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Budgeting for Advertising and Customer Experience
Jul 29, 2004
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A couple of years back, a potential client contacted me about improving her company's website. It seemed like a good fit: the company was (and is) an established, profitable company; and improving the customer experience would, without a doubt, create significant gains in metrics like revenue and customer acquisition. The site needed help, customers were frustrated, but with a bit of work the business could enjoy enormous returns.
The problem came when we talked about fee. Creative Good was too expensive, she said, because her boss (the CEO) only wanted to spend a few tens of thousands of dollars per *year* on anything dealing with the customer experience.
I told her that seemed a tad low for an annual budget to be spent improving the site for customers, especially given that the annual revenue of the company was around $50 million.
"Well," she responded, "we already spend $30 million a year just on advertising, so there's not much left over."
Needless to say, the project never happened. The CEO decided to continue to "run a few surveys" with his $20,000-or-so budget; his $30 million in ads continued to drive customers to a website that frustrated them.
Let's review the numbers.
Amount Annual budget for...
$30,000,000...Advertising (driving people to the website)
$20,000.......Customer experience (what happens when they get there)
So... a good chunk of every dollar the company earned went to sending potential customers to have a bad experience. A tiny percentage of those frustrated people would muddle through and become paying customers; the vast majority would click away, never to return.
Is this any way to run a business?
Believe it or not, it's the normal, accepted way business is run today in *many* companies. I know because I've encountered it again and again throughout Creative Good's eight-year history. $70 million for an ad campaign; $10 million to redesign the logo; a few thousand to "run a focus group" to assure the executives they're doing the right thing. Business as usual.
The good news is that more and more companies are "getting it" and beginning to invest in improving what happens when customers actually arrive on the site. They're not abandoning advertising; they're just investing in a more balanced fashion.
Imagine what would happen if the potential client above had had these numbers:
$15,000,000...Ad budget
$15,000,000...Customer experience
Can you imagine a company investing in the customer experience as if it was as important as advertising? Imagine a site turning from a frustrating, stupid, slow experience into a smooth, quick, easy, informative, delightful experience that you wanted to return to - and might even tell your friends about. Shouldn't *that* be a way (THE way) to run a business?
Let me take it a bit further.
What if a company stopped advertising altogether and focused exclusively, with undivided laser-focus attention, on the customer experience? Would the CEO be insane? If it was a public company, would Wall Street riot, and would the board ask for the CEO's resignation?
In a word, no. I know this because there is a major, established company that is pursuing a strategy very close to that. Its TV advertising budget is zero.
BusinessWeek recently interviewed Amazon.com's Jeff Bezos (Aug. 2, 2004). The interview included this exchange:
BusinessWeek: How important is advertising to building the brand?
Jeff Bezos: We don't do any television advertising, and we take
all of the money that we would put into television advertising,
and instead put it into things like free SuperSaver shipping
[free shipping on most orders over $25], lower product prices,
category expansion, and invention of new features. We take those
funds that might otherwise be used to shout about our service,
and put those funds instead into improving the service. That's
the philosophy we've taken from the beginning. If you do build a
great experience, customers tell each other about that. Word of
mouth is very powerful.
BW: It's fascinating that the increase in the value of your brand
has happened at the same time when you're not advertising in mass
media at all. Do you anticipate ever needing to use broad-scale
advertising again?
Bezos: No. Never say never, but I don't anticipate that. I like
the strategy we're on.
I like the strategy Amazon is on, too. Not to suggest it's even close to a perfect customer experience - there are many challenges on Amazon.com, not the least of which is the increased clutter on its product pages recently. But Amazon is much, much better than most, any way you measure it - revenues, profitability, stock price, brand equity. And their stated strategy - straight from the mouth of the CEO - is close to the ideal corporate focus on the customer experience.
Amazon's example offers a challenge for other companies: focus first on the customer experience. It's not even necessary to pull the entire ad budget. Just create a strategy, and a budget, to focus on the customer at *least* as much as you invest in ads.
The most effective companies realize that they can't succeed on advertising alone; the customer matters. For those companies operating online, customer experience isn't a list of "website usability guidelines." Instead, customer experience requires a transformation of the company's strategy, backed up by the organization, investing with a reasonable budget.
Those with ad budgets, remember: Bring customers in, but be sure to treat them well when they get there.
Haven't read the Business Week piece yet, but... You have to consider that Amazon benefits from being a "household name." So their NEED to advertise is not the same as other businesses. If Amazon were an upstart trying to topple or co-exist with some goliath, their advertising concerns -- and therefore expenditures -- would be quite different.
