Thursday, June 13, 2013

Sampling Is Expensive...How Do You Know?

Oscar Wilde defined a cynic as “a man knows the price of everything and the value of nothing.”  His description applies to many Marketers as well. I often hear Brand Managers complain about the COST of sampling programs. “Sampling is expensive”, seems to be common knowledge.
It is not surprising when we can “seemingly” buy media at vastly cheaper rates but we need to challenge ourselves to buy “outcomes” not “output”.  An “outcome” is clearly linked to our marketing goals. “Outcomes” have a clear path to how we make money. “Output” is often the way a vendor wants to sell it to us.  A TV spot in Modern Family is “output”. Someone being aware of your brand and its benefits is an “outcome” (Brand Awareness).
A typical launch or relaunch brand scenario wants to “drive awareness leading to trial”. I think it is instructive look at a few of the tactical options in terms of the “outcome”, in this case, “trial achieved”. To do that, we have to make a few wild assumptions, but it is still worth trying.

A relatively “efficient” option to achieve trial is to buy a primetime TV spot. It costs roughly $30 per thousand.  We never see TV production included in the cost but I am going to guess at an incremental 15%: $34 per thousand. Now, that is the “opportunity to see”.  There is no guarantee that those thousand are actually paying attention to your ad, in fact there is a good chance many are not.  So, I am going to add on “effective frequency”.  How many times do you need to show your ad before it sinks in? Based on some recent research I am going to say five[i]. That takes into account: the creative, how people watch TV and overstatement in the audience by the provider. That would bring your cost to $170 for a thousand people who are aware.  How many of those Adults 18-54 are going to go and buy your brand? How about a generous estimate of 1%? That would yield 10 Triers at $17 per person.  Put another way, you would need 17% conversion (awareness to trial) to get your cost down to $1 per Trier.
Primetime CPM (Ontario)
...add in creative of 15%
Effective frequency 5x
$170/thousand aware
Conversion to trial @1%...
...or conversion required for $1/Trier  cost

Another comparative is Pay Per Click online. To buy the keywords “Best Shampoo” on Google adwords costs roughly $2.00 per click. What that buys you is someone moving from the search page to your landing page.  Your conversion would be a fraction of that.  When I looked, the brand buying “best shampoo” was selling $25 bottles of organic super-premium shampoo. You need a price and margins like that to pay $2 per click.

There are a wide variety of sampling methods and their associated costs. Excluding cost of goods, door-to-door distribution costs roughly $0.70 per, whereas mailing to a database with a dedicated package could cost $2.50 per. A good midpoint for comparison is online request-based sampling in a co-op mailer. It costs roughly $1 per person to put a sample directly in the hands of someone in your target group. 
Of course, some programs opt for field marketing which almost always blends sampling, communication and the value of live contact which generally makes a considerable impression. That impression should impact your conversion rates.  It is usually easy to calculate a cost per “touch” in field marketing but you have to consider the value of the sample plus the communication plus the “engagement level”.
In any of these sampling tactics, if your product performs well, it’s a short walk to some very good conversion-to-purchase rates. At costs of 70 cents to a few dollars, depending on your margins, they can yield a favourable ROI.  
It may just be rough assumptions, but it is easy to see that comparing promotional tactics like sampling with mass media on a cost per thousand (CPM) is not very insightful.  If the value is in achieving Trial then the tactics that appear expensive at first glance may easily be the best value when the analysis is done.

[i] See Igor Makienko’s, “Effective frequency estimates in local media planning practice” in the Journal of Targeting, Measurement and Analysis for Marketing (2012), vol 20

Lighthouse Clients

Cases, examples and client references are available upon request. Some of my clients over the last few years are:

Toyota Canada
Labatt Breweries/AB-InBev
Canadian Blood Services
Cadbury Adams
Constellation Brands/Vincor
Prime Restaurants - Casey's, East Side Mario's, Fionn MacCool's, Bier Markt
Sigma Alimentos - a large food company in Mexico
Multiple Sclerosis Society - MS WALK
Yellow Pages Group
New Balance Canada
Ideazon -(Gaming Hardware)
Edwards Builder's Hardware

Going further back:
Pfizer - Viagra, Detrol
Volvo Canada
Red Lobster USA
Xerox Canada
Sprint Canada
Absolut (Maxxium)

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