To the 2006 ROI Award winner: Your trophy is in the mail

This year, ROI (return on investment) has become a battle cry for marketers in every industry. On this, the last day of the year, I’d like to present a Digital Solid award to the marketing medium that has shown the best overall ROI in 2006.

And the award goes to … the envelope please? [sound of ripping paper] Well, no surprise here. Once again it’s that marketing workhorse, direct mail.

Yes, with all of the marketing technology tactics going – including those with incremental costs in the pennies (e.g., email marketing) and precision targeting that is a direct marketer’s dream (e.g., search engine marketing) — the trophy goes to the grand dad of them all.

Direct mail marketing continues to generate returns averaging between 13 and 16 times original investments, as measured by Direct Marketing Association research. This is as reported by The Winterberry Group, in its December, 2006, white paper on vertical marketing trends in direct mail. Professional associations have been known to puff up their numbers, but these don’t particularly surprise me.

I have several friends who manage multi-million dollar annual direct mail budgets. Each is in a different business category. None of them likes what they have to spend on the medium (postage, printing and lists are all going up faster than inflation), but they all report results that far, far outpace this spending.

What does this tell us about the future of marketing technology? Do we abandon online and mobile techniques and begin (or resume) pouring resources into direct mail? No way. The same Winterberry study emphasizes diversification of techniques and their careful integration. I and my friends agree with this recommendation: Direct mail yields the best ROI when complemented and supported by other media.

It’s also no accident that direct mail marketing is the most mature of measurable marketing technologies.

As other techniques “grow up,” we’ll see them morph and focus, just as direct mail has. Guided by smart marketers and the feedback loop of a well-designed CRM database, other media will evolve to be as effective as direct mail. With lower incremental costs, other media will quickly surpass direct mail in terms of ROI.

Watch this blog in 2007 for up-to-the-minute news on how other media are faring in their progress at delivering improved ROI. It will be an exciting race to the 2007 award, with many promising contenders.

With frienemies like this, who needs eneriends?

Woody Allen famously wrote, “And lo, the lion will lay down with the lamb. But the lamb won’t get much sleep.” A similar arrangement has led to the coinage of the word “frienemy,” to describe magazine and newspaper publishers that have entered into an agreement with their online nemesis Google. In this agreement, Google is auctioning unsold print ad inventory to select AdWords clients. The arrangement seems to be benefiting both parties more than they expected.

According to a MediaPost report, the sales of print advertising through Google has far outpaced expectations:

Google plans to expand its pilot program next year. The system, which Google has been testing since November, allows advertisers to bid online for daily newspapers’ remnant print ad inventory.

During initial testing with 100 advertisers and 66 newspapers, the volume of ad sales tripled Google’s expectations, according to a story first appearing Wednesday in The Washington Post. That report echoed comments made earlier this month, at the UBS global media conference, by James Conaghan, the Newspaper Association of America vice president for business analysis and research. Conaghan told analysts and media at the conference that Google had sold in three weeks all inventory it expected to sell in the program’s first three months.

Plan on seeing more examples where online marketplaces broker print media space. What this unlikely collaboration means for the ink-and-paper industry is anyone’s guess. Got any ideas?


The Metaphysics of Netflix

Ever since Netflix announced that they would pay a million dollars to anyone who could significantly improve their recommendation engine, I’ve wondered what it would take. Now I think I know: a philosopher.

For those of you who have been wondering, dozens of individuals and teams have taken the challenge. They’ve downloaded the 10 million-record preference dataset from Netflix and crunched the numbers earnestly, with varying results. As of this writing, NIPS Reject is in the lead, with a lift over the Netflix algorithm of 6.13 percent. (Tough luck, WXYZ Consulting – you’ve been in the lead for nearly a month, but your 6.11 percent just got topped.)

With an additional 3.87 percentage points yet to be racked up, the road to victory is long – possibly impassable. If I understand my statistical modeling correctly, every unit of progress to that 10 percent goal will be a far tougher slog than the one before it. There clearly needs to be a breakthrough in how the problem is approached if anyone has a chance of winning. A couple of days ago, it occurred to me that the source of this breakthrough might be a better ontology.

Ontology is the study of logically structured categorical models. It helps us understand a particular domain of reality by looking at its essential elements, and especially, how they are interconnected. Because ontology proposes to explain big complicated things, this discipline was honed first by philosophers. More conventional scientists took a little longer to catch up. And as I learned earlier this week, philosophers seem to still have the upper hand. At least, that’s the case with my friend.

A university professor and doctor of philosophy, my friend was filling me in on his latest, fascinating endeavors, as we chatted over Christmas cookies and good Scotch.

When he isn’t teaching at an East Coast university, my friend is doing lucrative consulting work. The computer science company we works with is tapping into a huge demand among Fortune 100 companies for his brand of categorization. They combine this new way of seeing the data with the datamining muscle of leading-edge computer modeling.

He explained that these clients are drowning in data, but these data are in silos that imprison them. It’s hard to tease out the stories they have to tell, and impossible to combine them to make a more complete model of that industry’s “reality.”

