Biznology Blog: December 2007

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December 18, 2007

Gone Fishing

All right, all right, it's just an expression. I've only gone fishing twice in my life and I am not going to go ice fishing in New Jersey while I am away. I am taking time off for the rest of this year, returning on January 2 with my monthly newsletter. Whenever I take an extended time away from blogging, it always makes me think about how far blogging has come, and how far my blogging has come.

I started by writing an e-mail newsletter in February of 2005 and started blogging very sporadically a month later. This post, it turns out, is my 400th. I began blogging every workday this February (where "workday" is every day I work). My blog was named in Lee Odden's Big List and has broken the top 100 in Social Rank a couple of times recently. Maybe it will be added to the Ad Age 150 list soon.

I think that blogging regularly doesn't necessarily make you an expert on blogging, but I tried to make up for that gap by speaking with a lot of bloggers in the research for my latest book. I focused on both corporate bloggers and bloggers who cover those companies.

I learned a lot. What has been most striking to me is how blogging can sometimes make the world a better place. Blogs serve the same purpose that the news media has always served, as a force that makes bad behavior less acceptable. The companies that "get it" know that everything they do is public these days—someone will blog about it—so they need to be on their best behavior not to sully their precious brand images.

Maybe it's not as good as if people did the right thing for its own sake, but it's not bad.

For those of you taking some time off at the end of the year, I hope you come back recharged in January. I know I will.

Posted by mikemoran at 6:25 AM | Comments (0) | TrackBack

December 17, 2007

Search Marketing is Direct Marketing

One of the things I try to do sometimes in my blog is to reiterate the basics. I know that some of you are experts, but I keep seeing experts miss the simple things amid all the information they know. And the simplest part of search marketing is perhaps the most important. Search marketing is direct marketing, pure and simple. And you need to approach it that way to succeed.

See, traditional brand marketers work with fluffy measurements such as brand awareness, which non-marketing types don't understand. Direct marketers, weaned on catalogs and "junk mail," project exactly what impact every marketing campaign should have on sales. Sales are understood by everyone. See my latest column in Revenue Magazine for more details on how to approach search marketing as direct marketing.

Posted by mikemoran at 5:06 AM | Comments (0) | TrackBack

December 14, 2007

A Twitter Fence Sitter

Maybe it's all in the tone of voice. When I see the question "What are you doing?" my first impulse is to say, "Oh, I am sorry." It makes me question myself. "Why the hell are you doing that now?" But I have another question that follows: "Am I allowed to tell people what I am doing now?"

See, I landed in Twitter Land by accident, as I explained in my first post on Twitter a while back. Someone asked for my Twitter handle, so I signed up.

I wasn't sure what I would tell people about. It's one thing to talk about things I am doing in public. So, I can talk about what kind of blog post I am preparing. I can discuss presenting at a conference. But when I am spending my day in internal IBM meetings or I am helping another company with their problems, what can I say about that? Too often, it's nothing.

I found myself using Twitter to lament about how my computer was acting up. I mean, do people really want to hear about that? I mean, I've grown used to the idea that I need to be careful about how I blog. Often the inspiration for my blog comes from an interaction I had with someone the day before. So I jot down things people ask me so I remember to answer those questions on my blog. But I haven't yet reconciled using Twitter to tell people about my professional life without revealing confidences.

I think it is the relentless question, "What are you doing?" It reminds me of the Yogi Berra story where someone asked him what time it was and he responded, "You mean now?" Whenever I think of that Twitter question, I wonder, "You mean now?" Gee, I can't tell you exactly what I am doing now. Or, this is just so sickeningly boring that no one ever would want to know. Yeah, I am going to Twitter about filling out my expense reports or handling my e-mail.

Some people have told me to use it as a really short blog. If I have something very brief that I thought of that I could put it on Twitter. Maybe I am just too long-winded for that to work.

Regardless, a few folks are following me. I wonder if that's worth it for them. I haven't decided whether I am going to keep doing it, but maybe it's the kind of thing you need to keep at for it to work. Sometimes, however, you need to know when something isn't right for you. I guess I am still on the fence.

Posted by mikemoran at 7:21 AM | Comments (1) | TrackBack

December 13, 2007

How Do You Handle an Insurmountable Opportunity?

