Friday, May 27, 2011

Stop Giving it Away For Free and Start Creating Brand Value

There's an enormous communication gap between we digital marketers and the startups that are trying to attract our dollars. Over the past several months, I have met with about four dozen emerging companies that hope to become a part of brand marketing plans. Almost to the company, they appear to think that my colleagues and I are desperate for new ways to cut prices by distributing digital coupons and free product.

"And you can give people a dollar off right in the aisle!" "And you can reward gamers by sending them a free six pack." "And you can offer coupons that they can download right onto their phones." "And you can give your best customers a 50% rebate that appears on their credit card statement." "You'll get lots of people in your stores because millions check in every day to get 50-90% discounts."

These can be valuable tactics when you have very specific business goals. But for most brands such programs don't actually constitute marketing. They're the opposite.

At its core, a brand's value is represented by the premium a company can charge versus its competitors. If I can get millions of people to pay $5.99 for Kellogg's Corn Flakes versus $2.99 for generic corn flakes, that's a strong brand. If I have to pass out $2.50 coupons to get folks to buy them, that's a weak brand. And if people get used to receiving $2.50 coupons all the time, they'll ultimately think less of the coupons.

We don't need four dozen new ways to hand out coupons. We need ways to mitigate the need for distributing any coupons at all. Good marketing increases value, not decreases it.

I think part of the reason why this simple point is so poorly understood is that the realities of digital business versus actual business are so different. If you've existed for two years and never generated a nickel of revenue, you're not a business. At least not yet. And the realities facing your management are rather different than those of revenue-producing businesses.

Brand marketers need to find digital tools and platforms that can enhance brand value. The great almost-depression of 2009 escalated marketer interest in digital promotional tools, and start up companies have been wise to recognize and capitalize on that opportunity. But digital marketing is not enhancing brand value if the bulk of it is driving up the amount of products and services we sell on deal.

I brought this up to one start up CRO last week, and he told me that they were in the business of giving consumers what they want. OK fine, but the consumers aren't actually paying his salary. Brands are.

Excuse my cynicism, but what the consumer wants is everything for free. What brands need is revenue, increasing margins and long-term consumer loyalty. You (usually) don't get that by handing out freebies.

Many of the companies I've seen have data indicating that as a result of distributing offers, more consumers like the participating brands. But here's a splash of ice water to the face: a user that loves my product because they get a 50% off coupon every week is loyal to the deal, not the brand. They may like a brand for dropping the price, but for a brand, liking only matters inasmuch as it results in greater profits.

I'm not saying you can't be successful by offering a promotions platform. The people at are getting rich doing just that. But marketers are becoming more acutely aware that all this discounting is hurting rather than helping. Look at Groupon's month-over-month decreasing revenue for evidence.

A year from now, many of the startups touting their ability to distribute free product and deals are going to be gone. That doesn't mean that someone won't get rich by creating a whiz bang digital promotional platform. But the people that are really gonna clean up are the ones that offer digital solutions that help me charge more for something, not less.

Thanks to ReadWriteWeb for publishing this first.

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