Archive for March, 2013

Small Conversion Can Still Mean Big Business

Monday, March 25th, 2013

“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”

This famous quote is attributed to John Wanamaker (1838-1922), the US businessman who is often considered the father of the department store.

Typical Sales Funnel

We use the slide on the right to explain the impact of our go to market solutions on IT and other high-tech companies, who comprise our primary target market. When seasoned sales and marketing professionals hear that our intervention can improve conversion from 0.1-0.3% to 0.8-1%, they’re excited and want to dig deeper into how we help deliver such 3-5X uplifts in market outreach, geographical presence, sales pipeline, billing rates and ticket sizes.

However, when the uninitiated see the same figures, their reactions are quite different: Some of them ask us why the heck they should waste time pursuing the 99% that’s anyway not going to buy from their companies. Others start wondering if such ‘miniscule’ conversions wouldn’t happen purely by random.

One the face of it, these are genuine concerns. After all, when a company deploys 100 people for three months on a software development project, it expects to get more-or-less 300 person months’ worth of functionality (as measured in function points). However, this argument misses the point that sales and marketing are subject to several external factors and are, therefore, not subject to a straightforward translation of input to output.

You need to comb the entire market before landing the 1% fraction of your customers since this segment is not exactly holding a placard announcing its intention to buy from you.

To see why a total random approach wouldn’t work, we’ll take the top two stages of the sales funnel illustrated above. These are called ‘Suspects’ and ‘Leads’. Suspects are companies to which you’ve reached out via email, telephone or some other channel. After hearing from you, some of those suspects “raise their hands” to show interest in what you offer and, accordingly, become your Leads. The goal of the salesperson or marketer is to reach out to as many suspects as possible and convert as many of them to leads as possible. Unfortunately, her competitors are doing exactly the same, which is what makes things a bit interesting.

To cite an example, a large European bank told us that they were contacted by around 50 IT vendors in a typical week, of which they could spare the time to meet only one. If you’re one among those fifty companies, you know that you can’t secure that much-prized appointment by taking a random approach. Only the vendor that has followed a systematic approach to crafting its message and conveying it using the right type of content would win in this situation.

B2B marketers can take consolation that low conversion rate is not unique to their industry. Some other businesses afflicted with it are

  • Drug discovery
  • ecommerce
  • Gold digging
  • Ideas to implementation
  • VC-funded startups

Just as none of these activities can be done haphazardly, neither can you follow a “spray-and-pray” approach when it comes to marketing. Go to market requires a structured methodology, which, in our case, spans four phases namely, offering, content, campaign and sales support.

At this stage, you might be wondering why you should bother with so much song and dance over advertising and marketing if all you’re going to get out for your efforts is a 1% conversion. You should take comfort from the fact that, when they’re done well, advertising and marketing deliver huge returns. That’s why, despite complaining that only 50% of advertising works, companies and brands have increased their advertising spends by leaps and bounds in the century following Wanamaker’s famous statement. Likewise, in the B2B technology space, when only one company out of the 100 suspects touched by you turns into a customer, the revenue you earn as a result pays back your marketing investment many times over.

Should vendors fear that low conversion will consign them to the fringes of the market and render them insignificant players forever? Not necessarily. If the size of the addressable market is large enough, a well-thought out GTM strategy can deliver fame and fortune without operating anywhere near 100% conversion rate.

M-PESA’s Funnel

To quote an example, the Indian ecommerce company Flipkart attracts a daily traffic of 5.2M page views (Source: FreeWebsite Report). According to this Forbes India article, Flipkart generates around 17,500 sales a day, which translates to a conversion rate of 0.34% (17500/5.2M*100%). Even taking 50K, the higher figure for transactions per day reported by the FORTUNE magazine a few months ago but  missing from its online version, the conversion works out to 0.96% (50000/5.2M*100%). Either way, Flipkart’s conversion is less than 1%, but, despite that, it happens to be India’s largest ecommerce company.

To quote another example, M-PESA has become the world’s most successful mobile money service despite having a conversion of ‘only’ 1.08% (2/184*100%) (Source: McKinsey).