In some companies, there are never any "problems," just "challenges" or "opportunities." But what do you do when faced with an insurmountable opportunity? It could be a infeasible technology project, a marketing campaign with an impossible schedule—it doesn't really matter. What do you do when you've been handed a project that you're sure can't be done? Most people respond with fear, wondering how they are going to escape blame for the inevitable failure. But you have a choice. You can instead decide it really is an opportunity. An opportunity to change the way your company does business.

I spoke with a team yesterday facing a difficult situation, for sure. Powerful executives in this large company are expecting a critical project to be completed on an expedited schedule—a schedule that few on the new project team believe is achievable. As dependency after issue after risk was aired, and the reality of the situation set in, the team began listing the "reasons why not," and slowly the mood in the room started to turn to how the team could explain to the executives how the project could not be done, a task that no one wanted to take on.

Now sometimes, projects truly can't be done. Executives can sometimes be unrealistic about what they expect. But often, it is we who are constraining ourselves.

That team might in fact be facing an impossible situation, but they don't have enough information to really know that yet. At this point, what they "know" is that they cannot complete this project if they approach it in the normal way. If they follow all the procedures, if they keep their folks working on the other commitments they've previously made, and if everyone proceeds with business as usual. But who is placing these constraints on their thinking? They are doing that to themselves.

Instead of going back to the executives and explaining why it can't be done, why not go back to them with a list of every standard procedure that must be thrown out the window to make this happen? And a list of every previous commitment that the executives must forgo? Why not give the executives the opportunity to move the mountains that block the team? Too often, we shrink from this approach because we think we're not allowed to tell our bosses that they need to do some heavy lifting.

If you take this approach, you'll find that sometimes the executives recoil in horror. They can't abide the damage that would be done and the risks that would be run. If so, then you are off the hook. You were ready to go for it and the executive decided it wasn't worth it. That's great.

Other times (more rare in my experience), the executives eat it up. This really is a top priority and they are ready to do whatever it takes to make things happen. No, you usually don't get everything in your list, but it's OK. The executives give you enough of what you need and then you are on the hook to deliver, but at least it's possible now.

And on a few extremely rare occasions, I have had executives tell me to "just suck it up." Follow all the procedures and keep your existing commitments and do this new project anyway. And I've been forced to figure out how to do it. But in those situations, I tell the executive, "I don't recommend this approach and I believe that it will fail. So if you want to proceed having me run a project that I believe will fail, that's your decision, but after it fails I will be letting everyone know how we got in this situation." Usually that changes the conversation.

Now it's possible that an incredibly rare individual could listen to that speech and say, "I don't care what you think. This is the way it's going to be. Look at the org chart and see who is in charge of you. It's my the way or the highway." When people talk that way to you, choose the highway. I know that you can't always leave at that very moment—that's not important. What is important is for you to make the decision at that moment that you're not going to tolerate staying in that position and you are going to find an alternative.

Or you can come to peace with your lot in life. You work for jerks and you feel you can't escape. You may have your reasons. But don't complain about it anymore, because you are making the choice to remain in that situation. As someone who has been in that situation, I understand it. But I got away from it as soon as I could, even though it took a lot longer than I'd have liked.

All the rest of the times that I was handed an insurmountable opportunity, I got the constraints changed so that the project could be done, or the project was modified so it could be done. Or it was dropped, because it wasn't that important anyway. And each time we changed the rules to get this to work, I followed up by asking the question, "So why don't we work this way all the time?" And more times that you'd expect, the executives said, "That's a good point. Let's permanently remove some of these constraints."

So every insurmountable opportunity is really your opportunity to change the rules. Before you know it, you might find that your organization has decided to "do it wrong quickly" every time, instead of only in an emergency.

Posted by mikemoran at 7:25 AM | Comments (2) | TrackBack

December 12, 2007

Corporate Blogging and Oxymorons, Take 2

I had several interesting responses to yesterday's post on corporate blogging, so I thought I'd come back and hit the topic again today. Most were along the lines of, "Sure, some bloggers within corporations have successful blogs, but that's not really corporate blogging." I disagree.

As someone who has worked in a corporate behemoth for many years, I know that a "corporation" is nothing more than a big pile of stock. And a stock certificate can't write a blog post. Blogs can come only from the people inside the corporation.

So, sure, all examples of successful corporate blogs are from individuals (and sometimes teams) within corporations that have a particular, personal point of view. That's exactly what corporate blogging is. No more and no less.

