Using Pay-For-Performance To Retain Customers

Why is it you only hear about pay per performance (PPP) when it comes to online advertising and customer acquisition?  This concept grew out of the online advertising world.  In the past you'd just spend and hope your ad units drove customer sales.  It was all about the big idea and reach.   We've since evolved into a world of performance models in acquisition.   We pay for clicks, we pay for impressions, we pay for leads and we pay for conversions. We do it in search, we do it with email, we do it with media and exchanges, yet that models stops once you get that first purchase. 

Why can't we apply the same principles of performance marketing to retention marketing?   Why is it that you spend so much to acquire a customer, but you still have half of your customer file of non-buying customers, dormant customers or non-responsive customers?

The principles of performance marketing don't lie.   You should have some control over reach and governance over the amount of exposure to your audience.  You should have a solid method of reconciliation and attribution (who really gets credit for a sale?).  You should have the technical, creative and strategic means to optimize, test, learn and re-optimize without fatiguing your audience.  You want empirical evidence that something drove a sale or behavior and are willing to pay for it.

Are open rates important?   Why wouldn't you think in terms of eCPM?  This calculation has gained tracking in the advertising world for years to provide a better performance metric that aligns to financial and reach goals. (Total Earnings/Impressions X 1000  = eCPM). 

In my experiences over the years, I haven't found one client or partner that has it all together to run programs like this for non-acquisition programs.  I believe the market will dictate that change.  But what stops most from attempting it?

Sensitivity to Control.  There is sensitivity to the perception of losing control in retention marketing.  CRM is about knowing the customer and optimizing the experience.  A performance model could potentially introduce a less controlled experience that may not be aligned with customer loyalty goals.   I also blame this issue on the vendor landscape.  There are too many grey areas to acquisition and PPP models, and many traditional marketers don't trust this model with their most valuable customers.  But PPP doesn't mean you have to lose control over offers, discounting, promotions and cadence. 

 

Pay-Out Model.  You'd think it would be simple.  You drive incremental business and you pay a %.  But  retention marketing  budgets work differently and they aren't as variable and fluid as acquisition, media and search budgets when it comes to performance and pay-outs. 

 

Lack of good attribution.  If you don't trust or have clear insight into what drove the sale, you'll never run a PPP program.   Most companies lack the reporting, the science behind attribution and the discipline to run a program like this.  In the online advertising and search space, the heavy lifting of pay-outs relies on the vendor. If you don't report and reconcile, you don't get paid.  If you think you do it now, try it out for a few months. Hold back your employees' paychecks if they don't perform, and I bet the reporting will become far more detailed and accurate.

Little appetite for risk.  PPP is a risk-to-reward model.  It requires some calculated risk and a bit of trust in your partners.  You can't expect to run these programs alone. You shouldn't try to absorb all the risk.  Many don't have the infrastructure or capabilities to run these models alone, nor should they try.

No Bandwidth.   That's the excuse for not getting it done, but really that translates to mean you just haven't prioritized PPP or don't trust that it will drive the highest results.  But in the age when customer attrition is over 35% a year, you'd better find a way to get more out of your spend.  You can't rely on commoditized CPM costs to increase your capabilities.  

PPP isn't an easy type of program to negotiate with your agencies and partners.  But it's something you should begin to discuss in your planning; you should find ways to weave it into your strategy and budgets.   Just as you should be thinking about it from a marketer perspective, your agencies and  partners should be thinking of creative ways to model PPP to future budgets.   

"There is no such thing as coulda, woulda and shoulda.  If you shoulda and coulda, you woulda done it."  -- Pat Riley (Basketball Coach)

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3 comments about "Using Pay-For-Performance To Retain Customers".
  1. Paul Rosenblum from MyBuys, Inc. , December 21, 2009 at 1:17 p.m.

    David -- Couldn't agree more. And at MyBuys we've seen the same thing and are trying to lead on it. Our email based retention programs (for over 100 retailers and growing) are delivered on a pay for performance basis. And it's the performance that our clients care about -- not clicks, but revenue.

  2. Bill Kaplan from FreshAddress, Inc. , December 21, 2009 at 5:08 p.m.

    No wonder everyone always says "When David Baker speaks, people listen." Great article with excellent points. Of course, the execution side for accurate reconciliation and attribution is easier said than done but that doesn't mean it's not worth pursuing.

    At FreshAddress, our entire business model is built on Pay-For-Performance (PPP) as we only charge our clients for guaranteed deliverable email addresses returned and only pay our licensed data partners for guaranteed deliverable email addresses provided. If your PPP model is instituted both up and down the line, you're able to provide better value for your clients while ensuring better data quality and preserving your margins. Quality results, unbeatable value, and built-in profits - isn't that what we're all striving for?

    Take David's suggestions to heart and I'm sure your 2010 bottom line will have plenty to show for it.

  3. Dave Hale from DHI-Communications , December 23, 2009 at 8:47 a.m.

    Right on Brother! I have been preaching this for several years and practice it with my business coaching clients. Why should they pay me a big fat fee if there is no ROI? If they did not receive anything in return, they lost a bunch of money that they paid me, plus the poor reputation that followed would have had me out of the business long ago.

    I think all of the "social media expert consultants" out there should practice pay for performance measures. I think we would see a drastic reduction in the amount of providers offering these claims.

    I will now um off my soap box.

    Dr. Dave Hale, The Internet Marketing Professor