I'm not defending a CEO's decision to neglect customer experience. I'm just pointing out that Mr. Bezos is in a VERY uncommon and enviable position.
One major reason Mr. Bezos attained his current enviable position is because he invested in the customer experience from day one. The ad budget was never the primary expenditure, even when Amazon was small and unknown.
While Amazon is not representative of the moral majority of struggling web businesses (having been a pioneer and lived through the dot-com cleanup), the article makes an excellent point. Is the disproportionate ratio between the expense spent on advertising (bring a customer) and user experience (keeping them coming back) valid? And I believe that as the user experience field continues to prove its worth, it too shall become a standardized practise for all players, big and small. And hopefully we will continue to move from an age of information to an age of ‘findable information’.
Um...Amazon does advertise in mass media. I have received mini catalogs in my Sunday paper, and remember seeing print ads as recently as a few months ago. They seem to step it up around the December holidays.
But your point is well taken - to invest so heavily in advertising but not in product design (which is what user experience actually is) seems rather shortsighted.
I agree with the comments about Amazon's site being very clutted now and in fact my last experience on their site was very dissappointing. Some of the money they are using needs to be spent on upgrading their shopping cart which is messy for such a big site. In the end I ditched my $71 US order (and I'm not a newbie)
Today's message is especially interesting to me as our company has produced demos for Amazon that fall right in place with their commitment to good experiences (we produced their 1-Click Ordering demo). As the leading developer of web and software demos, Autodemo is 100% focused on the user experience.
Time and time again, we recommend demo content that answers the big three questions for users:
1. What does it look like?
2. How does it work?
3. Why should I care?
We're on board with you -- the closer everyone gets to providing good experiences the better. Please keep preaching to the choir.
>A couple of years back, a potential client
>contacted me about improving her company's website.
>It seemed like a good fit: the company was (and
>is) an established, profitable company; and
>improving the customer experience would, without a
>doubt, create significant gains in metrics like
>revenue and customer acquisition.
I think one major factor is the importance of the website to the business. Obviously for amazon, it is essential, but for other companies this will differ widely. Without knowing the company in question it is of course hard to comment on that.
If, however, they achieved to become an "established, profitable company" that can spend $30,000,000 on advertising, and their website is really as bad as you seem to imply, than the only conclusion can be: it likely wasn't very important to their core business. ;)
Q: How was the company making their money and what role did the website play in it?
Putting the Amazon example aside for a bit, agencies are just as much to blame as the companies are for misspending budgets.
Simply put, media placements are a big cash cow for agencies--the standard 17%+ markup on media buys is a big source of revenue. A good agency (read: one that really cares about the success of their clients) would argue that the advertising and the customer experience are one in the same, and you have to work with the client to make sure both houses are in order for a campaign to work.
If not, we tell clients flat out: you're wasting your money on this ad campaign if the customer experience falls short of what you're promising.
It follows the old ad axiom: nothing kills a bad product quicker than good advertising.
Interesting piece - I've added it to today's postings on my blog: Much Ado About Marketing (http://muchadoaboutwhatever.blogspot.com) as a piece worth reading and commenting on.
Specifically, I think it's important for businesses to realize the importance of paying off on the promises they make externally (through advertising, PR and other externally facing media) with a customer experience that meets those expectations.
"Nothing kills a bad product faster than good advertising," is how the old saying goes - and that's even more true today when consumers can visit your website immediately after an ad or pr exposure, when their expectation level is at its peak.
Thanks again for the insights.
Well, we spend 50% on advertising and 50% on product improvement (customer experience design & development) and it is working for us.
When we survey our customers, our number one source is still Google, but number two is word-of-mouth. We hope with good reason.
I think one of the main reasons of this obvious imbalance in their budgeting is that the decision-makers don't really understand the role of the web in the total customer offering, and often trust advertising more than their web site.
http://www.noplay.no/noplay/2004/08/balanced_budget.html
To answer Spencer's question... yes, the web was an important channel to the company I mentioned in the column - it's an online-only company. Its survival to date comes from having advertised so much - and offering a useful service that (if they can muddle through the site) users really appreciate.
Imagine how successful the company would be if they fixed their site..
Online or offline company -it doesn't matter, I think the point is that the first contact for most interested customers, journalists, potential investors - is a company's website. In the US, some 70% of people buying a car visit the manufacturer's website before visiting the local dealer.
For me, that's why companies shouldn't skim on their website budgets - it is one of the the main ways that people will interact with your company.