Glossy Travel Brochures and Bad Customer Service - Another Soon-To-Be Victim of the Internet

I'm writing this from the very cute, very quaint Headlands Inn in very cute, very quaint Mendocino, California. My wife and I are taking an extended weekend and - nerd that I am - I had to take my computer and check emails and blog whilst the wife is asleep!

We found the Headlands Inn online, I believe at the Mendocino.com Web site. The pictures and description of the Inn looked great, but we of course still had to go to TripAdvisor to look at customer reviews. The combination of pictures and recommendations convinced us that this was the place for our getaway. The Inn is as described - very friendly and attentive service, close proximity to the downtown shopping area, lots of lace curtains and fresh herbal tea.

What I realized during our Inn research process - and in talking to the Innkeepers - is that the Internet has enabled travellers to do much better research on hotels and inns than in the pre-dot com era. So much better, in fact, that I think we are now in an era where a hotel with bad customer service is in real jeopardy of going out of business in a matter of months.

You see, in the old days, the glossy travel brochure for a hotel and perhaps an AAA rating was the best you could do in terms of research. If you were going to a very popular destination (say, Las Vegas), you could get word-of-mouth referrals from your friends, but that was of course limited to the specific hotels at which they had stayed.

So a hotel with a good market department and a talented graphic designer could maintain high occupancy just by creating inviting collateral for prospective guests. If it turned out that a serious disconnect existed between the brochure and the actual hotel, in many cases this had little to no impact on the hotel - the traveller could not back out of his reservation, and it was difficult to spread negative feedback nationwide by word-of-mouth.

This is very similar to the analogy I made a few weeks ago about the cheesy art gallery catering to tourists in San Francisco. Because new tourists don't realize that the place is a tourist trap, the store can survive on an endless supply of fresh blood.

But unlike art galleries - which are impulse buys and highly subjective - booking a hotel is a planned and research event. So as more Americans rely on Internet reviews to make their hotel booking decisions, it becomes less and less likely that a hotel with underwhelming service can survive - nice brochures or not.

Right now, my sense is that a lot of people look at brochures/hotel Web sites first, and then validate their choice with TripAdvisor. I would not be surprised if this process is flipped on its head in the near future; consumers go to TripAdvisor first, read reviews of all the top-rated hotels, and then go to the hotel Web site to check out pretty pictures as a final deciding factor.

It may even be the case that someday a collaborative filtering hotel site will exist - as you rate and review hotels it learns about your preferences and matches you to other travellers with similar preferences. Over a period of time, it 'knows you' and it can recommend hotels based on your specific likes and dislikes. No need to see pictures or read reviews, you just trust the Web site's algorithm to find the right hotel for you (sort of a "I'm Feeling Lucky" button for hotels).

Taking all of this one step beyond B&Bs and hotels, the proliferation of and increased reliance on online consumer reviews may end up being the great levelling factor within all service industries. Restaurants, retail stores, repairmen, real estate agents, doctors, lawyers, dentists - all of these services will truly need to provide high quality customer service or face the wrath of angry reviews and lost business.

Last year I wrote a post about how the Internet would make Roger Ebert obsolete, the theory being that consumer recommendations combined with personalization (though collaborative filtering) would end up being much more powerful than one expert's opinion on any topic. Pretty soon you'll be able to add Frommer's and Fodor's to that endangered species list. And any B&Bs that may have gotten by in the past on a nicely Photoshopped image of their facilities.

Are Old Search Marketers Too Jaded?

I remember the day I launched my first paid search campaign. It was in the fall of 2000 and I had only been an online marketer for a few months (having been thrust into the job at a start-up after the lone marketer abruptly quit). I had no idea exactly what this whole “GoTo.com” thing was, but I liked the fact that I could pay a few cents to get a visitor to my Web site. It felt like - for that price - it had to work! When the daily clicks went from 10, then 100, and then 1000 a day, it was a rush. I was hooked.

Fast forward to today. I’ve been doing search marketing for seven years and I’m sure I’ve bought at least 50 million clicks in that time period. In many ways, I’m jaded. Driving millions of dollars of revenue is still exciting, but it’s also become par for the course. Finding the next big keyword is still fun, but my colleagues and I aren’t giving each other high fives every time we uncover a new winner.

Over the last year or so, there have been a lot of changes in paid search. Google alone has launched multiple new products/tools that could become major parts of future ad budgets (Audio Ads, Video Ads, Print Ads, etc). I know that there is a lot of value in testing out these products, not only because they’ll be important in the future, but most likely because there are some arbitrage opportunities today while usage is still low. But I can’t seem to find the time to fully test these. I suspect that there are two reasons behind this.