All blogs (at least all successful ones) have a personal point of view, whether they come from corporations or not. If we equate "corporate" blogging with some form of anesthetized PR communication resembling not much more than a press release that allows comments, then I think we're missing the point.

Large corporations, probably more than any other kind of business, have a desperate need to connect with their customers. Letting their employees out of their Legal-PR imposed cages so they can interact with customers is their best hope of overcoming the risk-free, homogenized brand images that we equate with corporate "personalities." Perhaps companies clinging to the vanilla brand image of years gone by, afraid to show the real people within their walls, are running the biggest risk of all. Customers are beginning to demand more and blogging is a cheap way to give customers what they want.

As a follow-up to Monday's post on the Blog Council, I spoke with Andy Sernovitz of the Blog Council yesterday and he cleared up the controversy over accepting comments—I've updated my post.

Posted by mikemoran at 7:56 AM | Comments (3) | TrackBack

December 11, 2007

Is Corporate Blogging an Oxymoron?

A few folks, after reading yesterday's post on the Blog Council, thought I was being too hard on them for not accepting comments on their own blog. But that wasn't the prevailing sentiment. More people felt that I was expecting way too much—corporate types don't know how to blog and never will, and setting up a council with a fancy logo won't change any of that. While I understand the skepticism behind that opinion, I don't agree.

Sure, it can be harder for a corporation to tolerate blogging's free exchange of ideas than it is for a solo blogger. And yes, far too many corporations have had rocky starts in the blogosphere. I know that Wal-Mart, Sony, and others have been caught creating "flogs" that purported to be from customers that instead were written by their ad agency. I'm aware that Dell began its blogging life with a happy-talk item about the tenth anniversary of its Web site, only to be pummeled by bloggers demanding better customer service. You can look elsewhere to be regaled by the tales (or maybe "galed" by them if you haven't heard them before).

I won't even argue that these stories are the exception, rather than the rule, when it comes to corporate blogging. I won't tell you that most corporations have jumped into blogging with both feet, as the PR team and the lawyers lock arms in a jaunty dance down the road of marketing openness.

But I can cite examples of corporate blogging that is working. My company, IBM, has thousands of bloggers, as does Sun, Microsoft, and many other large companies. They help our customers understand technology directions, industry goings-on, and strategic issues. Robert Scoble, while he worked at Microsoft, helped humanize a firm that the mainstream media only demonized. Sun's and IBM's blogger have likewise been a huge advantage to their respective marketing programs.

Many other companies use blogs to connect better with their customers through blogs. Blogs that are written by living breathing employees, not the PR department.

I know that's still news. I understand that successful companies using blogs are still relatively small among all companies. But the fact that they exist at all means we can strive for that level of success for many more companies. Corporations are not all the same, so it's ridiculous to expect that blogging will work for all of them.

But it's equally ridiculous to lampoon the Blog Council because all corporations are clueless types who couldn't blog if their lives depended on it. Corporations can blog. And some corporations' lives probably do depend on it. If corporations don't learn to connect better with their customers (regardless of whether they use blogs or other means), they are apt to be left behind by smaller companies that do connect.

Posted by mikemoran at 5:48 AM | Comments (6) | TrackBack

December 10, 2007

One-Way Blogging

Are there times when it is acceptable to have a one-way message? Sure, but blogs are not the place to do it. If you believe you should block comments on your blog, maybe you shouldn't be doing one. And when you're purporting to tell people the best ways to blog, maybe that's the dumbest move of all.

Jordan McCollum from Marketing Pilgrim had a great post Friday called "a How Not to Corporate Blog Guide," which justifiably rips into the Blog Council for its strange way of advising companies to blog while not seeming to have a grasp on the basics itself.

Sure their first few posts are dripping of the kind of PR-inspired lameness that lots of groups struggle with when they start blogging, but hey, some of my posts stink on ice, too. Yeah, it would be nice of these self-described blogging experts knew better than to start that way.

But geez Louise, they blocked comments?

I mean, what were they thinking? The quickest route to excoriation in the blogosphere is to show you're not listening. Anyone with even a passing acquaintance with blogging knows that people comment on them. For them to be experts in blogging and not accepting comments is laughable.

