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The most important trait of great digital marketers is curiosity and skepticism. They approach their profession and careers with a simple, “Wonder why that is?” framework. They know they must continually be researching what their customers need and be educating themselves on what ways marketing can deliver. This methodology extends much beyond the cheesy one-time-a-year focus group.

And they test their assumptions rigorously and often. How?

As Stanford start-up professor Steve Blank says, “Get the heck out of the building”, so you can better understand why your customers are buying or not.  As Mr. Blank points out, “there are no facts inside the building”.

Marketing as drivers for customer insights
This approach requires the mindset of a scientist. Hypothesises are tested and solutions constantly evaluated against the needs of the existing and potential customer base and the business objectives.

Being familiar with the strategy for growth beyond the lofty mission statement (which is usually horribly vague, long-winded, and impossible to quantify) and instead focusing on researching, testing, and implementing ways to drive revenue is good insurance for ongoing employment. A blend of creativity (dreaming up ways to possibly make money) and data (testing results and gathering data) is what the life of a successful digital marketer looks like today. A true combination of art and science.

But does this thinking only apply to early stage ventures or young enterprises?

Established companies are lucky as they have navigated the economic waters to a point where they can cash-flow and make sales. Working in organizations like this certainly has its advantages. The trade show schedule is defined years in advance. The industry press outlets are well known and key accounts established. There is usually a culture of “this is how we always do it” and things will continue to be rationally predictable in our market. Perhaps…

Established companies manage for mitigating risk and over time become quite adept at it.

Yet, the speed of the Internet is changing industry after industry. Witness the massive shifts underway in conservative verticals like education and medicine. Ask someone who used to work in traditional media what has happened in their world in the last ten years with Craig’s List, RSS feeds, and the rise of digital news outlets like The Huffington Post. Ask someone who used to work in marketing for Blockbuster or Borders before Netflix and Amazon pushed them out of business.

The problem with large established companies with their goal of eliminating risk and optimizing all processes with massive resources behind it tend to miss the next Big Thing.

Note: if you’re curious to understand this phenomena in greater detail, be sure to read Clayton Christensen’s The Innovator’s Dilemma book which covers disruptive innovation and details several industries where the market leaders failed to act in time.

Yet, the curious marketer can uncover some of these pending customer shifts through a consistent process of asking questions and getting out of the building. It is imperative for them to report these back to management and founders to help steer the strategy discussion.

Remember, on a CFO’s budget spreadsheet marketing and sales can look like a tremendous expenditure and marketing in particular gets the reputation of being a black hole. Money goes in but it’s tough to see where it comes out.

In the previous shoe example, we saw how things like acquisition costs and customer lifetime value (CLV) are a few metrics that can greatly guide our objectives and thus our strategy. Yet, to arrive at good answers, we must ask good questions.

Key takeaway: Following a thorough review and understanding of profitability drivers, marketers have a tremendously powerful opportunity to set strategy by looping around to question, test, and further understand the market’s needs and desires to chart a course for the business’s success.

Let’s look at some frameworks for doing this.

In our simple shoe example, we saw how knowing a metric like the lifetime value of a customer helps us work backwards and figure out our profit margin.

Pop quiz: How would you increase profitability for this shoe company as a digital marketer?

Let’s take this apart step by step.

Our friends in manufacturing and design might be able to make some additional tweaks and help drive costs down for creating and building shoes. As the company grows, it will be able to negotiate better terms with factories and reap some financial rewards based on increased volume. So, we can indirectly help here by growing the brand and thus the sales that let such profitable negotiations take place.

But as smart digital marketers, we like to prove our value in more direct and measurable ways.

Given, we have a good handle on our customer acquisition costs. Next, we look at how much we spend and tying our efforts back to sales conversions using web analytics, customer support sales, etc. We seek to build a culture around tracking where a customer comes from and why they ended up on our site or phone line. We are focused on coming up with ideas and methods to always drive this cost down as low as possible and still meet our conversion goals.

If you look over the example, something should jump out at you – this ideal customer is buying five pairs of shoes per year. That equals a new pair of shoes almost every ten weeks. We have a serious brand fanatic on our hands and we have to nurture this kind of devotion!

So, how can we incentivize the next sale? Here is where we would turn to the tools of digital and start to set up some smart campaigns. We would let this customer pick when they would like to hear from us, what channel, and what that message should be through some smart research and ongoing testing. Maybe we create value around letting this person into a VIP brand club where they get first access to the shoes a few months ahead of the general public through an email marketing campaign.

We nurture, reward, and shower them with much love. Why? Because it’s critical to the success of our business as we shall see when we look at profitability.

What happens next if we deliver on this promise?

