Monthly Archives: April 2014

Facebook solves the mobile sandbox problem

sandbox

At its annual F8 conference this coming week, Facebook will announce it’s solved a vexing problem for marketers trying to reach consumers on mobile: The sandbox.

Mobile advertising, you see, to date has stunk. The prime reason is that data about consumers — the core of any advertising is the information that allows you to target someone — has been largely missing in mobile advertising. When you use your cell phone, there is large entity called your phone carrier between you and most marketers, and the data about who you really are (gender, age, income, habits) doesn’t get through that intermediary very easily. Now, of course, many apps can monitor your behavior and gather information about you. A weather app likely knows what cities a business traveler goes to, and a news app may be able to build a profile of you based on your content consumption.

But apps don’t talk to each other well, and all the data within each app has been “sandboxed.” This means that the vast majority of mobile advertising to date has been ludicrously un-targeted. Some mobile ad networks claim they can IP target, but that is based on cell tower location, and only good to a few miles. So, like the very early days of web advertising, mobile targeting hasn’t worked well, and mobile ad dollars have not followed.

Except for Facebook.

In 2013 Facebook began rocking mobile advertising with its own system, because of course Facebook is more than a social network — it is a data giant, with enormous profiles of who you are, who you are dating or married to, your friends, your interests, and behavior. If you are logged into Facebook, suddenly marketers have a dreamload of data about you. In Q4 2013, Facebook made more than half its total revenue from mobile advertising.

Facebook is smart, and realizes that its nexus as the main social media platform may not last forever — so it needs to build out new revenue streams. How? By using all that data elsewhere, outside of the Facebook system.

Observers say Facebook will announce at F8 a new mobile advertising platform that allows marketers to use Facebook data outside of Facebook on other mobile apps. This is revolutionary, because for the first time marketers can really target mobile based on robust profile information. Marketers will love this, not only for the targeting ability, but for scale — because now it won’t matter if the consumer is reading her Facebook Newsfeed or checking a weather app, she can be reached across thousands of mobile touchpoints.

The data that used to be sandboxed inside each single mobile app is now accessible everywhere, with Facebook owning the treasure trove. And with 37% of all U.S. consumer digital “media time” now spent on mobile devices,  ad dollars will pour into Facebook’s new mobile ad network.

Data is the future of Facebook

Beyond this tactical network, this signals in the future Facebook will be much more than a social network. It has become both the keys to the Internet (you can log on to most major sites with Facebook) and the safety deposit box for your personal information. Facebook is the new Experian, a vast trove of data that marketers can use almost anywhere. If wearable technology takes off, Facebook will be there. If consumers gain enough trust to start buying products through Facebook, the social network could rival Amazon.com in personalization and e-commerce. If Facebook wanted a slice of the $144 billion U.S. television market ($70B in advertising plus $74B in cable subscription fees), it could launch broadcast capabilities with revolutionary data targeting ability.

This is not silly conjecture. Facebook is smart, and somewhere in its boardrooms lies a master, multiyear plan of how it will expand its services carefully using its data bank to protect itself from the inevitable decline of its social network while jacking up its stock price. Networks can only increase in value if the size of the network increases. With Facebook’s direct social users capping out (there are only so many people on the planet), it needs to expand its nodes elsewhere.

Like 1970s Ham radio, social media fads don’t last for long. But the data Facebook has on you is forever. Look for it next month via relevant ads on your smartphone.

The 7 levels of loyalty programs (why emotion trumps logic)

strangersontrain

One of the great ironies of marketing is that while organizations worry continually about customer loyalty, economists provide scant help in thinking through the levers of a loyalty program. The presumption of economic theory is that people conduct transactions rationally to maximum perceived value (profit) and minimize perceived pain (loss). So most marketers try to build loyalty by giving what they think is economic value (say, coupons or points programs) or using subscription agreements that maximize the pain of leaving.

But people aren’t purely rational. “Loyalty” goes far, far beyond the silly points programs or contractual switching costs that most marketers deploy. To understand the real levers, first consider that loyalty has two fundamental psychological levers: rationality and perceived fairness.

When faced with a decision, human beings logically seek to gain value and avoid pain; however, we are also emotional creatures worrying about fairness, attachment, and obligation. As behavioral economist Richard Thaler has noted, if pure economic incentives were all that mattered, no one would ever leave a good tip for a waiter or return a lost wallet found on the street. At many levels, we see fairness as a currency overlay, flowing outward to make others feel good if we think they deserve it and flowing in because, well, we demand it.

Fairness influences corporate behavior as well. Grocery chains, for example, often face surges in demand when bad winter storms approach and could easily charge $100 for the last roll of toilet paper or bottled water on the shelves; but they don’t, because such gouging just doesn’t seem fair. Businesspeople also react emotionally to perceptions of unfairness; a vendor proposal that could make you money might still be rejected if you thought the deal wasn’t “fair,” when in reality, the ROI on the potential investment is what really matters.