What's more, one of the blog posts contains frequently asked questions. Uh huh. Questions from whom, exactly? I know they're not accepting questions from the folks who read their blog, unless they fill out a contact firm. How very Web 2.0 of you.

Starting a blog with an FAQ post and not accepting comments for additional questions is the stuff of parody. There are some very solid companies involved here and I hope they are just off to a bad start, because we need corporations to wake up to real best practices in blogging.

I hope that by the time you read this, the embarrassment may cause these experts to open up comments. If they do, I promise to take another look to see if this could become a useful community that exemplifies best practices rather than just talking about them. In the meantime, however, you might want to look for best practices elsewhere.

Now, it's possible that this is an error. I know I've been embarrassed when something on my site wasn't working. I had a bug a few months ago that was rejecting comments for some Firefox users and I still don't know what happened or why it went away. And when I looked at the Blog Council site in IE, it did not render properly, so maybe it's just not ready for prime time yet.

I don't want to appear uncharitable. Doing it wrong quickly is my idea of the right approach, so I hesitate to be so critical of anyone trying anything, no matter how far off the mark they are. But these folks are setting themselves up as experts. If any of them want help from me, I'd be happy to assist. And if they think I am off the mark on this, well, they can leave a comment here.

December 12, 2007 Update: I spoke with Andy Sernovitz of the Blog Council yesterday. He explained that the council was merely using blogging software as a rudimentary content management system and that they never intended the two pages posted on the site to be blog posts—they intended them to be flat Web pages. The council has since updated the site so that the pages no longer resemble blog entries. Andy also expressed surprise about the amount of attention the site had received, but I think he was pleased about it even though some of the attention was critical. In my original post, I had wondered if blocking comments was a mistake and it looks like it was. I am still willing to give this group a chance to prove its value and I hope Andy will keep in touch as developments warrant.

Posted by mikemoran at 10:42 AM | Comments (2) | TrackBack

December 7, 2007

A Three-Part Primer on Search Spam

Every Internet marketer has heard about search spam, the unethical tactics that so-called "black hat" search marketers use that violate the search engines' terms of service. Now if you have no intention of doing anything unethical, you might believe that you don't need to understand search spam. After all, if you don't want to rob a house, you don't need to know how to pick a lock, right? Well, what you don't know most certainly can hurt you when it comes to search spam. Read on for my three-part series in Revenue Magazine for the unsavory tactics that everyone needs to know about.

Legitimate search marketers must have at least a passing familiarity with spam techniques in order to avoid them. Many companies have been tripped up because their employees unwittingly employed spam techniques, or because they unwittingly hired search marketing consultants who do. You'll want to know enough to protect yourself, but also you'll want to identify competitors gaining unfair advantages so you can turn them in to the search engines.

You can bone up on what you need to know (no one ever seems to "bone down") by reading my three-part series of columns in Revenue Magazine—now they are posted publicly online:

• Spiders Don't Eat Spam. Find out what spam search tactics are, what "cloaking" is, and how to spot a spammer masquerading as a legitimate search marketing consultant.
• The Ingredients That Go Into Spam. Get the list of spam techniques that manipulate the content on your Web pages to try to mislead the search engines.
• The Tangled Web of Link Spam. One of the most popular methods of spamming the search engines involves setting up bogus pages and even entire faked sites created just to send inbound links to a site the spammer wants to promote. Learn what you need to know to identify this technique.

The stakes are high. Companies that engage in spam tactics risk having their Web sites "banned" by the search engines, which is geek-speak for having all of their pages removed from the search indexes—it's like the phone company suddenly giving you an unlisted number. Banned sites are never found for searches, and you probably were hoping to do better than that.

Some people make a living fooling Google, but it's probably not going to be you. Unless you are clever enough to stay ahead of the spam police, you are better off sticking to the rules and making sure your employees and your search consultants do so as well.

You can check out the full list of "The Searchers" columns for Revenue Magazine that I write. They are posted publicly a few months after they are available to subscribers, so if you want to get them faster, you'll need to subscribe to Revenue Magazine in printed form or online. Some of you might even qualify for a free subscription, so check it out.

Posted by mikemoran at 3:18 PM | Comments (5) | TrackBack

December 6, 2007

What Do Your Customers Care About?

