Digiday Agency Summit: Pay-for-Performance Isn’t Just About Compensation, It’s a New Way of Operating
This week I had the privilege to speak at the Digiday Agency Summit, along with the incredibly smart and enlightened Glenn Engler, CEO of DIG. We spoke about the shift occurring in the marketing industry around measurement, accountability and, ultimately, performance-based compensation. Digital marketing has largely changed the way businesses and consumers interact today; unfortunately many agencies, and even some marketers, are playing catch-up to adapt to this change—and doing it in a way to ensure they are aligned against the right outcomes.
Leapfrog believes pay-for-performance is about much more than compensation. Pay-for-performance is about how marketers and their partners interact and innovate to solve real business problems—how they use the incredibly high level of data and insights that marketers now have available to drive relevant consumer experiences and measurable impact. A performance-based model demands more accountability in marketing campaigns to produce outcomes that directly grow our clients’ business. That accountability shouldn’t be something to fear. It should be a welcome change from soft metrics that leave marketers grasping for ways to prove value, which ultimately do not build trust with either the marketer or their partner. Now that we have the ability to truly align goals and tie our success to the success of our clients, the level of trust is unprecedented.
This is likely a major sea change for agencies, and it will take time. But it’s not simply a “potentially” good idea, either—CMOs are being driven by CEOs and CFOs to ensure their agency partners have skin in the game. At the same time, agencies are questioning if their clients are willing to fairly compensate them for growth rather than pay-for-performance just being a way to reduce their costs. The reality is that there is a two-way trust that needs to be firmly in place, aligned to mutual success. As a marketer, if you have one agency that succeeds whether your brand does or not and another agency that only succeeds if your brand succeeds, there will logically be higher confidence in the partner whose compensation is directly connected to ensuring your business grows.
As digital continues to evolve, agencies must adapt to come up with new, innovative solutions. If they don’t, they risk being left behind. Shifting the compensation model is simply part of this evolution. The marketing industry is already displaying its own process of natural selection, with pay-for-performance becoming a trait of evolving marketers. It’s time for agencies to risk extinction by truly answering the hard questions that their clients are posing to begin moving toward more aligned models. The writing is truly on the wall, and the walls are closing in.
There’s no denying that the rise of the digital marketplace has changed the way business gets done. For marketers on top of their game, digital delivers real, meaningful opportunities to achieve more measureable results than ever before. And to a large extent, the ability to demonstrate bottom-line value is what gets you a spot at 2012’s “adult table.”
So why are many agencies still so hesitant to get paid based on their performance? In a recent Digiday article, Jack Marshall contends, “For most brands, marketing is seen as an expense, not an opportunity, and that fact continues to dictate their relationships with agencies.”
Historically, the challenge for many marketers has been to demonstrate the direct correlation of the marketing expense with the return on that investment. Now, with maturation of digital marketing and the data it provides, we as marketers finally have the ability to show value in financial metrics. There’s really no excuse not to go further as a marketing partner to fully align goals with clients in a “performance” relationship.
A performance relationship is not simply about a new model for compensation; it’s about a way of building a long-term, trustworthy client relationship that is rooted in ROI. Getting there means being confident enough in your abilities to invest in front of opportunities, be that media, people, data & analytics, consumer experience design or operations. In effect, Leapfrog Online bets that our approach will get the right results for both our clients and our business, and our clients can be sure we’ll have an impact on revenue because our success is tied directly to their success.
As I responded in the comment section of the Digiday article, the reason so many agency execs feel like they’re now sitting at the kids table is that those seated at the adult table expect to be working with agencies who are strategically aligned with their bottom line, providing clear accountability, innovation and scale to grow their business. As a true marketing partner, if you aren’t willing to put skin in the game, it’s easy to understand why clients might question your investment and confidence in services you are pitching.
I’m excited to get a chance to elaborate on the importance of the pay-for-performance model at the Digiday Agency Summit October 23-25. I hope to see you there and will be sharing my thoughts from the panel in a future blog.
As we discussed previously, many different marketing methods now compete for consumer attention.
As a result, marketers today often choose to cast the net wide, investing to spread the brand reach far and wide across digital channels, without truly considering which channels to use when—and how. This approach can backfire, however, resulting in plenty of soft metrics that lend the impression things are “working” (e.g. traffic or inbound leads are growing), even if they’re really not. Regardless of what those metrics tell you, if you don’t close the loop from marketing to actual sales revenue, you’re not answering the real questions, re: what’s working, and what’s not.
As a recent white paper from Yankee Group emphasizes, it’s all about discovering which digital marketing methods are most effective for a specific target audience and gaining an “end-to-end perspective on customer experience.” Yankee Group argues that a good customer experience is crucial in today’s constantly connected marketplace: “Iconic devices such as the BlackBerry and iPhone have stimulated customer demand for more sophisticated tools and services, changing their connectivity lifestyles.”
This change in lifestyle requires a significant shift in strategy to continue delivering a meaningful customer experience, no matter the device or connection point. As Yankee Group puts it, “Begin the transformation process or watch market share and margins continue to thin.”