Have Flipkart and M-PESA achieved their respective leadership positions by fluke? Certainly not. On the other hand, are we implying that business owners and marketers can’t achieve higher conversion rates? No, we’re not. In fact, as you can see here, we’ve helped several companies achieve manifold increase in conversion of website visitors to leads / deals. Our point is simply that 100% conversion is well nigh impossible in marketing and also that a random approach wouldn’t even yield an apparently low conversion of 1%.

Banks Have Nothing To Fear From TELCOs

Monday, March 25th, 2013

In my opinion article titled “Impact of Regulation on Financial Services Providers” published in the August 2012 issue of  The Journal of Internet Banking & Commerce, I’d argued that banks don’t have much to fear from the slew of financial products launched by non-banking financial services providers. Many career bankers averred that they heaved a sigh of relief after reading my article.

Carrier Billing Payments

However, Karthi Marshan, who is Head Marketing, Kotak Mahindra Group, a midsized private sector financial services company in India, had a slightly different take. He felt that telecom companies could pose a major threat to banks. To paraphrase his email to me, “While regulation may well prevent them (TELCOs) from ever taking deposits, I think the day can come when they become significant payment aggregators, ergo, superb alternatives to credit & debit cards”.  He went on to add, “The sheer convenience of paying just one bill a month for all my transactions, and being able to chuck all the plastic in my wallet, is a customer benefit that may nudge telcos into investing in acquiring merchants big time”.

At the onset of Gen Y Mobile Payments (GYMPs) in 2009, I’d felt the same. Boku and Zong, the poster children for the then new method of payment, enabled purchases to be billed directly to consumers’ mobile phone bills. This was truly disruptive since, unlike most other wannabe-disruptions that actually utilized ACH or card networks beneath the hood, the new “career billing” providers entirely bypassed banking rails. Moreover, as I’d written here at the time, GYMPs seemed to have solved the conflict between convenience and security, a tightrope that banks have always had problems walking with their electronic payment offerings. Therefore, it appeared that GYMPs were set to grab a major share of the retail payments market. It was indeed conceivable that, over time, telecom companies would acquire them and use their alternative payments rails to challenge the hegemony of banks in this lucrative space.

Fast forward to today. For more than one reason, the threat to banks from TELCOs (including MNOs) has receded considerably.

GYMPs continue to be extremely expensive. Although transaction fees for career billing are down from their peak rates of 30-40%, they’re still as high as 20%. As a result, GYMPs have barely made much headway beyond their traditional sweetspot of virtual goods. In micropayments, often seen as a low hanging fruit for them, GYMPs are not helping themselves with their outrageous premiums. I discovered this recently when, after posting an update on my Facebook Page, I got a pop-up message asking me if I wanted to promote it via FB’s Sponsored Post. I decided to give this new service a whirl and said yes. The price displayed at first was US$ 0.30 (which is around INR 15 @ US$ 1 = INR 50). However, when I opted to pay via mobile phone, the price shot up to INR 99, which translated to a whopping 560% premium. Fat chance that merchants / cardholders, who complain so vehemently about the 2-4% interchange / surcharge slapped on them for credit card payments are going to accept the kind of transaction fees / premium applicable on carrier-billing payments, especially for big ticket items.

Perhaps realizing that they were stunting their growth by tying themselves down to TELCOs, Zong and a few more carrier billing products recently started accepting credit cards. In other words, to ensure their own survival, they’ve given up on their original charter to disintermediate banks and are now forced to embrace banking rails. Lest anyone associate this fate exclusively with startups that are long on enthusiasm and short on resources, let’s not forget that ISIS, the mobile wallet developed by Verizon, AT&T and other mega telecom corporations, abandoned its original plan of setting up an exclusive TELCO rail, instead roping in BarclayCard and other banks into its network last year. How the mighty have fallen! Maybe this explains why there hasn’t been much M&A activity in this space. Even Zong wasn’t acquired by a TELCO but by PayPal, which runs on top of ACH and card rails.

