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NONE: Re: ONLINE-ADS>> Order conversion

Re: ONLINE-ADS>> Order conversion

jgehman_at_creativelabs.com
Wed, 26 Aug 1998 10:25:54 -0500 (CDT)

Hmmm...First on the Internet side: There are two issues 1)
response rate; 2) cost. In my experience, 0.75% CTR is not too
bad, but with some tweaking you should be able to clear 1%. As
for the conversion rate, your averages are also a bit on the
low-side (I've seen conversion rates range from .1% to 5% via the
Internet).

The real issue is costs. Paraphrasing a Warren Buffett quote on
the insurance industry: There is no such thing as a policy that
is too risky, only a premium that is too low. My application to
your situation: There is no such thing as performance that is too
low, only CPMs that are too high. My estimate of the math: 0.75%
CTR _at_ $5cpm = $0.67 per click _at_ 0.2% conversion = $333.33 per
order 0.75% CTR _at_ $1cpm = $0.13 per click _at_ 0.2% conversion =
$66.67 per order

OK, so even at a $1cpm, you still need to sell a pile of videos
(4 X $20 per order) to be in the black, even on a gross revenue
basis. If we tweak this a bit: 1.20% CTR _at_ $1cpm = $0.08 per
click _at_ 0.5% conversion = $16.67 per order

We know of people getting an $0.08 cost per click--it can be
done. At $0.08 per click, selling one $20 tape to every 200th
visitor will generate positive cash flow on a gross revenue
basis. Bring your conversion rate up to the 1.2% you get from
TV, and you should be generating solid ROI.

Regarding your television success: You've left out the response
rate (ie, of the gross impressions your media schedule generated,
how many times did the phone ring), so it is not possible to
compare. Also, I don't know your production costs for the TV
ads--presumably quite low, but still more than a GIF banner.
With this data, you should be able to calculate your cost to make
the phone ring. Factor in the conversion rate and you have your
cost per order. Now you can compare apple's to apple's. My
expertise is Internet advertising, not TV, but I did a quick
review of cable CPMs and it looks like they range from $0.50 to
$10.00 depending on the daypart and program (no flames for that
please).

The net is this: Assuming the response rate (CTR) is the same
across media and that TV continues to get a 1.2% conversion,
while the Internet moves up to 0.5%, you can spend roughly $6 on
TV cpm to every $1 on Internet cpm and it should net out about
the same. This assumes order size is constant b/t both TV and
Internet and that transaction costs are constant b/t both TV and
Internet. Do you really get 1% response to your TV ads? Is
staffing the phones as cost effective as a Web sale? My guess is
that a Web sale is cheaper to fulfill than a TV sale when
staffing costs, phone charges and your physical building/land
costs are factored in.

Other issues to consider: Do you get repeat traffic to your Web
site? Does this have any value to you? Is it driven by Web or TV
advertsing, or neither? Do Web visitors ever place an order
without having clicked on a banner? Is that logged as a Web or a
TV sale, or neither? What is the lifetime value of an Internet
customer versus a TV customer? Is it possible visitors click on
a banner and come back later? Is it possible users visit the Web
site, but pick up the phone to place the order? In comparing
session time, 0:31 is without any hold time--users get right to
the content they want. How much of the 2:11 on the phone is hold
time, or non-content gathering? In my estimation, this is the
least comparable and meaningful of the metrics you have cited.
Last, where are you placing your ads? If you're selling South
Park tapes during the TV show, are you also placing banners on
South Park fan sites (ditto for X-files, Riverdance and so
forth)? With a little thought, my guess is that Internet banners
can prove to be as valuable to you as your TV ads, if not more.
Additionally, Web sales are a far more scalable solution. Best
of luck, Joel

===========================
Joel Gehman, Marketing Analyst
mailto:jgehman_at_creativelabs.com
408-428-6600 x6904

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