• Well, if we are really lucky they tell their friends. They go on Twitter and Facebook and go off about how awesome we are.
• Remember, research from Nielsen shows that 90% of consumers trust recommendations from friends and family.
• So, we might pick up a couple more customers as a result of this powerful word of mouth which is all sparked from a remarkable brand experience.

But what did this do to our profitability?

We just dramatically dropped our customer acquisition costs or rather almost eliminated them. If our team members can provide a remarkable experience and deliver on that promise to these two or three new sales leads, we can further drive down our acquisition costs (and in turn drive up our profitability).

Over time, leveraging the holy grail of marketing (positive word of mouth), we might be able to drop this acquisition cost across the board from $20/customer to just a few dollars. Again, here’s where the speed and power of digital tools and social media make this possible.

As a result, we see a beautiful exponential curve, as more customers come in through positive word of mouth, evangelize, and convert a few more. Granted, the whole organization must align with this type of customer vision and each see how they play a crucial role in ensuring the almighty positive word of mouth happens repeatedly.

Note: While it is beyond the scope of this text to go into organizational structure – ensuring such a customer experience must come from the top-down. Incentives across all business divisions must tie directly into such metrics and here is where digital marketers can really get visibility to succeed or fail in prime time. To this trend, companies are appointing a different type of CEO – that of “Chief Experience Officer”.

Smart companies today get this. This basic strategy is how companies like Zappos are able to grow without mass advertising driving the brand. Digital marketing just speeds up this communication, lowers acquisition costs, and makes some companies very, very rich. But only if they align their entire organization against achieving such a goal and delivering a consistently remarkable experience. Easier said than done.

Key takeaway: Tying revenue goals to clear metrics is absolutely key for successfully deploying a digital marketing strategy for business growth. The challenge with digital is not the technology but rather in knowing where to apply the technology to achieve a business objective like increasing profitability.

The opportunity for digital marketers for forming a solid strategy is to dig into these basic fundamental questions we just saw and truly understand what is driving the business. From this vantage point, smart decisions can be made and objectives quantified and measured.

Today, it simply doesn’t cut it to espouse such comments like “marketing suggests we increase brand impressions.” Rather, the digital marketer is expected more than ever to present quantifiable goals that are tied directly to business results.

Why? Well, if it costs a company tremendous amounts of money to acquire customers than it is imperative that the lifetime value of that customer is understood.

(You must understand the customer acquisition costs and profitability as it relates to the performance of the business.)

For example, let’s say a niche shoe company sells shoes for $100 direct to consumers. It costs the company roughly $20 to acquire a new customer. These could be marketing costs from SEO, paid search, social media engagement, trade shows, and sponsorships. Adding in all other costs for design, manufacturing, customer service, human resources, warehousing, shipping, accounting, legal, and rent this number jumps up to $50 per shoe. The company thus has a profit margin of 50% on this one sale.

Let’s also say that this customer though has a phenomenal experience with the brand. They in turn, purchase an additional four more pairs of shoes over the next year.

What is the lifetime value of this customer?

Well, almost limitless:

• If the company delivers on service, design, and comfort, this customer may return several thousands of dollars.
• Averaging five pairs of shoes per year, this equals $500/year. Say for a five year period that becomes $2500. Not too bad, right?

At this point, we should talk profitability. How profitable is this customer to company?

In short – very profitable.

Here’s why:

• Our $20 acquisition cost, falls essentially to zero  for future customers over time as we’ll see in the next section. Now, there will be some ongoing costs for ongoing engagement and nurturing of this existing customer (email marketing, social media updates, promos) but amortized over time these may be $1 – $2 per sale. Here is where the scale and low cost of digital marketing tools really shine – but only if we create relevant content that the customer wants to hear about.
• So, the company’s expenses fall from $50 per sale to $32 for future sales, which essentially bumps the profit margin up to almost 70%. Wow.
• After five years, what is this company’s average profit margin for this customer? Let’s break it down:
  • Five year sales: $2500 ($500 per year over five years)
  • Costs – Year 1: $50, $32, $32, $32, $32 = $178. Year 2: $32, $32, $32, $32, $32 = $160, Year 3: same, Year 4: same, Year 5: same.
  • Five year costs: $818
  • Profit margin: ($2500 – $818)/$2500 = 67%

Granted this is a simple example with very basic assumptions but really profitable businesses have this type of laser focus. (And as with everything, the devil is in the details of understanding and tracking all costs and figuring out ways to drive recurring revenue).