As you know, each month I give away a free copy of my book to the best case study submitted embodying the principles of Do It Wrong Quickly. This month, the winner is Jerry Melvin, who submitted a case study on Kellogg's, the breakfast cereal leader, explaining how an online survey revealed what their customers really need out of several of their branded Web sites: Keebler cookies, Morningstar Farms products, and the Kellogg's brand itself. Learn for yourself what Kellogg's customers care about. (You can also check out all the Do It Wrong Quickly case studies and submit your own case study to try to win next month's contest.)

Posted by mikemoran at 3:53 PM | Comments (0) | TrackBack

December 5, 2007

Podcasts with Lee Odden

I blogged about this when the first couple of podcasts were released, but they are all posted now--a series of eight interviews that Lee Odden was nice enough to conduct with me on my new book (including a couple of podcasts on search marketing from my first book). Lee asks good questions, so even if you've read the books already there's some new stuff here. (Still no picture on the post today—working on breathing life back into my computer. Tomorrow, I hope.)

Posted by mikemoran at 9:02 AM | Comments (0) | TrackBack

December 4, 2007

Computers Don't Work

There's no picture on this blog post today, because I had to re-image my computer (that's geek-speak for erasing everything and starting over) and some of my tools aren't working yet. I can't change files on my Web site yet because somehow the configurations that I swear I used before aren't working. And I'm not getting e-mail at my mikemoran.com address. And I can't reinstall the Microsoft Office applications. I am trying not to get frustrated over this because I try to remember that computers don't work. Once you accept that, everything gets a bit easier.

I'm also having my first colonoscopy today, which for the uninitiated means I have been fasting and drinking vile liquids because you need to clean up the house before company comes over. But when I clean up my hard disk, everything gets worse. Because computers don't work.

They don't work because the things you need to know to make them work are still way too hard. I am an engineer (a distinguished one they tell me) and I can't figure it all out. I had everything backed up but the new "system image" has different stuff on it than the old one, so some things still don't work.

Yeah, I know that Macs are easier and that's great. But someone who does computer stuff for a living like me should not be stumped by any machine that purports to be for normal people.

I am keeping my frustration in check by remembering that computers don't work. Oh, they work most of the time—just enough to get you to depend on them and then they've got you.

So I ask you, why does the computer keep its operating system in the same place as all my programs and data? Why can't it clean out its colon without wiping out its brains? I'm re-imaging my system because the operating system hosed itself (yeah, I hear you Mac types), but I have to reinstall every blessed tool I have and get the configurations set again.

And the problem, folks, is that everything that uses these blasted computers doesn't work. If anything is holding back Internet marketing, it's the complexity. There's always some new thing to make it all better, but it makes it all harder to understand and to manage. The good news is that Internet marketing is (mostly) free. But unless we all resolve to demand that it become easier, there's a natural limit as to how effective it can be.

Well, it least most Internet marketing is more fun than a colonoscopy.

Posted by mikemoran at 10:47 AM | Comments (2) | TrackBack

December 3, 2007

Is Your Internet Marketing Campaign Optimizing Profit?

I do a lot of writing and speaking, but the best parts of those activities are the people I meet. People who engage with me to teach me something. A few weeks ago, I appeared with Alan Rimm-Kaufman at an AMA Hot Topics in Search Marketing event. In my talk, I casually mentioned something I often discuss—that paid search bid management tools don't optimize profit, but merely optimize profit margin (or worse, return on advertising spending or cost per action). Alan noted that remark and has spent the last few weeks engaging me on what I am missing. I thought it would be great to tell a story of how I came to think about campaign optimization, and also show you Alan's comments on the story. Let's get started with our tale of campaign optimization.

The replacement parts group within a large, well-known company (we'll call them SlowCo) was struggling to optimize its return on investment. The parts group had traditionally been a place where the company made easy money. The not-so-brilliant executives were parked there, because it was thought they could do little damage. The less-than-stellar salespeople were dumped there. No matter how little effort and intellect was spent on the parts business, SlowCo still made money hand over fist, charging high prices for slow delivery, because their captive customers knew no one else to buy from.

Then the Internet came along and this sleepy business had to either wake up or go to sleep permanently. Competitors cropped up everywhere, undercutting the company with lower prices and speedier delivery. SlowCo parts customers disappeared in droves.