My friend has an apparent talent for getting to the essential reality of his clients’ domains. And yes, as you can imagine, he’s doing very well for himself.

I won’t disclose the latest industry with whom he’s involved, but let’s say it’s water desalination. He described how engineers have fed their databases with terabytes of facts, but given little thought, beyond their initial purpose, to the structure of their databases. He helps remedy that with his brand of philosophy.

In a proof of concept meeting with the company, my friend announced to them what he proposed. Ever the showman, he said, “Gentlemen, what we’ll deliver to you is the Metaphysics of Desalination!”

They signed the next day.

Now I wonder if his skills couldn’t be put to this Netflix challenge. I suspect the first question he’d ask is, Why is it so tough? After all, prediction engines for other products, such as books and music, are fairly reliable.

The answer, I suspect, is that films appeal to us on so many more dimensions than songs or written stories. In a cinematic experience, there is just so much information to take in. What’s more, the alchemy of that information — those flickering images projected to give the illusion of movement — seems to take place uniquely in each of our heads.

In order to parse out movies into logical categories, I suspect that the first thing my friend would do is call of more input — perhaps appending data from a rich, relatively impartial source such as the Internet Movie Database. In other words, he’d ask for a second silo to “fuse” with the first.

He would then look at the elements and properties of the films without regard to the reviews of viewers. He would sort out those things that are merely a part of the film, without influence on the viewer, while taking special notice of the items that would likely cause a change in how the other elements are perceived.

It wouldn’t be easy, and it may not be possible. But the reward would be significant. It would also result in a new movie ontology, which is something I and other movie buffs would find endlessly fascinating, the way baseball fans pore over box scores.

As soon as my friend returns with his family to their New England home, I’m going to send this to him, as my own million dollar challenge. Although I’m going to have to scale it back a bit. Maybe another bottle of Scotch.

New ads called Hosted Conversations link to real-time brand buzz

If you are a brand steward and follow the online buzz about your product, you may have wished for a way to swing your computer screen around and show the world the great things users are saying about your brand.

It’s the online equivalent of word-of-mouth. When you hear something good, you want to hear these endorsements shouted from the rooftops. Well, the PR group Edelman, in collaboration with RSS distributor Newsgator, have found a way to do just that.

Edelman’s clients can now order up ad units that are essentially “widgets” displaying headlines linked to user-generated content (UGC) about a brand. You’ve heard of testimonial ads. These are the dynamic equivalent of them. And because they carry the credibility of UGC, I predict Hosted Conversations will be extremely successful if done correctly.

According to this piece on the recently unveiled Hosted Conversations:

The NewsGator-powered product tracks media relating to pre-specified subjects, extracting nuggets from blog posts, mainstream media, and video and photo sites. The PR firm will pluck the highest quality content from those sources based on criteria set by its clients; the choice bits will then feed dynamically into the chosen advertiser-branded units. We’re determining the “memes in conversation, who’s saying the most interesting stuff,” said Rick Murray of Edelman.

What do I mean by executing these ads correctly? I would say they would be doing the brand a favor by sprinkling the glowing reviews with some dissenting opinions. Although they would have no control over these criticizing posts, they Edelman would be able to provide their side of the story in comments associated with the piece.

Although these folks have stumbled publicly lately, I suspect that if anyone can pull of this feat they can. For example, read Rick Murray’s quick response to this criticism of the very concept of the new ad unit. When you browse down past the blogger’s post, the very first comment you’ll see is by the owner of the brand in question. And a very tactful response it is. Well played, Rick!

Online use of a primal reaction to eye contact

In a previous post, An online ad tip from an eye-tracking expert, I described how the only consistently successful online advertising tactic found by one researcher was the use of a pair of human eyes staring directly back at the web page visitor. These ads drew visitors’ attention like magnets — an important factor, since you must attract viewer attention before you can do anything else (like generate a click from that person).

Now a study conducted by Newcastle University in the UK finds that being “watched” by a poster showing a pair of eyes has a startlingly large influence over consumer behavior. It suggests other ways that images of eyes (whether they are on a wall or on a web page) can have an effect over those in their “gaze.” Here’s an excerpt:

We all know the scene: the departmental coffee room, with the price list for tea and coffee on the wall and the “honesty box” where you pay for your drinks — or not, because no one is watching.

In a finding that will have office managers everywhere scurrying for the photocopier, researchers have discovered that merely a picture of watching eyes nearly trebled the amount of money put in the box.

Melissa Bateson and colleagues at Newcastle University, UK, put up new price lists each week in their psychology department coffee room. Prices were unchanged, but each week there was a photocopied picture at the top of the list, measuring 15 by 3 centimetres, of either flowers or the eyes of real faces. The faces varied but the eyes always looked directly at the observer.

In weeks with eyes on the list, staff paid 2.76 times as much for their drinks as in weeks with flowers. “Frankly we were staggered by the size of the effect,” [reports] Gilbert Roberts, one of the researchers.