The root of fairness is a concept called “ethical altruism,” a dynamic in which humans are guided by their impact on others and not just themselves. But altruism isn’t all, either; you don’t have to be Ayn Rand to recognize that not everyone returns the wallet … especially if we saw the person dropping it was the same one who flipped us off in traffic 10 minutes before. Economic rationality and emotional fairness sit on either side of a loyalty scale.

So let us propose a simple hierarchy of loyalty program concepts that balance both logic and emotion, starting from least to most effective:

Level 7: Discounting. This includes coupons, savings, price framing, and price obscurity. This is the lowest form of loyalty inducement because (a) discounts are easily replicated and (b) by nature they erode the other perceived values of your service. In 2011 we predicted in Digiday that Groupon, a hyped social business that focuses on coupon marketing, would falter because aggressive discounting is not a sustainable model … and today its stock price, once $26, is languishing at $8 a share.

Level 6: Accrual of value-oriented benefits: This includes common points programs, such as airlines or hotel points, that are built up over time in exchange for repeat transactions. This is the second-lowest form of loyalty program because in reality, it’s just another method of price competition. Give away 10,000 hotel points and your customer at first may feel loyal; but your competitor can match those points, and it all becomes a pricing game. If your lover only stays because you buy her expensive jewelry every week, at some point, you might wonder what happens when another guy goes to a jewelry store too.

Level 5: Accrual of psychologically oriented benefits: This approach is similar to value accrual, but plays to the human ego with points or status measures that are purely mental. Today this is most common in social media. Twitter follower counts, Likes on Facebook, Klout influence scores, Boy Scout and military merit badges, certificates of diploma are all psychologically staged levels of perceived accomplishment that have no real value other than the fiction of stature they put in your head. This is why the Facebook layout has a little red button at top telling you how many friends recently commented about you — ping, your brain just got a mental high score, and in two hours, you’ll come back to check again.

Level 4: Entanglement for negative switching costs: Here, someone leaving has to incur a cost. If you break a cell phone contract, you pay money. If you fire your ad agency, you pay a kill fee. If you leave your spouse, you end up sleeping in a cheap motel. Making the switch costs you some pain. These switching costs are usually quietly established in the early stage of a customer relationship, and are triggered only when the customer decides to leave.

Level 3: Entanglement for positive switching costs: This, the positive twist on negative switching costs,  was the focus on Don Peppers’ 1990s “1to1 marketing” methodology, in which leaving means you give up something good that you can not find easily somewhere else. Peppers suggested that “personalization” of services to anticipate customers’ needs could create a new barrier to exit, since a consumer who spent time training a company to meet his or her expectations would not find the same value elsewhere. Examples include Netflix movie personalization that makes it easier to find a good film; teaching Pandora music channels that anticipate your preferences; and a personal accountant who recalls exactly how to expedite your taxes based on your prior years’ history.

Level 2: Complacency. Yet a higher form of loyalty inducement is to encourage customers to stop thinking about you altogether, since change requires a mental action. This doesn’t mean ambivalence, but rather, assurance so sound you don’t even come to mind. Complacency is the sleepy self-satisfaction that customers feel when they (rarely) think about your service, because they know they’ve made the right choice. Utilities, insurance providers and cable companies often focus on “unfocusing” their customers, since if a customer goes to sleep he or she will never switch to a competitor. While powerful, this is challenging to manage because it requires  (a) removing any disruption points in customer interactions with your organization, (b) having a surrounding competitive environment where no triggers for disloyalty emerge, and (c) deliberately walking away from a strong brand position in the customer’s mind. The risk is the ecosystem can change, and new competitors may enter to wake up your sleeping loyalists.

Level 1: Advocacy. Emotion almost always trumps logic in human decisions, and emotional feelings of unfairness about a product (“that bill was too high”) or lust toward a competitor’s product (“that new holographic iPhone looks so sexy”) can unravel any of the loyalty programs above. The solution is to remove the psychological space for unfairness or lust by filling the customer with a desire to be part of your brand. For example, a regional hospital in Connecticut has engaged hundreds of local cyclists to raise funds in an annual 100-mile “century ride” to support its cancer research; there is little chance any of those athletes or their friends will go to a competing hospital if they need cancer treatment, because they have become engaged as part of the brand mission. Building such advocacy requires brands to move beyond their core product or service to what consultant Scott Henderson calls “adjacency marketing,” or marketing to a popular, emotionally compelling issue adjacent to your brand proposition. This issue pulls customers forward, and your service by association becomes uncontested.

All of these levels of loyalty programs face challenges. Service disruptions, market entrants, new product designs, changes in consumer life stages, social persuasion, and the human desire to partake in novelty are all triggers that can make a loyalty program fall apart. But if you can combine emotional attachment and feelings of obligation with the perceived switching costs in your loyalty program, all adding more economic value than cost, then we might consider sticking around.