The Myth of the Conversion Rate
Focusing on conversion rates alone is a lot liking rewarding sales people solely for their monthly sales number. It works in the short-term but eventually will lead to a bad customer experience and a poor brand image.
As a key metric the Conversion Rate is highly attractive and even addictive. Finance and senior management love it because they can understand it, and therefore the street likes it too. It also has simplicity going for it. But just because a metric is easy to obtain and understand doesn’t make it the right thing to value.
The simplest definition of Conversion Rate is conversions/visit (or ideally transactions/visit). If we use this definition then we are going to value the customer who purchases after one visit more highly than the customer who purchases after two visits. This leads to a focus on the transactional customer rather than the educated or engaged customer. It is also likely to result in continual focus on finding new customers rather than the less expensive effort of retaining existing customers and building loyalty. In my experience I would prefer customers who identify with the brand, spend a lot of time browsing (which reduces the conversion rate), purchase more in the long-run, and are promoters.
An improved metric is conversions per unique visitor. That sounds better, but analytics tools are not effective at measuring unique visitors over a long period (e.g. a year) who have not registered on the site.
A far better metric is Customer Engagement. Unfortunately this metric is not well defined or simple. Customer Engagement is based on a scoring formula composed of customer behaviors such as registration; email signup; revenue, contribution, volume, frequency and recency of purchases (RFM+); participation on message boards; etc.
Measuring Customer Engagement requires a more sophisticated business intelligence system, one typically composed of an XRM/CRM system and an Enterprise Marketing System (Campaign Management). This is not inexpensive to implement but a Customer Engagement score is much more likely to correlate with a loyalty score such as NPS (Net Promoter Score) than a conversion rate alone will. It is also more likely to be a leading indicator for long-term financial performance.
The conversion rate will always be a central metric in eCommerce, but we should recognize its limitations.
Business is not about competition
Michael Porter’s classic ‘Competitive Strategy’ certainly emphasized and popularized business as competition. Many have gone further and used military metaphors. Most business people have at least leafed through Sun Tzu’s ‘Art of War’ or Clausewitz’s ‘On War’ looking for tips. I suspect that this depiction of business as competition is mainly an attempt to romanticize business and motivate employees.
The idea of business as a competition may appeal to some but it is misleading and distracts from what business should be focused on. Business is not about beating back your competition; it’s about collaborating with customers. If there is a sports analogy with business, then it would be a track and field event. Unlike football or soccer there is no way to directly engage your competition; there is no direct defensive strategy in business that allows you to hamper your competition. At least no legal ones. The best you can do is to copy some of their better ideas and if you are doing a lot of that you should probably give up and join them.
It’s worth qualifying this a bit. In the macro-economic view business is definitely a competition for markets, resources, people and ideas. In the long-run businesses are in competition in the same way that species are in a Darwinian competition for survival. Getting ahead of the competitor is a measure of success but it’s not something that you should focus on day-to-day.
Businesses that focus on the competition will lose to those that focus on their customers.
Links:
Fast Company: Business as War
Carl Von Clausewitz: Business is War
Links:
Fast Company: Business as War http://www.fastcompany.com/magazine/00/war.html
Carl Von Clausewitz: Business is War http://www.clausewitz.org/
Should you outsource Social Media to your Ad Agency?
Outside of start-ups and the true believers, most companies are just getting their feet wet in Social Media. A combination of ‘United Breaks Guitar’s’ type news stories and their Facebooking teenage children have urged Marketing Executives to make small investments in Social Media. As with most small investments, they are viewed as small campaigns that can be tossed to the agency. This is how campaign micro-sites are typically handled so why not Facebook or Twitter.
With Social Media this is a mistake. First of all, Social Media is more about listening than telling. That’s why it is really a shared responsibility of Marketing, Communication and Customer Service. If anything Social Media is closest to Market Research combined with the quick response time of Customer Service. A good metric to think about is ‘average response time to a consumer comment’ (only for comments that require a response).
Ad Agencies don’t think in terms of response times to end customers. For that matter neither do most marketing departments. Even if Ad Agencies wanted to respond they typically don’t have a quick communication path to customer service nor are they empowered to ‘make it right’ with a customer.
A lot of marketers will probably read this and think ‘okay, but that’s for serious Social Media, we just want to do something small’. Admittedly, that is a way to go, but it really takes the conversational peer-to-peer aspect out of social marketing. If you do that then you may be on Facebook and Twitter, but you are hijacking the technologies without participating in Social Media.
Does business have any business in Social Media
Isn’t Social Media about people talking to people? If you want to hear from a company then you go to their web site, right?That’s an extreme position but it highlights the fact that business is a guest in Social Media. Businesses do not own the real estate and they can easily be excluded, or even worse, suffer a backlash. So how do businesses participate, and how do they monetize Social Media and count the ROI.
For business Social Media is 80% listening and 20% talking. For that reason it may not even be a marketing function. In most companies Customer Service is the only group that listens to customers on a daily basis. However, in practice marketing is the only group in most companies that can move Social Media forward. Businesses created after Social Media is a dominant force may be structured quite differently.
In my practical experience I have seen companies get the most from Social Media by participating in the following ways:
- Passive Listening – Gathering information & analysis
- Participating in the conversation – Customer service and recovery
- Information Sharing – Rapid alerts, especially relevant to service firms such as airlines
- Building Loyalists and Promoters – Dialogue with your best customers
- Thought Leadership – Using blogs and tweets to establish authority
- Community Leadership – Providing a public service to establish community connections
- Hosted online community – Company owned customer forum
- Merchandising – communication of products and sales
This isn’t a complete list but some common approaches that really work.
So yes, businesses need to be in Social Media, but they are guests.