After a few months of outright losses, finally SlowCo's management faced some hard decisions. The deadwood employees were weeded out, and new management decided to "take back our parts business" by focusing on lowering "cost per action"—they aggressively shifted sales that were being consummated over the phone to the Internet and they provided incentives to discount larger orders so that the costs of attracting orders went down. Unfortunately, it wasn't just cost per action that was dropping—revenue kept dropping, too.

Alan's comments: I hear a small warning bell by this point in the story already. It often isn't a great idea to force a channel, and even more troubling to assume that customer value and service cost by channel will be the same forced and unforced. It is confusing causation and correlation. A few years back, the pundits were banging the drum that "most valuable customers shop in the store and online"—let's assume that this was true. Therefore, "if we give coupons to store customers to use the Web, they'll become most valuable customers." Each summer temperatures rise along with ice cream consumption, but it isn't the cones driving the mercury.

So the management team then focused on an all-out campaign to improve revenue. "Take back our business" turned into "Take back the Internet" as an aggressive paid search campaign ensued to divert customers shopping the new competitors so that they returned to SlowCo for their parts needs. They also increased discounting even further.

Alan's comments: Discounts are an addictive drug. I probably sound like a sanctimonious preachy jerk, but it's true. I think offers need to make rational sense. If you bought more red widgets than you can sell, it makes sense to reduce your prices and tell your customers they're on clearance, admitting in effect you bought the wrong color or bought too many. No worries. But if you simply cut prices for no reason (perhaps due to a made-up PR day), you're asking for trouble.

Last week, Bill Bass (formerly of Land's End, now with Fair Indigo) dissed the idea of offering "CyberMonday discounts" just because everyone else does—hurrah to Bill for talking sense loudly.

Personally, I know of several big companies who even use addiction language when discussing their offer strategy: "We just can't stop, the revenue feels so good." This company has paid millions training their customers never to buy at full price. Ouch.

But the biggest change was that SlowCo added aggressive shipping discounts to match the competition's fast delivery, and they promised to waive shipping charges for any part that failed to arrive when promised. Revenue jumped for the first time in several years, but when they added up the numbers at the end of the quarter, they had taken the biggest loss ever. Costs (especially shipping and rebated shipping costs) had so outstripped revenue that the parts division had become a drain on company performance.

Alan's comments: Not to be snooty, but it took SlowCo's managers three months to get around to looking at their P&L? These are direct costs, it sounds like, not corporate transfer costs—you'd think they'd see this faster. Apologies for snootiness, but what took so long? Mike's comment: They aren't known as SlowCo for nothing.

A new management team was brought in that demanded a return to profitability. All pricing, including discounts and shipping, were rigorously scrutinized so that profit margin could be calculated for each order.

Alan's comments: Hooray. Our story takes a happy turn. I'm rooting for the new guys.

SlowCo's new team made some dramatic about-faces. Paid search was dropped, as was the rebates for late shipments.

Alan's comments: Paid search works for many marketers in many situations, but not all. In some verticals, the cost you must pay for each click are way above rational levels. I know someone in the inkjet refill business where the cost of entry is so low that he's always bidding against newcomers who pay more than each click is worth, driving him off the first page. "They" (collectively) never learn, because when one competitor goes bust, another newbie crops up, so the paid search auction is never rational. The situation could be the same for these parts guys, maybe. Another place where paid search fails is in new product introductions (if something is novel, nobody is searching for it), but replacement parts don't sound all that novel.

After these big changes, profit margins zoomed, but revenue cratered, as customers went back to buying from the competitors. Even though the accountants could show a profit on each item shipped, revenues dropped so fast that their fixed costs created yet another loss.

Alan's comments: Problems for our brave heroes. Too many retailers focus on profit margin (a percentage) instead margin dollars (real money), or focus on unit contribution (without loading on overhead) instead of total contribution (with fixed costs appropriately allocated). At day's end, you don't deposit percentages, you deposit dollars. And the overhead needs to go somewhere. Once in a while, new marketing efforts or customer efforts can be excused from covering overhead, but that big nut—salaries, building, insurance, corporate—needs to covered somewhere. OK, now I am worried about the new management team at SlowCo, and don't see a happy ending to this story heading our way.

As in any big company, this is the moment when the long knives come out. Some within SlowCo were calling for management to sell off the parts business to one of the new competitors that had cropped up so that they could get this albatross off their books. Chastened by their series of gaffes, the new management team finally stepped back from the situation to assess the real value of the parts business.