First, I know the ‘vanilla’ paid search well-enough to know that I still have lots of optimization opportunities left just by focusing on my standard search campaigns. Every second I spend trying to discover the secret sauce for Google Print Ads is one second less I could spend adding another hundred keywords to an existing campaign. So until I feel like I have truly maximized the revenue from my regular Google campaigns, the opportunity cost for trying something new is too high.

Second, I’ll admit again that I’m jaded. Over the years, I’ve tested a lot of alternatives to basic search - everything from “site targeting” to “PPA ads” to 3rd tier search engines, in-text advertising, and so on. Most of these tests have gone nowhere - despite sales promises to the contrary, either the traffic has been non-existent, the quality has been poor, or both problems have occurred. So when someone approaches me with a great new advertising opportunity, my brain is now wired to say “no” until proven otherwise.

So I think back to 2000 - when I launched my first paid search campaign - and I wonder what I might have done differently had I had seven years of online marketing experience then. At that time, the “in” online marketing mediums were basically display banner ads and email marketing. I suspect that I would have looked at the GoTo.com paid search opportunity and concluded that the risk was too high and the traffic too low to spend any time on it.

And I probably would have continued along this path for a few years - until Google became a household name, GoTo started distributing clicks to MSN and Yahoo, and all signs pointed to paid search as a driving force in online marketing. As noted above, this isn’t necessarily a bad thing - it’s just a conservative “wait and see” approach to a new marketing channel. Just as WalMart didn’t start selling MP3 players until there was a clear consumer demand, an experienced online marketer probably shouldn’t jump into a new marketing channel until it’s clear that the channel has legs.

On the flip side, however, there are definitely advantages to taking risks on new opportunities. Being an early adopter has arbitrage advantages, learning curve advantages, and can sometimes even have contractual advantages (for example, in 2001, I negotiated a one year fixed-rate #2 position on the word “lawyer” with one of the top three search engines for $.25 CPC. When the contract ended, the bidded rate was at $1.60).

This leads me to two thoughts. First, if you are not a WalMart, that is, if part of your success depends on finding arbitrage opportunities to squeeze out a few extra dollars of profit, spending the time and money to test lots of new opportunities is probably a good idea. Second, the best way to test new ideas is to hire young and somewhat naive marketers who a) aren’t set in their ways; b) don’t quantify the ‘opportunity cost’ of a new channel versus an existing channel and c) get really excited just trying to figure the new channels out.

So to answer the question posed in this post’s headline, new marketers are probably better at finding new opportunities than experienced marketers, while experienced marketers are better at making smart resource and budget allocations that ensure that your marketing budget drives the expected revenue and traffic volume. If you accept these two statements as being true, the logical next step for any marketing team is to hire a young marketer and have him spend some of his time testing new opportunities (these days, the biggest ones would seem to be social media, video, and mobile), but under the guidance of one of us jaded oldies.

It's Time to Retire the Concept of a "Newspaper"

Without fail, any movie that is set in the 1920s or 1930s has to have a scene where a newspaper spins into the frame with a dramatic "EXTRA!" printed on the front page. This is usually followed by an image of a young boy on the corner shouting "Extra! Extra! Mob boss gunned down by Feds!" or something to that effect.

Can you imagine an "extra" edition of a newspaper today? By the time the special edition went to print, the cable news channels would have dissected whatever the news was for hours on end and bloggers would have already uncovered some smoking documents that the mainstream media was too lazy or inept to discover.

Let's face it, newspapers no longer break news. Indeed, for national or international news stories, most newspapers don't even report the news. Instead, they rely on the AP newswire or other sources and simply run someone else's article verbatim.

Newspapers once also served a purpose of providing data that wasn't available anywhere else. For example, the multiple pages of stock prices, or the statistics from all the major sports. These days, this is a total waste of paper. If you care about your stocks at all, do you rely on tomorrow's newspaper to tell you how your stock did? Of course not, you simply add your stocks to the front of your "My Yahoo" page, or just login to your brokerage account. I actually wonder why newspapers even bother to print stock prices for 10,000 stocks daily anymore. Who reads them?

The same is true with sports results. I can get a complete recap and box score of any college or professional game within 30 minutes of the end of the game online. And I can chat about the results with other fans, and even watch the press conferences online. By the time the newspaper shows up in the morning, I've already poured over the stats for hours.