As for TELCOs consolidating all my accounts with them into one master account and allowing me to pay only one bill at the end of the month, well, I don’t see it happening anytime soon. For ten years, I’ve been having two mobile phone contracts in my name with a leading global MNO. Not once has this company ever offered to link my two accounts into one and save me the hassles of making two separate bill payments every month. If a TELCO can’t consolidate its own accounts, I seriously doubt if it can aggregate third-party accounts into its billing system.

Even assuming that TELCOs will eventually overcome all these challenges, they’d need to partner with merchants, payment processors and other participants in the retail payments ecosystem to be able to process payments from end to end. On this count, I can say from personal experience that it can be very frustrating to strike partnerships with MNOs. In a recent case, one of my customers approached a leading MNO with a proposal to cocreate a platform for targeted advertising to the MNO’s customer base. The MNO’s senior management flatly refused to entertain this proposal,  saying that their C-Suite was totally against monetizing their customer data. Imagine my customer’s shock when he read about a new startup announcing a deal in the same space with the same holier-than-thou MNO! You don’t expect this kind of shady behavior and utter lack of transparency from a publicly-listed, multi billion dollar corporation like this MNO, but that’s what happened.

Now, from this article, it looks like banks are also having trouble getting TELCOs to the discussion table and some, like Bankinter, are finding ways to forge ahead on their own. This Spanish bank recently devised a highly innovative architecture that let it launch its mobile payments product without having “to strike deals with telcos…”.

Forget about fearing them, savvy banks will simply bypass TELCOs to maintain their leadership in financial services.

Ten Ways – Er, Only One Way – To Slash SMS Costs

Monday, March 4th, 2013

In Whither Cross-Selling And Upselling With eBills And eStatements?, I’d written about how I got hit by exorbitant SMS costs and how I solved this problem by ordering an SMS Pack that gave me 1,000 SMSs for only INR 35 per month.

Things were fine for a few months.

Then, suddenly, I received a biggish bill a couple of months ago. Although I’d only sent around 800 SMSs – well below my free quota of 1,000 – I was charged for an additional 300 SMSs. This didn’t make any sense. When I called my MNO – a leading global telecom company – I was told about a so-called “Blackout Period” when SMS packs weren’t applicable. Covering five festival days in a year – e.g. Diwali, Christmas – SMSs consumed during this period are charged at actuals. I happened to have sent 300-odd SMS greetings during the two blackout days that fell during the billing period, which explained why I got docked separately for them.

I protested to the MNO’s CSR that there was no mention of a blackout period when I signed up for the SMS pack. He claimed that the MNO’s website included a reference to this. However, when I challenged him to point out the exact page on the website where I could find a mention of blackout period, he gave up. Another CSR told me that the order form signed by me while ordering the SMS pack carried this information. I pointed out to him that I’d purchased this SMS pack via a combination of social media and email, so there was no order form carrying my signature. Confessing that he never knew customers could order things from his company without wet-ink signature on a printed form, this CSR bit the dust. Sick of talking to CSRs who evidently had no clue about what was happening, I asked to escalate my call. The customer service manager who came on the line was indeed able to cite this clause on their website. At this point, I stopped arguing and made a note to myself to keep this blackout period in mind going forward.

However, being festival days, there’s this natural urge to send greetings by SMS and I wasn’t sure how long I’d stick to my resolution.

It later struck me that, by advancing your greeting messages by one day, you could beat the Blackout Period. Lest your friends receiving your greeting before the festival day start wondering if you’ve lost your sense of date and time, you could spin this by saying, “I wanted to be the first person to wish you”.

If you’re following content marketing, you’d note one common advice for making your message go viral: Use titles like “10 Ways of Doing Blah Blah Blah”, “Top 5 Strategies For Blah Blah Blah”, and so forth. I’d normally take this advice seriously because I’ve found that it works well in practice. However, in this case, I only know one way to cut SMS costs and, at least until MNOs catch on to it, it will suffice. Therefore, I’m going to ignore content marketing best practices and leave this post’s title the way it is. Hopefully, the natural human urge to save money will make this post go viral. We’ll see…

Web – The Forgotten Channel?

