RonAmok!

The adventures of an analog engineer and digital storyteller who studies emerging networks and their impact on the great game of business.
Aug 21, 2012

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.

The more successful the campaign, the lower the CPM

 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?

Last week I took an “academic” approach to the New Media ROI question. Today, Social Media Powerhouse Gary Vaynerchuk takes a much more “energetic” approach.

Here is a link to Gary’s original post with the video embedded in it.

There’s so much to like about this video. The fact that Gary reminds us that ROI cuts both ways, and we must evaluate the old methods as well as the new. The fact that he’s using a free, video-streaming service called UStream to interact with 125 live viewers, who respond INSTANTLY to his question! Can your marketing research firm do that?

My favorite part is where he challenges Macy’s, suggesting that they’d get more ROI hiring 30 interns to interact with customers through Twitter than paying for its full page newspaper ad (that’s probably in some recycling bin by now).

And lastly, let’s not forget about the divide by zero part. All of the tools that Gary used for this little production are available to any company FOR FREE. In these tough economic times, where major financial institutions need cash bailouts, free might help. I may be a simple boy from New England, but the last time I checked, free doesn’t require much cash.

Are companies using these tools yet? Nope. Remember, most of the executives I’ve spoken with recently can’t even identify the RSS symbol. But the day will come when some Tipping Point occurs. Maybe all of the newspapers will have disappeared, or maybe all of the journalists will have become indie or corporate bloggers, but something will happen that makes it impossible for the Traditionals to continue their Zombie-like walk from the parking lot to their offices and back again. And when that day comes, hoards of Traditionals, those who only know how to control messages or spoon feed a skeptical press, will either be seeking new employment or working for who “get it.”

I’m looking forward to hearing Gary speak at the Marketing Profs Digital Marketing Mixer in a few weeks. Maybe I’ll have a chance to ask him some questions for the RonAmok! crowd.

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When I speak to business owners, the most common question that I field about New Media is: “But what about Return on Investment (ROI)?” The question is fair enough. If I, as a businessman and your New Media Evangelist, am “spreading the gospel” of New Media, I should be able to make a business case.  Right?

So let’s give it a try:

  • If I spend $10,000 and get $11,000 back, then I have a return on my investment of 10%.
  • Or, if I invest $100,000 into new software that saves me $40,000 per year, that investment will pay for itself in two and a half years.

Profit is a two variable equation. If I can increase revenues and/or reduce costs, then I have a positive Return on Investment.

But what happens if I invest $0 and get some sort of benefit from it? How do I then calculate ROI?  How does one divide by zero?

For example:

  • I can download WordPress and have a blog up and running on my own site — at no cost.
  • I can use my little hand-held digital camera to record a video demo of my product, place it on YouTube, and pay zilch for every person who sees it.
  • I can build a page on Facebook or Linked-in, connect with colleagues, get introduced to prospects, and get answers from trusted resources — for nadda.
  • I can microblog on Twitter, breaking industry news, pointing customers to relevant information, or providing expertise to those who seek it — for scratch.
  • I can take digital photographs at a trade show, load them onto Flickr, and share them with my favorite customers — for nil.
  • And I can use RSS to keep me informed about my industry, my customers, and my finances — for bupkis.

Therefore, if I receive ANY increase in revenue or reduction in costs from my cashless investment in these technologies, whether it be a sale, a prospect to call on, or a piece of branding, the ROI is infinite.

The bean counter will quip, “But, Ron. Time is money.”

Yes it is. And that’s the basis of my argument. Management is about determining the proper use of corporate resources. Because New Media technologies offer such high (divide by zero) leverage, managers should at least consider if a small investment of time makes sense. The upside is too high to ignore.

Let’s take one example. I know a blogger who writes for a large corporation. He writes a blog post every other week. He’s told me that he spends, on average, two hours per post. After 6 months of blogging, he had built an audience of about 300 RSS subscribers.

Let’s say that the fully burdened cost of his position (salary, benefits, office, computer) is $200,000 per year. Rounding that number to $100 per hour (for a 40 hour week), the blogger’s employer is spending $200 every time delivers a message to 300 PRESENT subscribers.

But a blog isn’t a one shot deal like that of a marketing campaign, tradeshow booth, or corporate newsletter. A blog represents a growing repository of relevant content — a searchable database for both PRESENT and FUTURE readers. Today my example blogger has over 500 subscribers. With every additional subscriber, his cost per prospect/customer touch is shrinking, from $0.66 to $0.40.

That’s the investment. Now let’s look at possible returns. While gaining an audience, your corporate blogger is:

  • establishing trust with a growing audience
  • becoming a respected expert in your company’s field
  • becoming sought-after resource as opposed to yet another person to be avoided

Therefore, what is the ROI if your blogger:

  • is asked to speak at a major industry conference?
  • accompanies your business development people on a sales call?
  • spurs a customer to contact your company directly?
  • can instantly respond to the fear, uncertainty and doubt (FUD) that your competitor is spreading about your company?

Are “returns” such as these worth prioritizing and “investment” of one hour per week? Are they worth 1/40th of your employee’s fully burdened cost?

Something to consider as you start your FY2009 planning?

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