Tuesday, 13 March, 2007

Three fatal letters

There are 3 types of marketers in developed markets: the commodity sellers, the brand makers, and the mail order types.

The first fulfil needs. The second sell mass dreams fuelled by a mass propaganda called advertising. The third make their living from exploiting addictions.

The addicts don’t snort cocaine or inject LSD. They collect books they never read; clothes they never wear; courses they never study; carpets, knickknacks, whatnot.

But most of all, deals. Deals that even the most naïve child will see through.

Seen in this light a lot of DM techniques and rules sound most sinister. Like, “It’s costs 6 times more to create an addict (customer) than to sell to an existing addict.”

Or, “Your best bet are the addicts who buy from you regularly (house list).”

Or, “Success depends 40% on the addicts’ craving for that particular drug (the list); 40% on how far we can sweeten the ransom the addicts pays to their addiction (the offer); and 20% on how well we can depict the high round the corner (the creative).”

Or, “Hopeless junkies (20%) account for most (80%) of the sales and all of the profits.”

Yet, all things considered, it’s ok. Deal peddlers never made anyone poor. And they make a living, even a decent one.

But they get no respect. No journalist interviews them. No management course teaches their techniques. No triple degree marketing maharishi writes impenetrable tomes analysing the tricks of their trade.

So they lick their wounds and dream of the wrath of numbers striking down the dream makers, a.k.a., the MBAs.

In the last two decades of the 20th century, their dreams are answered, thanks to two technological breakthroughs, cheap computing and e-commerce. At last, direct marketing met mainstream: The results were predictably disastrous.

Why predictably? Because the underlying business fundamentals and target markets (not that they target different people; rather, they target two very different aspects of people’s personalities) are so vastly different that these two worlds cannot combine. At least, not yet.

Two deformed twins were produced from this unfortunate union, born 10 years apart. The first was a premature baby, loyalty programme; the second was an overdeveloped giant, CRM.

Why do I say the loyalty programme was born premature? Because at its birth we probably didn’t have the IT prowess to crunch the enormous amounts of data the cards captured. So points-based programmes started off as continuous sales promotions.

Unfortunately, their initial reception was rather warm, especially in airlines and hotels, the two categories where the MBA has a good time on other people’s money. So the baby wasn’t put into intensive care, but allowed to grow in size though not in mind. (This is the ugliest simile I’ve ever used, but it’s too late.)

This guaranteed two things about the loyalty programme:
1. Many marketers tried and rejected a fundamentally sound idea because it was inadequately executed and exploited; and

2. Most consumers decided these stupid pieces of plastic aren’t worth carrying around, especially when they got you too little, too late in a market submerged with conventional sales promotions that give 25% off to the loyalty programmes’ 2.5%.

But how can one say CRM is an oversize monster? Because the logic behind its birth constituted of series of gigantic extrapolations that leap beyond all bounds of logic.

These extrapolations start from mail order lists. As every direct marketer knows, these are actually peculiar people fulfilling peculiar cravings in peculiar ways, and there’s little you can do about it… except (a) revere lists unquestioningly, and (b) keep mark-ups so high that even a 1-2% response rate is adequate. (It bears repeating that I’m not talking of totally weird people here, but the of the weird behaviour of otherwise normal people. The list records and exploits these abnormalities.)

Indeed one of the mail order rules was that you must mark up at least 3 times. (Not surprisingly Amazon and eBay deal with similar mark-ups. The book trade has always had huge margins to compensate for its inherent uncertainty. On the auction site, individuals get rid of stuff they don’t use, and companies of stuff they can’t sell. The mark up, in both cases, is huge. Because sitting in sellers’ lofts and warehouses these items give neither joy nor money.)

Direct marketers, while recognising the enormous importance of their lists, don’t try to investigate or interpret too much. As Danny Hatch once said, “Direct marketing needn’t make sense; it only needs to make money.”

Not so the MBA. He can’t leave other people’s gods alone. He must dig, dissect, and decipher everything into useless generalisations.

So when he picked up a few direct marketing home truths - like the 80:20 rule, and that it costs 6 times more to sell to a prospect than to an existing customer – he just had to twist them into some catastrophic conclusions.

The worst thing he did was to reword a line about peculiarities I mentioned a few paragraphs ago. He decided to transplant it into brand-space and rewrote it as, “Particular buyers have particular ways of fulfilling particular needs and we can do a lot about this.”

Do what? The answer lay in the ‘emotional benefit’ that was supposed to be the true differentiator between brands.

What happened when you projected this ‘emotional benefit’ into the entire lives of your consumers? You got something that looked like ‘psychological well-being’.

Commonsense dictates that consumers look upon themselves to take care of their psychological well-being. We don’t expect brands to take the trouble. All we really want brands to do is improve the service component of the sale. But how can this simple thing get into the head of a manager who’s got where he is by creating speech bubbles with gas!

So the MBA went ahead and announced a breakthrough. And because one 3-letter acronym, MBA, launched you, you coined another to make your fortune.
You announced CRM. The hop, skip and jump of intellectual extrapolations were now complete.

The new commandment from atop MBA Mount is, “Take over their lives, 1to1.” Since there lies a little big brother in every brand manager, this advice to become consumer bhagya vidhata is lapped up, never mind how adolescent and arrogant it may sounds.

What have been the results? 7 out of 10 CRM initiatives fail so miserably that their architects have to publicly admit failure; the other 3 lock themselves up to become skeletons in the cupboard.

The real victim of this wholly avoidable tragedy begot by MBA greed and pride is direct mail’s legitimate inheritor, database marketing.

Instead of this fruitless hullabaloo instigated by the MBA, had the techniques of direct mail combined with the technology of database marketing and the reach of the Internet and cable TV, deal addicts (ok, consumers) and deal peddlers (ok, entrepreneurs) across the world would’ve benefited.

I like to believe this is happening, but very silently.

PS: A sure test of whether a theory is worth investigating or not to ask a simple question, “What happens if what this chap is saying isn’t right?” If the answer is, “Nothing much,” then we can come back to that idea only when we have lots of free time on our hands. But if the answer is, “We can make a lot of money,” or “We can lose a lot of money,” we should probe without delay.

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