So what purpose do newspapers still have? Well, as I see it, there are two reasons to read a newspaper these days: entertainment, and analysis. Entertainment comes in the form of feature stories, human-interest articles, columns, and cartoons. The Wall Street Journal, for example, always has at least one wacky story on the front page that makes for great water cooler discussion.

By analysis, I mean things like investigative reporting, and editorials. The New York Times does a great job of taking a news story and dissecting the meaning behind it, and in a way that is much more sophisticated than a cable news network, and more reliably accurate than a blog.

Of course, with the exception of a few newspapers, all of this content is available online for free. And often the online alternatives (particularly for entertainment) are far superior to the options in your local newspaper.

In the end, it seems like a losing battle to me. Newspapers originally broke the news, but that role has been taken over by TV (and later the Internet). Then, newspapers provided data that you couldn't get elsewhere, but now that data is actually far less useful and far less timely than the personalized data you can get online. Now, newspapers are a combination of entertainment and analysis, but there are so many free alternatives online, it seems like this is a risky way to sustain subscription levels.

I admit that there is something comforting about reading a newspaper in the lunchroom, or on a long train ride, or at a coffee shop. In this information-overload society, there is something to be said for an information-provider that is physically limited and therefore must be selective about what to include and not include.

But I'm also in my mid-30s, and I am pretty sure that folks ten years younger than me would much rather text message on the train or read email in the lunchroom than pick up a newspaper.

At best, a newspaper today is an alternative form of entertainment, competing with thousands of blogs, Web sites, You Tube, and hundreds of TV channels. But it's one which costs money to read, is hard to handle, is untimely, unpersonalized, and environmentally unfriendly. Like the Pony Express, the telegram, and travel agents, it's only a matter of time before the sun sets on the newspaper.

Does/Should Google Increase Minimum Bids Over the Holidays?

Over the last few weeks, I’ve received email notifications from basically every comparison

shopping engine with the same message - CPC rates are increasing for the holiday season. The most recent one I received came this week and said: “Effective November 1, 2007, Smarter.com will apply a 20% cost per click increase to base CPC rates across all categories. This holiday adjustment is temporary and will end on December 31, 2007. Our past experience has shown that merchants typically see increased clicks and conversion from leads throughout this period and as such you should expect consistent levels of ROI at the new rates throughout the holiday season.”

To put it another way, consumers are more likely to actually buy something during the holiday season, and thus comparison shopping engines (CSEs) raise their rates to share in the bounty (increased prices but “consistent levels of ROI”). I’m not knocking the CSEs for doing this by the way - they need to make money from the holidays just like retailers need to make money. It’s just business.

What I’ve wondered for some time now is whether Google has a similar way to squeeze more pennies out of their retail advertisers over the holidays. My suspicion was initially aroused on November 6, 2005, when Google made a major enhancement to their quality score algorithm. The thing that struck me about that enhancement was the timing - early November. Because quality score is (and definitely was) a very murky concept, it would be pretty easy for Google to use the ‘quality score card’ to artificially increase bids for some or all advertisers for the holidays.

And unlike CSEs, Google can’t just outright announce “hey, we’re raising bids for the holidays.” Anyone who advertises on comparison shopping engines understands that part of the game is that the CSEs can and will raise minimum bids at will. But Google has always professed to running an automated blind auction, where - in theory - you could get amazingly awesome clicks for $.01 if you had the right combination of quality score and low competition. So if Google came out and announced that the minimum bid on “digital camera” will be $2.50 until December 31st, they’d face a firestorm of advertiser and media backlash. Which leads me back to the “quality score” update theory. It’s the perfect back-door to raising bids without explicitly raising bids.

Now I know some of you are thinking: “Even if bids go up over the holidays, it’s not because Google is secretly manipulating the system, it’s because advertisers are just raising their bids.” I’m sure that this is true - savvy advertisers will anticipate the increased conversion rates over the holidays and proactively increase their bidding. But the key here is the term “savvy.” I suspect that there are a lot of advertisers who don’t make holiday bid adjustments, either because it never occurred to them to do so, or because they just don’t dive into that level of detail on their campaigns. This is likely what the CSEs encounter and why they need to artificially juice the system. So if Google just sits back and let’s the market dictate bids, I’m sure that they would experience a market-driven seasonal CPC lift, just not as great a lift as they could achieve by some behind-the-scenes bid increases.

At the end of the day, I have no way of proving this theory, other than through circumstantial evidence. Over the next few weeks, however, I’ll be looking for two signs that might support this idea: 1) any announced changes to the quality score algorithm and 2) changes to my keywords’ minimum bid prices. In January, I’ll write a follow-up post with the results.