Monday, March 4th, 2013

According to the World Retail Banking Report 2012 co-authored by Cap Gemini and EFMA and a few other research reports published recently, customers are viewing the Internet as one of the two most important channels of retail banking worldwide, the branch being the other.

In this context, I find it odd that many banks, nonbanking financial service providers and others are virtually treating the web as a non-existent channel while communicating the value proposition of their telephone and mobile banking channels and mobile payment services. Let me cite a few examples of such display of “web amnesia”.

hdfc01-200wBank: I recently received an email from my bank – a Top 5 private sector bank in India – with an offer to use its Phone Banking channel and receive a free gift. To promote this channel, the bank used the tagline “Why walk a mile when you can dial?” to check the status of a cheque. This is a great pitch for phone banking, just that it’s outdated by more than a decade. This very bank launched Internet Banking some 12-13 years ago. Since then, many customers, including me, have been checking the status of cheques – and doing lots more – with a few mouse clicks on its NetBanking portal instead of “walking a mile”. (For the moment, let me ignore the fact that cheque usage has itself been steadily dropping ever since banks launched ACH- and RTGS-equivalent EFT systems on their Internet Banking portals around 6-7 years ago).

coop01-200wOnline Payment Provider: According to this Finextra article, a bookstore in Australia “lets students beat the queues with QR codes”. The queue-busting solution has been provided by a leading online payment provider that has recently forayed into physical stores. To use it, students visiting the store would need a smartphone, have a QR code reader app installed on it and know how to scan QR codes. I’ve no doubt that at least 75% of the student population in Australia would be digitally native enough to fulfill these three prerequisites. But, by the same token, won’t they simply order the books online instead of visiting the store, especially during the peak season when they know the place is going to be crowded (Yes, I did check, the company does have a website that accepts orders online). Or, is it that, despite being tech savvy, they’d prefer to visit the store for the instant gratification of walking out with the ordered books in hand? Even assuming that there are several students in that category, they’re unlikely to find much appeal in the queue-busting alternative since it doesn’t make the books available for instant store pickup. The way it works, books ordered via this option are shipped a day or two later to students’ homes.

airtelmoney02Mobile Network Operator: This Top 3 Indian MNO has recently launched a Mobile Money service. The MNO is promoting mobile bill payment, a major use case of its service, by emphasizing that it provides an alternative to standing in queues for hours to pay bills at the biller’s physical stores, or “relationship centers” as it calls them. Fact is, most billers, including this MNO, have launched Internet-based bill payments years ago. Some of them, like my energy utility, have done a great job of eliminating the traditional areas of friction that have plagued similar systems in the past, thereby boosting adoption in recent times (See MSEB Tops Online Bill Payment Consumer Experience for details). In short, bill payment has been free of queues for a long time now for those who want to avoid them.

I could go on with many more examples but I hope you get my drift.

Given that they’ve invested millions in setting up their web channel, why’re banks and others alike ignoring it while promoting their mobile services? Let me hazard a few guesses to explain their behavior:

  1. People involved in the promotion campaigns for mobile services rarely use the online channel in their own personal lives for banking, shopping and bill payments, thereby losing top-of-the-mind recall for it
  2. They’re targeting a new segment of customers for their mobile services which is characterized by people at the bottom-of-the-pyramid who have mobile phones with data connectivity but lack PCs with Internet access. I’m convinced that this segment is sizable ever since I saw a janitor at an Indian airport tapping away on an iPhone / clone and heard that 70% of taxi and autorickshaw drivers in Indian metros have smartphones. But, I’m not so sure if this segment is ready for the advertised mobile services at this point.
  3. Good old silo mentality of each channel. This is not unique to banks as the above examples involving a bookseller and a telecom company prove
  4. Poor marketing.

Regardless of the reasons, this “web amnesia” is alienating loyal web channel users. Which is a shame because they can be easily converted to early adopters of the mobile channel if only certain mobile services were repositioned as solutions to pain areas found in the online channel.