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Substantial Penalty for Early Withdrawal

When I was knee deep in local online marketing as President of Weblistic (prior to our acquisition by Spot Runner), the rate of advertiser churn was perhaps the biggest challenge of the business.

Gone with the Wind
We were able to sell quite well, but small business advertisers buying online media were churning at triple or quadruple the rate of the traditional print media Yellow Pages.

There were a couple problems . . .

No Penalty for Leaving

The traditional Yellow Pages model paginates a directory based on size of ads and then seniority of advertisers.  So the largest ads were placed first in the category, and among ads of the same size, the advertiser who had been buying that size ad for the longest period came ahead of advertisers who had not been customers for as long.

This model served as a powerful customer retention tool, because even if an advertiser was having a bad year, or doubted the value of his advertisement, he was often reluctant to reduce his spending or to sit out for a year because he would lose the preferential position he had earned from years of faithful participation.

I remember seeing some directories with 50 or 100 pages of attorneys, plumbers, or roofers.  The more businesses participating, the more painful was the thought of losing the position.

Online advertising generally does not have a meaningful reward for customer retention nor a substantial penalty for early withdrawal.

On Google, if you want a better position, increase your budget, bid, and quality.  It changes moment to moment, so no one company owns the position.

This is tough, because advertisers are fickle.  A bad day, and a major campaign can be tossed out the window.

Social media does nothing to change this.  In fact, today’s darling Facebook will be tomorrow’s forgotten AltaVista.

A company wishing to have sustained success selling online advertising would do well to build a model that combines substantial rewards for customer loyalty and substantial risk of loss for failing to maintain a program.

One method of doing this is to sell exclusive positions and to drive meaningful, quality traffic to the site.

The trick is to balance the consumer’s need for accurate information and the advertiser’s need for consumer attention.

This is probably best accomplished in narrow niches combined with hyper-local targeting.

Substantial Penalty for Early Withdrawal

When I was knee deep in local online marketing as
President of Weblistic (prior to our acquisition
by Spot Runner), the rate of advertiser churn was
perhaps the biggest challenge of the business.

We were able to sell quite well, but small
business advertisers buying online media were
churning at triple or quadruple the rate of the
traditional print media Yellow Pages.

There were a couple problems . . .

No Penalty for Leaving

The traditional Yellow Pages model paginates a
directory based on size of ads and then seniority
of advertisers.  So the largest ads were placed
first in the category, and among ads of the same
size, the advertiser who had been buying that size
ad for the longest period came ahead of
advertisers who had not been customers for as
long.

This model served as a powerful customer
retention tool, because even if an advertiser was
having a bad year, or doubted the value of his
advertisement, he was often reluctant to reduce
his spending or to sit out for a year because he
would lose the preferential position he had earned
from years of faithful participation.

I remember seeing some directories with 50 or 100
pages of attorneys, plumbers, or roofers.  The
more businesses participating, the more painful
was the thought of losing the position.

Online advertising generally does not have a
meaningful reward for customer retention nor a
substantial penalty for early withdrawal.

On Google, if you want a better position,
increase your budget, bid, and quality.  It
changes moment to moment, so no one company owns
the position.

This is tough, because advertisers are fickle.  A
bad day, and a major campaign can be tossed out
the window.

Social media does nothing to change this.  In
fact, today’s darling Facebook will be tomorrow’s
forgotten AltaVista.

A company wishing to have sustained success
selling online advertising would do well to build
a model that combines substantial rewards for
customer loyalty and substantial risk of loss for
failing to maintain a program.

One method of doing this is to sell exclusive
positions and to drive meaningful, quality traffic
to the site.

The trick is to balance the consumer’s need for
accurate information and the advertiser’s need for
consumer attention.

This is best accomplished in narrow niches
combined with hyper-local targeting.

  1. Mike StewartNovember 30,09

    Great post Dick!

    I completely agree. Online is less risky than print as well. The trouble with online is too many folks rely on just a few methods of traffic. I have always instructed my clients to focus on a multi vertical media mix….. for years I called it “The Holistic Approach to Internet Advertising”……. it really should be called: Not putting all your eggs in one basket.

    Flexibility, Customer Service, Reduced Margins, and Ideas prevent churn. Hard to achieve when you are in corporate advertising when you don’t offer much besides the company rate card.

    Cheers,
    Mike Stewart
    http://www.DallasGoogleGuru.Wordpress.com
    Cheers,
    Mike Stewart

  2. Paul CurryNovember 30,09

    An advertiser’s budget is really only one part of determining where their online ads rank on Google. A more important factor is relevancy to the search and the overall Quality Score of the ad. Quality Score is how someone with a smaller budget but a more relevant ad can compete on the long tail with the big players.

  3. ChasNovember 30,09

    Or they could tie their fees to the exact response the ad gets. One new startup portal uses graphics instead of text for it’s ads. Search engines don’t read graphics well so any traffic is due to pure promotional efforts.

  4. juanDecember 1,09

    How about advertising in a multilingual platform? and for free! the internet is a global media, why limit your business to English when there are millions of Hispanics and Chinese looking for information online? try tyloon.com and see the internet from a unique perspective…and you can also browse in a UNIFORMED SEARCH concept, give it a try and you will see what I mean, thanks.

  5. Beverly CrandonDecember 1,09

    Interesting post. As I was reading it, I was wondering how I would apply it to newspaper publishers who should be trying to maximize their online revenues, through online sales. It’s embarrassing that on average, only 11% of their revenue comes from online sales – in this day! You’ve raised a lot of good points.

  6. Philip L. Franckel, Esq.December 1,09

    You’re absolutely right. That’s why I’ve been working on creating custom software for online directories which is designed to both provide the benefit of an exclusive listing and create that penalty for leaving. The importance of keeping an advertiser locked in is for the advertiser’s benefit as well as the publisher. Smaller advertisers will quickly panic when results slack off, but successful advertisers think long-term.

    While online directories do provide business, I have found that they do not compare to traditional media. That’s why I provide the directory listing for free and charge a monthly fee to use a matching vanity phone number. I also provide TV commercials, radio commercials and other marketing materials. I started a marketing program for personal injury lawyers, then criminal lawyers and now many other industries.

    http://www.hurt911.org/getclient.php
    http://www.1888drugcrimes.com

  7. steveDecember 3,09

    retention…EASY! just make the site about their customers. For example in our site (a mashed up social network & internet directory) we allow every business to build a customer fan base. You can use this fan base as a loyal customer tool. Post deals, share information with them…think about leaving? Say goodbye to all your faithful and loyal customers that use the site!

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