The transformation Yankee discusses is best defined as closing the loop between marketing and sales. By tracking consumer interaction through multiple marketing and communication initiatives within a targeted group, smart marketers can understand and better market to consumers’ preferences. Based on the results of website interaction, traffic sources, customer feedback and purchase history, for example, consumers can be tracked through the entire lead-to-customer process. The data captured from this closed loop can then be used to better align your investments against your most valuable consumer segments, which should increase your ROI over time.
Following my recent post re: three keys to success in 2012, closing the loop between marketing and sales ensures you are building digital strategies that focus on meaningful outcomes to the business (e.g. sales revenue, customer growth, etc). It’s a method of directly tracking and enhancing the value of your marketing investment by leveraging insights from each stage of the purchase path.
How do you think closing the loop between marketing and sales will affect the future of digital marketing strategy?
I recently had the opportunity to speak at the CMO Leadership Forum in NY. I, along with CMOs from Prudential, Sharp Electronics, and Laureate Education, served on a panel entitled “Perspectives on Digital Marketing.” As I spoke about the future of digital marketing, I shared three keys to success in the year ahead, as summarized below:
Redefine your digital efforts in the context of “Path-to-Purchase.”
Build well-articulated, tightly-constructed paths-to-purchase for each of your target buying segments. This means understanding the path each of these segments is looking to take, from initial impression of the brand all the way through to the purchase of a product or a service.
Invest in the “Datarazzi”
Google spoke recently about the importance of the “datarazzi” – those data gurus that top performing marketing organizations rely on to make quick, high-impact, and well-calculated decisions for the business. Don’t underestimate the critical role these folks play in in analyzing and refining your digital efforts. Leverage insights uncovered from each stage of the purchase path to lift conversion rates across-the-board.
Focus on Outcomes
It seems so simple, and yet few organizations build digital strategies around the concept of measurable, meaningful outcomes. Take ownership for driving quantifiable sales and customer growth through your digital efforts. Then measure, report, and evaluate the actual sales volume or revenue you generate. By focusing on specific outcomes from the start – and holding yourself accountable to them throughout the process – you’ll find clarity in decision-making at each stage of the game.
I also spoke about the role of the closed loop – a concept that’s often discussed, but less frequently leveraged inside organizations today. In my next post, I’ll share why this approach is still elusive to many, and what steps you can take to integrate the closed loop approach into your efforts.
At Leapfrog, we are big believers in think global, act local. We were one of the early pioneers in applying that approach in the digital space for our Clients. And now, in a recent report compiled by the CMO Council , it seems localization is catching fire. In the report, “86 percent of national marketers are looking for ways to better modify, adapt and localize their marketing content, messaging and prospect engagement practices.”
Here’s a quick look at three points we found revealing:
- Over 50% of marketers surveyed believe they are underperforming when it comes to local marketing
- Only 12% of marketers surveyed believe they have a “highly evolved local campaign”
- Only 36% of marketers surveyed have implemented a process to track the impact of national-level advertising on specific local markets
We’ve seen the power of localization with our Clients, from front-end media and creative targeting all the way through the sales process, with transactions made either in home or at a retail outlet. Advances in technology and tracking are enabling the smartest companies to create digital content that is highly – and efficiently – customized to the recipient and the likely point of sale.
Without question, understanding the consumer is key to delivering the right customer experience. Sales success today depends on delivering relevant and timely messages at precisely the right point in the sales cycle, making localization all the more critical to a marketer’s toolbox.
Next week, I’m leading a panel at the CMO Leadership Forum in Boston where we’ll talk about the role of digital marketing in creating the right localized, targeted, and scalable customer experiences. It’s a topic that CMOs are anxious to discuss, learn, and integrate into their marketing playbooks. I look forward to sharing more insights from the panel later this month.
Coupons are – by most accounts –one of the oldest tools in CPG marketers’ belts. Today coupons remain one of the most widely accepted and transacted forms of advertising. Just one look at the daily deals sites that keep popping up every day confirms their power.
And though we’ve come a long way since a pre-1900’s Asa Candler used paper tickets to give Americans free glasses of Coca-Cola, many coupon marketers have not advanced beyond “mass couponing”. It’s never been a better time to rethink the way you approach couponing using the power of digital delivery and database marketing.
Here are some top tips to supercharge your coupon offers for the digital channel.
Understand what your consumers want
Though it seems like common sense, many marketers tend to promote an offer for the masses rather than what motivates certain consumer segments to buy. Understanding their motivation, their stage in the buying process, their related interests,…provides opportunity to lift response from the right consumers by making your message and offer more relevant.
Assign value to each consumer segments
Different segments represent different opportunities – and different levels of purchase behavior. Be sure to assign a meaningful value to each segment, and align your investment so the lifetime loyalist (high value) is treated differently than the coupon clipper (low value). This again should help drive the right behavior from your best consumers with a robust and relevant offer. It should also make your budget work harder against ROI targets.