SlowCo spent several weeks studying the purchasing behavior of customers who had stayed loyal to the company's parts business versus those that had not. What they found changed everyone's outlook. Those customers that had stayed with the company's parts business were the most loyal repurchasers of the company's flagship products—the expensive high-margin products that the parts business supplied replacement parts for. That was where SlowCo's bread was really buttered—parts were truly a sidelight, but an important one to SlowCo's best customers.

So, the SlowCo management team dug deeper, eventually analyzing Lifetime Value to see whether customers with higher Lifetime Value purchased parts from them or their competitors. That study confirmed that the highest value customers purchased parts from SlowCo. What's more, the constant changes in policies and pricing had done nothing but annoy this core group. It was the more price-sensitive, less-loyal customers that moved back and forth from the competitors, driving revenue up and down.

In the end, SlowCo decided to outsource their parts distribution to a fulfillment company known for low costs and speedy, reliable delivery, and they lowered their costs so that they were not much higher than their competitors. Revenue went back up, and they found that they were getting even higher repurchase rates from their parts customers for their main products.

Alan's comments: Great they had good customer level data and were able to pull these insights from it.

Then SlowCo decided to experiment. They began offering replacement parts maintenance contracts as part of the purchase of their main products. They offered these contracts at subsistence pricing, with low or no profit. When they did, they found that their customers began choosing this low-cost maintenance in droves, driving revenue for parts to the sky, and raising total parts profit even though the profit margin was small. More importantly, they discovered that the customers who bought maintenance offerings became part of that core group of high-value customers who were far more likely to repurchase the main product when it was time.

Alan's comments: Sounds like the contract offered real value to their customers. A known cost insurance policy, less hassle. And here it sounds like they there were able to show causation, not just correlation.

So, the SlowCo parts business, which started as a poorly-managed separate business unit trying to optimize its own return, had turned it around. Despite a series of missteps, they eventually came to their senses and looked at the contribution of the parts business to the company as a whole, which made it easy to subjugate the return on investment on parts to the bigger company ROI. Then, to everyone's surprise, it turned out that the parts business was actually a critical driver in increasing customer loyalty, and an important driver to overall profitability.

Alan's comments: Cue the happy ending music. I'm glad SlowCo realized the strategic importance of parts. It sounds like they got some good help ripping through their customer data. As with all stories, we should try to extract the moral. ("Avoid door-to-door crones offering apples.") I think it is unrealistic to expect an automated bidding technology to set broader business policy ("parts biz good" vs. "parts biz bad"). Few if any direct marketers spread fixed costs onto their marketing programs. They don't ignore fixed costs—that would quickly kill their businesses—they just don't try to "variableize" them (hmmm... not sure if that is a real word!). But good PPC bid tools do focus on both sales quality and sales quantity.

Pardon a digression into high-school calculus, but when you're maximizing a function, the constants don't matter: the value x* that maximizes f(x) also maximizes f(x)-c, where c is a constant. That is, the optimal advertising level which maximizes marketing contribution (marketing contribution defined as sales less cost less advertising less variable costs) will also maximize EBITA aka profit (profit defined here as sales less cost less advertising less variable costs less fixed costs). Now, your total profit level depends critically on your fixed costs, sure, but the best advertising intensity doesn't. That's why direct marketers can optimize campaigns on contribution, and be doing the smart thing for profit.

So how do fixed costs come into the picture? If the retailer can't generate enough contribution to cover fixed costs—even at the best advertising level—then he or she doesn't have a sustainable business, and needs to get a new approach fast.

Back to PPC bidding, we've presented the basic economics of PPC bidding this summer in a post called Computing Optimal Pay-Per-Click Bids In 19 Easy Steps. (Hint: our true secret sauce—the fancy stats that really make bidding work well across the head and the tail—is mentioned in passing in Note 13.) Rereading that post now, I see that Note 19 mentioned fixed costs, and notes direct marketers usually do not allocate them, but critically do account for them.

Thanks Alan for your insightful comments in this month's newsletter. By the way, if you're not reading Alan's RKG blog, why not? He writes for it and so do other folks from his company, the Rimm-Kaufman Group, which offers paid search and Web effectiveness consulting. And if you're looking for a few other recommendations on blogs you should be reading, check out the Biznology blogroll.

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