RonAmok!

Yesterday, I got an email from NewBlueFX, a company that creates plugins for nonlinear video editors like my favorite, Sony Vegas. The email, entitled, “You Determine The Discount Sitewide Sale” described an interesting social marketing campaign that promised a one percent discount for every retweet of its message, with a sixty percent cap.

Here are the rules from the email:

• The Tweet-a-thon starts Monday August 20th at 12:00AM PT and goes until Tuesday 11:59PM PT.
• Total Tweets and corresponding discount to be announced Wednesday morning 7AM PT.
• Discount can be used on any product available on NewBlueFX.com
• Wednesday’s sitewide promotion expires Thursday, August 23rd at 7:00AM PT

I love this campaign from the standpoint that NewBlueFX clearly sees its audience as an asset. It also gives us the opportunity to play with some math to calculate potential dividends that the company is seeking to extract from those assets.

The company’s Twitter account, @newbluefx, has 928 followers (the asset). Due to NewBlueFX’s niche product line, this audience likely consists of specialized video artists who’ve made significant investments in sophisticated video editing software. Since like-minded people tend to follow each other on Twitter, NewBlueFX is betting that by encouraging its audience to spread its messages through their networks, that the message will ultimately find its way to the right people as opposed to (as traditional media offers) the most people.

The company has done something else by offering a discount for each retweet…it has established a retweet price.

Consider that the NewBlueFX online catalog contains 26 products, whose:

• Average price is $127.64
• Median price is $129.95
• Mode price is $129.95
• High price is $299.95
• and a Low price is $49.95

By taking the median price of $129.95, New BlueFX has established a price of $1.299 for every retweet (1% of the median product price) its campaign generates–up to a cap of 60 retweets.

The model gets even more interesting if you compare it with advertising through traditional media. By capping its discount (and therefore the amount it is willing to pay for the entire campaign), any retweets generated over 60 will drive the effective cost per impression down–the opposite of what happens when purchasing traditional advertising.

Social vs. Traditional CPM

If the average Twitter user has 126 followers, each retweet has the potential to be spread to 60 x 126 = 7,560 people. Therefore, NewBlueFX has established that it is willing to pay $77.94 (60 x $1.299) for access to its audience’s audience. Had NewBlueFX decided to invest that same amount of money in someone else’s audience (traditional media), similar access would translate into a CPM (cost per thousand impressions) of $10.31 (1000*($77.94/7,560)).

Figure 1 illustrates the company’s CPM costs as a function of the retweets it generates:

• If nobody retweets, NewBlueFx offers no discount, and therefore carries no advertising cost.
• For the first 60 retweets, NewBlueFx pays a flat rate of $10.31 CPM, capping its campaign advertising expenditures to $77.94.
• Then something very interesting happens. Because the discount is capped at 60%, every retweet that exceeds 60 is a bonus, essentially causing the company’s CPM rate to fall-off exponentially the more successful it is.

 Figure 1: CPM per Retweet

This example shows the difference between social media and traditional media. In traditional media, your message will only travel as far as you are willing to pay for its distribution. In social media, your message will only travel as far as your audience (asset) is willing to spread it for you.

NewBlueFX recognizes that its audience is an asset that can pay dividends.

Does your company?