Marketing Expert's Corner

This article written in 2010

 

"These are the Glengarry Leads"

Way back last millennium, B2B Sales folks figured out that having leads was a lot more interesting than cold calling.  It became part of marketing's job to generate leads, and a whole industry sprang up around producing and managing them.  Leads could be had for 10¢ a piece -- but the quality of cheap leads was non-existent.  In fact, the cost and annoyance of processing crummy leads made them a really bad deal.  Quality leads -- people who actually needed what you offered, had a proper budget, and were intending to buy 
soon -- could easily cost $100 each in a new market.  What most executives didn't realize:  the conversion ratios meant that the marketing cost involved with actually starting an enterprise sales cycle could easily exceed $1,000.  And the marketing cost involved with closing a new enterprise customer could easily be $10,000.  Scary stuff that most Marketing VPs didn't like to discuss.  As you know, I've always been big on managing and lowering the cost of customer acquisition:  now you know why.

While these lead gen economics aren't sustainable in the long run, in the early stages of a marketplace it's worthwhile because the marketing and sales costs can become a competitive barrier to entry.  If a vendor can get big fast, they'll rapidly go down the learning curve and achieve real cost advantages in marketing over their less-successful rivals.  This is the idea behind first mover advantage.  But this strategy only works when it works... and when it doesn't, it burns loads of cash.

That was Leads 1.0.  And then the internet changed everything.


Leads 2.0

One of the issues with olde tyme leads was their one-shot nature:  marketing generated a lead, and it was acted on or thrown away within a few days.  Ironically, most of the leads generated by marketing weren't really used by the sales folks anyway.  The sales folks typically disqualified the majority of leads without actually having a conversation with them (all too often, the lead refused to respond to follow ups).  How did this occur?  Much of the time, the leads that sales wanted were not the ones that marketing knew how to produce.  Surprisingly, statistics showed that the leads that sales threw away ended up producing just as much revenue* as the ones they picked ... providing that companies continued to aggressively cultivate the "dead leads" over time.

But all this backwards inefficiency isn't necessary now.  The web allows a new model:  leads don't have to be a one-time event, they can be part of a continuous process.  Instead of collecting leads in a net, vendors could grow them in an environment.  By creating and growing a community of interest, leads could be part of an ongoing conversation that could be managed and optimized over time.

This idea works particularly well with software and media, because the cost of product delivery has dropped to zero.  Vendors and content owners can give a taste of their product to interested parties for free, and can do "drip" campaigns to keep the community members' interest up.  Conversion becomes a matter of time.  For example:

  • Open source vendors give away the lion's share of their IP to anyone who is the least interested.  Users are encouraged to talk amongst themselves for self-support, product extensions, and service offerings.  Some of the users become enthusiasts, acting as gurus and mavens encouraging others to follow their examples.  The conversion rate from a full product download to a sale might be similar to the conversion rate for traditional enterprise leads, but the marketing and sales costs involved in the sales cycle are much lower.  As these leads are people who are already using your product, they've convinced themselves they need the "pro" version, and it's a much quicker sales cycle.  Essentially, they've already qualified themselves without your marketing or sales team touching them.

  • Newspapers, magazines, and even book publishers give away excerpts of their content, with the hopes of growing readership.  By encouraging readers to email interesting articles to their friends, content owners tap into viral marketing.  Blog engines encourage audience feedback and debate, increasing stickiness and loyalty.  Tag engines and bookmark managers like del.icio.us, Digg, and BoingBoing help publishers harness community interaction for greater loyalty.  And with members-only web events such as teleconferences or WebEx sessions, publishers can create a sense of immediacy that binds the audience and encourages them to buy.

  • Performers (particularly music and comedy) give away snippets of their work, particularly on YouTube.  They create a MySpace page to provide the latest info about their tours and opinions, and they encourage their listeners to create fan sites (either on MySpace or blogging engines).  In a recent move by RadioHead, they gave away their entire CD for free and asked listeners to donate what they thought the music was worth.  Naturally, the record industry ballyhooed the statistic that 2/3 of the people downloading didn't give anything.  But by going directly to the customer, RadioHead was able to earn much more than they would have through a conventional CD deal.  Plus, the sales came faster, generated worldwide publicity, and automatically expanded the loyalty of their community.  Dumb like a fox.

  • With physical goods, the same dynamics can occur by tapping into customer review and enthusiast sites.  In the US, consumers go online looking for customer and user feedback on almost any important purchase.  People now trust user-contributed product reviews and the chatter on forums more than they trust the press, the analysts, and (god forbid) the advertising.  Vendors following this strategy find out who the lead-dogs are on the geek blog sites, and court them (better to be a little subtle about it, but whatever works...).  Not everyone can be marketing the iTouch, but even "boring" technology is new to a lot of people, so a vibrant online community can make the demand real.

Common to all these strategies is leveraging the law of large numbers.  For example, software vendors following this strategy should be measuring their community size growth  ("new leads") by the tens of thousands per year -- even in B2B.  While there is viral potential, most of the marketing strategies do not depend on one-shot tactics or miracles:  the magic is a low cost, repeatable process involving:

  • Valuable content that is frequently updated to attract and interest people.

  • Web infrastructure to get the users (SEO, widgets, CMS, webinar archives, web analytics).

  • Web infrastructure to encourage community development (wikis, blogging engines, forum engines, and web analytics).

  • SFA and email blast/drip engines to stimulate conversion.

  • eCommerce and recommendation engines to enable an instantaneous transition from audience to customer, and to make upsells frequent.

  • Easy access to partner products and services, to make the "whole product" easier to consume.

  • For the enterprise, really tight Telemarketing/Telesales to cultivate leads and encourage more serious interest.

  • Logistical cleverness, particularly for product customization and returns.  Few, if any "middlemen" should be required -- distributors and resellers only make sense when there's a bulky physical good -- as almost anything can be drop-shipped from your warehouse.

In the context of enterprise selling, Leads 2.0 are people who have already gotten a full taste of your product or have even purchased online before your sales rep gets involved.  These sales are repeat business, which is between three and six times more likely to close than new customer acquisition.

In the context of B2C and SMB-B2B, Leads 2.0 can move directly to sales with only a website or Telesales rep being involved.

Why Aren't Leads 2.0 Happening Everywhere?

Around Silicon Valley, it's amazing how many Leads 1.0 marketing operations there are.  Why are these high-cost operations still running?  Leads 2.0 do have some issues:

  1. They take longer:  revenue productivity of community-based marketing can take 18 months or more to really kick in (many a VP and most VCs don't want to wait that long). 

  2. They need large numbers:  if you're in a very narrow niche, the audience will be too small to generate a community.

  3. It's hard to create content with the relevance and authenticity to provide value to the audience (if you're too pushy, you'll scare off the audience). 

  4. There are a lot of moving parts to get right (and the required skills are surprisingly rare).

  5. Perhaps most importantly:  sex appeal.  Lead's 2.0 involve a lot of work and not a lot of high-budget fun. 

But that last one is not a good reason, and within a few more quarters nearly everyone will have made the shift.  Welcome to the millennium of Leads 2.0

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*Since the dead leads outnumber the live ones by at least 4 to 1, their revenue yield can be significant.  The trick keeping the ongoing costs of cultivating the "dead leads" very low.

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