Key takeaway: It is much easier to sell to existing customers rather than continually be seeking to acquire new ones. Not all business models are set up for this but often times strategy and as a result marketing tends to focus overwhelmingly on acquisition (which brings with it costs). By spending an equal effort on retention, these costs can be squelched and profitability increased dramatically. The whole trick is going after the right customer from the start and building the business around that base.

The role of traditional marketing used to be quite simple. It sought to inform a potential customer about what a business had to offer (product or service), usually through mass advertising. If there was a good fit between the market and the offering, the customer had the ability to buy, and the price point was in line with the value presented – a sale ensued.

Traditionally, the ability to drive sales was in large part a function of repetition and money. A somewhat linear relationship followed where advertising costs in equaled sales out. Those with the biggest budgets tended to own markets based of their ability to blanket the three channels of print, radio, and television and establish brand dominance. They interrupted a consumer’s attention to push a product or service, regardless of where that consumer might be in the buying funnel.

Yet, with enough repetition and a big enough reach (plus dumb luck), a company would likely find a potential customer that had that specific need and would consider buying as they would be perceived as the market leader based on showing up the most in traditional media.

Today with ZMOT, the consumer is coming to the conversation much more educated on the offering, value proposition, price point and the brand. We all tune out irrelevant advertising and instead use the web to find out what we want, when we want it. Yet, there still exists a huge discrepancy of where marketers spend money and where consumers spend their time.

Doubt this? Ask yourself when was the last time you purchased a product or service based on an ad you were exposed to? Did this stimulus stick with you long enough to eventually elicit a sale?

Even with digital tools, however, a “conversion” still needs to take place. This can be something as simple as getting a user to “Like” a brand on Facebook or something much more tangible like purchasing a product from an ecommerce store.

Either way, the marketer has the opportunity to help drive the business forward by either participating in that conversation on the website or social media and providing value through educational content.

Profitability and Marketing’s Role
Where the process breaks down is when these efforts are not tied back to the business objectives. Often times, businesses can struggle to clearly identify profitability and form a strategy around increasing this. Core metrics like customer acquisition (how much does it cost us to get a customer?), customer lifetime value (how much do we make over the lifetime of that customer?) tend to get ignored or quite frankly, the company can be too lazy to really dig in and find good answers to these questions. The bigger the company and its offerings, the more challenging it can be to identify such objectives.

Note: These are not always easy metrics to get at and can be tough to identify solid numbers. But it is critical that these are tracked and tested against to the best of the company’s ability. Failure to do so makes it easy to make poor strategic decisions. The old axiom of “garbage in equals garbage out” holds painfully true.

Let’s define some of metrics these up front:

Profitability: A set of financial metrics that are applied to a business’s capability to make money, after all expenses and other costs have been subtracted over a specific period of time. Not to be confused with sales. Sales figures and growth can be misleading. While it shows that marketing may be working or there is a good product/market fit, it does little for the business’s future to focus on this metric outside of profitability. Case in point: many companies go bankrupt in the midst of growth cycles by not closely tracking profitability.

In short: Profitability is how much you make from a sale after you subtract everything it costs to make that product – it’s that simple. Don’t forget hidden costs like accounting, rent, acquisition, etc. that need to be amortized over time.

As we see over and over in marketing, common sense can be one of the most overlooked areas. Businesses spend tremendous effort and money on getting users to their website. Yet, they lose credibility due to some basic signals.

Before we can begin a discussion on strategy, we must understand what factors people use to assign credibility. The best crafted strategy is useless if users do not find a brand trustworthy online.

Dr. BJ Fogg, a professor at Stanford University, has been studying the overlap between psychology and innovation as it relates to digital technology. His research spans fascinating topics such as how people are persuaded via social media, mobile and social networks. He has also studied in-depth trust online and web credibility.

From his Stanford Persuasive Technology Lab, Dr. Fogg and colleagues identified ten factors for establishing web credibility with digital marketing:

1. Make it easy to verify the accuracy of the information on your site. You can build web site credibility by providing third-party support (citations, references, source material) for information you present, especially if you link to this evidence. Even if people don’t follow these links, you’ve shown confidence in your material.
2. Show that there’s a real organization behind your site. Showing that your web site is for a legitimate organization will boost the site’s credibility. The easiest way to do this is by listing a physical address. Other features can also help, such as posting a photo of your offices or listing a membership with the chamber of commerce.
3. Highlight the expertise in your organization and in the content and services you provide. Do you have experts on your team? Are your contributors or service providers authorities? Be sure to give their credentials. Are you affiliated with a respected organization? Make that clear. Conversely, don’t link to outside sites that are not credible. Your site becomes less credible by association.
4. Show that honest and trustworthy people stand behind your site. The first part of this guideline is to show there are real people behind the site and in the organization. Next, find a way to convey their trustworthiness through images or text. For example, some sites post employee bios that tell about family or hobbies.
5. Make it easy to contact you. A simple way to boost your site’s credibility is by making your contact information clear: phone number, physical address, and email address.
6. Design your site so it looks professional (or is appropriate for your purpose). We find that people quickly evaluate a site by visual design alone. When designing your site, pay attention to layout, typography, images, consistency issues, and more. Of course, not all sites gain credibility by looking like IBM.com. The visual design should match the site’s purpose.
7. Make your site easy to use — and useful. We’re squeezing two guidelines into one here. Our research shows that sites win credibility points by being both easy to use and useful. Some site operators forget about users when they cater to their own company’s ego or try to show the dazzling things they can do with web technology.
8. Update your site’s content often (at least show it’s been reviewed recently). People assign more credibility to sites that show they have been recently updated or reviewed.
9. Use restraint with any promotional content (e.g., ads, offers). If possible, avoid having ads on your site. If you must have ads, clearly distinguish the sponsored content from your own. Avoid pop-up ads, unless you don’t mind annoying users and losing credibility. As for writing style, try to be clear, direct, and sincere.
10. Avoid errors of all types, no matter how small they seem. Typographical errors and broken links hurt a site’s credibility more than most people imagine. It’s also important to keep your site up and running.

Key takeaway: This study was published almost ten years ago and the majority of these tips are very straight forward. Yet, something like “Make your site easy to use – and useful” is something the majority of websites fail to deliver on still today and should be a major part of their online strategy.

Remember:

• Attention is the true currency online – ask for it only if you can deliver a return to your user.
• If your site does not look trustworthy, visitors are back to the SERPs and most likely gone forever.
• Strive to get out the way of your users and make interacting with your brand’s website as easy as possible.

Be sure to use this 10 step checklist before launching into any strategy or design discussions.

Bonus: Here’s a great video from Dr. Fogg talking about the art and science of digital:

Now that we have good understanding of how the online world works (Metcalfe’s and Moore’s Law, The Long Tail, etc) and what tools are available for identifying users’ habits and search motives, we can turn our focus to putting digital marketing to work to achieve business objectives.

The research piece now becomes invaluable for setting expectations with key stakeholders.

Armed with solid research, the digital marketer can identify opportunities and using tools like keyword search volume get a rough estimate for market demand. Real-time data like this can offer tremendous competitive advantages if woven into the strategy and execution tactics. If there is little search volume around possible topics and applications of a product or service, it is wise to check the assumption that there is a market to begin with. As we saw with Google’s research in the Zero Moment of Truth, almost every consumer today heads to a search engine following a stimulus.

Cross-referencing this keyword data with tools like Social Technographics, the opportunities come into sharper focus. If your target market does not show a high level of engagement, it can be quite frustrating to try and get users to submit content to your website or Facebook fan page. And management tends to zero in on the easy (and often misleading) metrics such as “Likes” or “Followers”.

Yet, when these metrics are the sole focus true business results tend to get overlooked. The digital marketer is left trying to get Facebook fans and yet not focusing on communicating the value around the business offering itself through the various digital channels – which will ultimately drive sales and propel the business enterprise forward.

Eventually, this myopic focus on junk metrics comes crashing down when the true return on investment (ROI) is pressed. “How much is a Facebook fan worth?” suddenly becomes a very important question when next year’s budget is discussed and the marketing investments to date have failed to drive additional revenue.

The challenge today with social media and the buzz around digital stems from a false belief that such applications create instant business value. Somehow the back-breaking work of building a powerful brand is quickly forgotten.

Neither Rome nor Apple was built in a day.

As we will see in this Strategy section, the reality of delivering true results for business within digital becomes much more nuanced than simply gaining more Twitter followers. For the right market audience and the right product such a network is invaluable and can indeed build tremendous value very quickly.

For many products or services, it can be a complete waste of time.

As we saw in the Foundations section with technology, the same challenges exist with adoption and leveraging networks that was present almost over a hundred years ago. Namely, how does one use these tools to achieve a business objective? The telephone was a marvelous invention and it greatly sped up the ability to do business once it was widely adopted.

The Strategy section will cover how to make sure solid objectives are defined first. This is critical for the digital marketer (or any marketer for that matter) to ensure they keep their job. Fluency with the business model and understanding how to drive revenue ensures a fluid Ready, Aim, Fire approach.

The digital marketer’s job is to take their understanding of the foundations of the online world, mix in research, and find a bridge between the current business reality and the desired future revenue goals.

Really, it’s that simple – and that hard.

Let’s get started with understanding what drives trust online  – for without trust all our efforts will be in vain.