New Strategies in Incentivized Marketing (B2C)

If you have walked through an airport or attended a ball game, chances are you have come across some form of incentivized marketing. Almost every airline has their own branded credit card, and many will set up kiosks in their busiest terminals offering users a freebie in exchange for an application. Most people walking by one of these kiosks who want their hat, shirt, or airline miles upon activation, don't think about themselves as walking dollar signs. They don't think about themselves as part of an equation that says, each new customer is worth X on average, and we will be willing to offer an incentive worth Y to acquire them so long as X - Y = Z where Z is both a positive number and Z / X fits within a range we are comfortable.

As credit card companies are among the most sophisticated they also know that X and Y are highly correlated. X, what they make, will vary depending on Y, what they give away. They also know that what they give away influences who signs up, which again comes back to impacting the value these people bring. Similarly, depending on the incentive, the task to get it varies.

Let's start using some real numbers. A credit card application is worth $10 to $20 on average, i.e. a credit card company will spend that much to acquire one. The range varies because as is the case in lead generation, applications only represent potential customers, and depending on your source of applications, the ratio of application to approvals and approvals to active users varies. Get business travelers, and those numbers look good. Get a bunch of people off of a pay day loan site, and as they say, "not so much." These card companies will bump that $10 to $20 up to $40 to $60 when paying for an approved application.

These days, though, what they really want and how the vast majority of higher volume, higher risk deals get structured are on the card activation, which is defined as a purchase, balance transfer, or cash advance. They will pay anywhere from $60 to $100 for these, and it shows in the level of incentives they use. For example, several years ago, I became a new card member for one offering a golf bag for new active card users.

(In a slight tangent here, the real genius is Capital One. Their Card Lab might looks silly, but they understand that perhaps the best way to gain not just an active user but a truly active user is to have them develop an emotional attachment to their card and want to use it instead of another card sitting adjacent to it in their wallet.)

Thanks to both the tracking available through the web and the credit card companies' history of offering incentives along with their understanding of lifetime value, credit card companies developed a high volume relationship with many performance marketers from the no-added incentive, consumer directory style sites like CreditCards.com (that is CreditCards.com will display the current incentive dictated from the card company, e.g. a low rate, certain bonus miles, etc.) to becoming the mainstay of the backend monetization for incentive marketing space. In the latter, customers signed up for cards not for the specific card offer, i.e. because it had certain advantages inherent in the card but because that card helped them earn their ipod, computer, tv, etc.

The incentive promotion space, get your ipod, computer, tv, etc. was really an online twist of the standard practices used at offline kiosks except that the credit card brand was not part of the initial pitch, only the incentive was. With the decline in overall incentive promotion traffic, it would be easy to think that the incentive space has declined. As I've learned recently, that is definitely not the case. The incentive space has shrunk a little but the topic for the next piece, New Strategies in Incentivized Marketing (B2B), will highlight how companies using offers as a platform for alternate payment methods, especially those integrated with social media applications are killing it from a volume standpoint; the quality question is as of yet unanswered.

From the B2C perspective where companies focus on advertising to consumers, using offers to underwrite an incentive, an ad on Facebook caught my eye.

Initially, it caught my eye not because it signaled anything innovative but that typically, the running of an incentive promotion ad (aka "Free iPod offers) could be used as a proxy for undervalued inventory. While this might be the case here, the story gets more interesting when you click on the ad and go to the landing page.

What makes this promotion different from the others is its more direct nature. On the landing page, instead of focusing only on the prize, it clearly states the backend offer needed in order to achieve the prize. And, unlike the current crop of offers, and something they exploit in their marketing, no other offers are needed, no referrals needed.

In a way, we've come full circle. This is no different than the offline offer for a golf bag, and it's the business that made YFDirect -> Netblue -> Connexus its money early on, a more one-to-one approach of offer to reasonable incentive. What makes this work now is that the incentives have increased in perceived value but decreased in price such that it looks more attractive than offering the latest Harry Potter DVD or a $50 gift card.

That we see a one-to-one relationship with product and incentive is not the interesting point. What we see evolving are the incentive promotion companies from frienemies of the credit card companies to platform providers. Whereas a Commission Junction might offer outsourced affiliate tracking, the incentive promotion companies can offer incentive based outsourced customer acquisition marketing. The big trend and the long term play is becoming transparent or even non-existent layers, that is a type of performance-based agency for direct marketers whose business models support the use of incentives. The marketers can do what they do best - placement and offer creation allowing the products themselves to focus on value maximization and data feedback for the marketers.

Credit card companies aren't going anywhere, but those whose business is solely based on improperly priced inventory have a less sure future, and those whose business is that where the revenue comes from business models that don't add value, are even shakier. I've always believed in the incentive space, especially in the long term C2C nature where friends receive monetary value for the influence they have on others. I've also believed that incentives had a longer term role in the online ad space and not just as an offer type relying on breakage. While we don't know what it is, becoming a platform play might be the angle for those who operate in the B2C space.

Comments

[Roger Dent]

You're an idiot.

Run the numbers. This is just another, though technically legal, way for them to keep cheating. What makes it work? They make it so difficult to collect the ipod afterward that most consumers give up. It's called "breakage". It's not new. Old and still creepy.

Here's the deal:
- offer the free gift to get more traffic to convert so you can afford the placement
- generate the leads for the client and get paid (many/most are low quality due to incentivization)
- make the terms ("fine print") for the consumer to actually get the ipod so cumbersome, complicated and difficult (you go read it and try to comply) that most never get the ipod (and so that you're economics can work)
- if you have made the terms apparent and legal enough, you're not legally a crook, just effectively one

Why do you write about stuff you don't understand?

JW: Well, I must say, I've never been called an "idiot" before, except by a woman. I can't decide if I find it flattering or not.

In response to the comment, I am sure this version too relies on breakage. The main point of this post was that this particular implementation uses less breakage and is more transparent than the vast majority of larger ticket incentive promotion offers. It is much more clear up front what the user must do, compared with say a computer that requires you to complete all offers (at least one with purchase) and five friends too as well; whereas if any fail, you don't get the offer. Add to that the "survey" section with 30+ questions none of which aid in the prize process, and that explains why I found this version different.

[Roman Dzadzic]

Excuse me Roger Dent!

I work for MyEasyRewards, and I'm not a crook, legal or illegal. I work for a living and I earn my bread through honest hard day of work that benefits all parties involved at the end of the day.

I will not get into details of the operations, but I'll say this: what you call "fine print" is what every respectable eCommerce company provides on their website nowadays. It's called Terms & Conditions. We just put ours where it counts, and where customers can be exposed to it. We got to have some rules, right?

And what you call a "cumbersome" process is as easy as (1) apply for only one card, (2) get approved, and (3) use that card. That's it...nothing more...nothing less.

Roger, I challenge you to read our fine print, go through our registration process, and apply for a Discover Card. I would like you to become another satisfied customer of MyEasyRewards.

We are a different kind of a company!

Best Regards,
Roman Dzadzic

[GatorGuy]

Don't bother using "myeasyrewards" to apply for a Discover Card. They promise to send you an iPod, but never do. Instead, you just get a continual list of excuses (out of stock, we'll ship it in 10 day, etc.), and never get the iPod.