Location Location Location
Geographic data can illuminate obvious issues and opportunities. Tying it all together means recognizing that coupon effectiveness can be highly influenced at a local level – what generates ROI in one state, DMA or zip code may not produce the same results elsewhere. And with the growing use of “smart” mobile devices, location is not only about where the consumer lives or store they shop—it’s truly about where they are at that moment of delivery that can lead to generating customers with mobile marketing.
The right offer
Tying the above data together is not easy and sometimes seemingly unavailable. But using this data to guide message, offer and value, combined with a dynamic digital coupon platform, will transform one of the oldest forms of advertising into a powerful shopper marketing tool that drives not only new entrants but ongoing sales.
The 4th annual Future of Media Forum will take place on October 5th, 2011. In anticipation of the event I collected my thoughts on where media as a consumer engagement tool is headed and composed a blog post. Check it out here, and then stop back here for additional insight.
The idea of hyperlocal, customized media, served at the right time when intent to purchase is at an apex, has been the goal of online advertisers for a decade. What we’ve experienced at Leapfrog Online in the last two years has proven that this bright, experience-driven future is already here. In fact, some of the smartest companies are already reaping the benefits. Click here for the Google Study
It’s not rocket science – it’s a confluence of the right technologies and the human desire to know that a purchase is the right decision. Taking advantage of this new circumstance means having a partner that can build and implement a roadmap for success.
Stay tuned while we continue to share insights into how Leapfrog Online is crafting the right experience to convert high-intentioned shoppers into high-value customers, and don’t forget to participate in The Future of Media Forum starting October 5, 2011.
There’s a trend that’s quickly turning into the new norm for agency-client relationships: profitability.
It’s a topic that I’ve been discussing for a while now. For context, check out an article I wrote on CMO.com in June 2011 called CMOs Insecure About Delivering On Digital’s Promise.
A recent study by the Horn Group and Kelton Research reinforces that thinking. It highlights recent changes in the way agencies are perceived and measured by top marketing executives. It’s also a paradigm shift from an agency culture of reputation and perceived cost-benefit over execution.
And that shift is happening quickly.
Among other key datapoints, the study I mentioned above also states:
- 68% of marketing execs say their companies are behind the curve in digital media integration.
- More than 40% of marketing execs with 10 or more years in their position think the most important quality in an agency is execution.
- 77% of marketing executives want to work with agencies they would consider to be partners, not vendors, and roughly 70% now have engagements that resemble partnerships with agencies they use. Marketing execs also prefer smaller and more specialized forms over larger, all-in-one agencies.
Starting to see the big picture? CMOs are building digital competencies quickly and learning how to identify agencies willing to dig deep and act like operating partners rather than external contractors.
Defining successful execution
It’s great to talk about the value of execution, but what does that look like when it’s actually working? In our opinion, an agency should step up and take charge of leading innovation in a complex and ever-changing digital landscape. That means challenging clients and asking the tough questions that, while uncomfortable at first, drive positive change. It also means aligning goals and outcomes. If profitability is the primary objective for the client and agency alike, both should be rewarded for finding new, high value customers and ensuring those customers are on board for the long haul.
Bigger isn’t always better
The Horn and Kelton study also reveals that CMOs are engaging smaller specialist agencies more likely to deliver profitable results in the niche areas they serve. That’s meaningful because it supports the idea that these same CMOs are searching for a personal touch (read: partners) and a high degree of expertise in a complex and often confusing digital marketplace.
So where does that leave us? If you’re a marketing executive and you aren’t satisfied with the current performance of your agency, now is the time to shift evaluation criteria to profitability. For most marketers and their businesses, there is too much at stake, and too much changing, to live with a traditional model that is not aligned to your success.
We’ve seen a lot of recent data demonstrating the importance of metrics at every point in the consumer lifecycle. The prevailing hypothesis is, of course, that better data helps marketers understand their target consumers and connect with them at key decision points – with the right messaging to stimulate a purchase decision.
I want to take that hypothesis one step further.
It’s no secret that data is a key ingredient to our success at Leapfrog. Without measurement, marketers can’t make informed decisions. It’s why we invested in the development of a robust technology platform that delivers meaningful, actionable data for every client program we implement.
But how far can effective data get you if other parts of the customer acquisition process are broken?
Nearly all marketers – from the world’s most powerful brands to newly developed corporations – are leaving valuable revenue on the table in the form of “customers-to-be” that fell out of the funnel and never came back.
Take a look at this data provided by eMarketer and distilled from a recent CMO Council Report and you’ll see why:
As the chart implies, while 64% of respondents are investing in improved customer segmentation and targeting strategies (read: data), only 12% are implementing closed loop systems to monitor acquisition effectiveness. The result – heightened understanding of who they want to target, and yet no greater results in converting those ideal targets into paying customers.
So here’s a challenge to the CMOs and marketing executives hot to trot on better data in 2011 and 2012: Take end-to-end ownership. Discover where the holes are in every stage of your sales process and work to build programs and processes that scoop up and drive lost customers back into the funnel.
Sounds like a pretty big challenge doesn’t it? The smartest marketers have figured this out. Implementing a closed-loop system is critical to transforming the way customers interact with and, more importantly, buy your brand. Talk to some of our clients and you’ll see what we mean.