketing departments who are focused on interactive, people focused on events and people focused on media. There’s a lot more specialization in what people are doing and in turn, more coordination costs because of that.

PERFORM: How must marketing departments change to adapt? Are companies reluctant to embrace this changing landscape, since you’re talking about more headcount and more money? Or are companies recognizing they need to go in that direction?

MELANSON: Companies are embracing these new media because it actually costs less money. So instead of spending millions of dollars on a media buy, they’re able to reach consumers in a much more effective, cost-per-impression way. The downside to shifting toward new media is we’re seeing companies struggling with the additional workload that hits their internal marketing department. Marketers are becoming burnt out from taking on huge volumes of work and long hours. As a result, we’re seeing an increase in turnover within marketing departments. It’s said that the average longevity of a CMO is 18 to 24 months, but we’re also seeing a lot more turnover in the junior and mid-level ranks as well.

PERFORM: Do you attribute that primarily to burnout? Or is there also such heavy demand placed on the marketing department, such as high expectations, that you think it’s a case of companies expecting too much too fast?

MELANSON: There’s a lot of pressure on the marketing department to execute all of these new media and new marketing opportunities. It’s an amazing transformation of marketing, a mass push to a much more individualized and effective communication tool. So while we’re seeing companies making a transition to these media, what we’re not seeing them do as much is adapting their internal organizations to be able to execute effectively and seamlessly without the effect of marketer burnout.

PERFORM: How do best-practice companies pull it off?

MELANSON: It’s not about giving all the projects to an agency of record. It’s also not just taking an ad hoc approach with a small team of people whose only goal is to execute. That may have worked in the past, but companies today have to take a more systematic approach to marketing. They need to be very project- and deliverable-oriented. They need to have a very clear planning process where they can determine what work is going to be done, which resources are going to be applied – both internally and externally – and they need to be able to execute their projects.

PERFORM: Does all this apply mostly to in-house corporate marketing departments or to big agencies also?

MELANSON: We are seeing these trends on both sides. The internal marketing folks are wrestling with the need to create a roster of different agencies now, rather than a single agency. There’s a trend to create internal capabilities as well, rather than relying entirely on external, and both need to figure out how to get best-of-breed and execute in a way that’s really seamless across all of the different brand expressions.

PERFORM: What are the critical success factors for marketing?

MELANSON: Execution! I think we’re moving away from a world where it was about the big insight and into a world where execution is critical. It’s not enough to have a great product at a great price that’s well-positioned against the competition; you need to also have the right marketing initiatives that support that product in the marketplace.

PERFORM: Do you think that part of this means moving away from the perception that marketing is a “soft” creative area, and approaching it as a science with more structure around it?

MELANSON: Yes. You need to have a brilliant idea around your brand positioning and your product, but the way you get it in front of all of those eyes is scientific and executional in nature. It’s about being efficient and effective, and making sure that you have the right people working on the right projects. By streamlining your processes you are able to have all of the supporting pieces in place to implement that idea.

PERFORM: How can hiring practices help marketers meet their biggest challenges?

MELANSON: It’s really about speed. One thing we’ve innovated at Aquent is how to get marketers into an organization quickly. We’re seeing clients with unfilled marketing roles for three months, six months and longer. It’s very difficult for a marketing department that’s already taxed to compensate for an unfilled position. It puts additional strain on an already overtaxed system.

PERFORM: It also sounds like each person has a designated area because marketing has become so specialized. So when you lose one person, that creates a big hole.

MELANSON: The orientation toward a more scientific planning process makes it easier to decide which projects require external resources. Companies are realizing that, by bringing in a contract marketer with specific skill sets, projects are executed more effectively.

One concern of bringing new talent in quickly is getting them up to speed. We have a program called Talent Bridge, where we place candidates in their specialty area within an organization for predetermined trial periods to make sure it’s a perfect fit for both them and the company. Being able to bring someone in for a specific, well-efined project is part of this new planning process that companies have had to implement to handle the increase in marketing work. We see a lot more satisfied matches between employees and employers when there’s been an opportunity to try before you make that permanent decision.

PERFORM: Any final thoughts on staffing today’s marketing entities?

MELANSON: There are huge changes going on in marketing that are adding a lot more pressure to marketing departments. There’s also greater diversification of the resources that marketing has at its disposal – more agencies, different types of agencies, specialized agencies, more initiatives done internally. There’s a critical need for planning and for having the right resources in place. At Aquent, we’re happy to help our clients do that.