Postscript: I wrote this in early November for the Search Marketing Standard blog. So far, I've yet to see any evidence of artificial bid price increases on Google (but the holiday season is still young!).

Are Your Customers Looking for a One Night Stand? Why Lifetime Customer Value Matters

Every day on my way to work, I walk by two stores. One is Starbucks. Though it's a mega-chain, when you go inside, you somehow feel that this is your local Starbucks. There's a big sign that says "Your Barista is . . .", comfy chairs, soft music, and very friendly staff.

Directly across the street from this Starbucks is an Art Gallery. The gallery appears to sell cheap mass-produced sculptures, starving-artist paintings, and knock-off art prints. I've been walking past this store for eleven months now and they've had the exact same banner out front. It reads: "ART GALLERY CLOSING. 50%-80% OFF."

I should point out that both of these stores are located in the touristy Fisherman's Wharf/North Beach section of San Francisco, and both are within 100 yards of one of San Francisco's famous cable car lines.

Of course, while tourists might frequent both art galleries and Starbucks, locals like myself would never dream of strolling into a tourist trap and coming home with a $2500 bronze sculpture of a unicorn.

More to the point of this post, any local like me would especially avoid this art gallery, simply because we know that it is a scam operation. Obviously, the "50-80% off" sale is a con designed to make one-time visitors (e.g., tourists) think that they have happened across an incredible deal. Locals seeing the sign for months know better.

In the Internet marketing world, we often talk about the concept of "Lifetime Customer Value", or LTV. The concept behind LTV is simple: when you acquire a new customer, you should calculate the value of that customer as the aggregate money you'll make from that customer over the lifetime of your relationship with him/her.

If you can get the customer to return five times and spend $100 each time, that's $500 more you could spend profitably acquiring this customer. Moreover, it turns out that repeat customers tend to spend more than new customers, require less customer service, and are more likely to recommend your business to others. LTV can be a real cash cow for businesses that can crack it.

But the Starbucks/Art Gallery dichotomy reminded me that not all Internet businesses care about LTV, simply because some online businesses can't really expect more than a one-time interaction with the customer, not unlike an art gallery in a tourist area.

Consider, for example, an online lead generator. Let's say you are marketing ringtones and you get paid $20 for signing up new customers to a subscription ringtone service. You create a Web site called My-Ring-Tones.com (for the record, I actually own this domain, but have never done anything with it!) and you advertise it on Google AdWords, banner ads, etc.

As soon as someone comes to your Web site, you have one objective: get them to fill out a form so that you get your $20. You could care less whether the experience after they hit "submit" is good or bad; after all, they can only fill out the offer once (or, more specifically, you can only get paid once), and what are the odds that anyone would refer their friends to a ringtones form?

In such an example, the online lead generator is no different than the art gallery - you only need to satisfy the customer for a very short period time - once you make your one-time fee, whether the customer experience falls apart later on doesn't matter to you at all.

On the flip side, businesses like eTailers are like Starbucks. Imagine what would happen if you bought a book on Amazon and it arrived at your house two weeks later than promised, it was damaged, and then Amazon refused to exchange it? You'd tell five friends how horrible your experience was, you might post some bad reviews on Epinions, and you certainly would never shop at Amazon again.

Few retail businesses could survive long-term without repeat customers and positive word-of-mouth, simply because retailers with better LTV will eventually be able to spend more to acquire new customers than retailers with bad LTV. Over time, the high LTV retailer will maintain its existing base and grow its new customers, while the bad LTV retailer will die a slow death.

Judging from the fact that my local art gallery's 'going out of business' sale has now lasted at least one year, I'm confident that you can in fact create a decent business - offline or online - through one-time sales. But the art gallery is a solitary store, whereas Starbucks has tens of thousands of locations.

Translation: running a business without LTV can be profitable, but it can't be scalable. Lead generators can only grow by moving into new verticals. Growing new businesses is costly, time-consuming, and labor-intensive. An eTailer like Amazon grows simply by adding to it's existing business (new products) and through loyal repeat business. This is less costly and more profitable that the 'new business of the week' model.

And ultimately, the barriers to entry for a LTV business are much greater than one without. I know I would get crushed if I tried to open up a coffee shop across from Starbucks, but I'd have greater confidence going head-to-head with Cheap-Sculptures-R-Us. Similarly, setting up a lead generation business is reasonably easy (which explains why there are tens of thousands of affiliates doing just that) but growing a successful eTailer is much more challenging.

To read more on this topic, I highly recommend Fredrick Reichheld's book, The Loyalty Effect.