Incentive promotions revisted

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promotionalboom_small.jpgDM CONFIDENTIAL — The rise of the fake blogs (“flogs”) and what has subsequently been called flogvertising has its many supporters, e.g,. those making a killing and the FTC bean counters, as well as its fair share of detractors, e.g., burned consumers and stressed out legal counsels.

Lost in the shuffle in all the discourse on flogvertising is one of our old friends, incentive promotion. If we think about the last time when display media prices fell and companies who previously wouldn’t have thought about certain ads showing on their sites, it wasn’t diet products and money-earning opportunities, it was another “free” – not free trials but the promise of getting something of value for free.

Even those who professed to ignore ads couldn’t escape the flashing system message banners, games tempting you to slap a belly, and offers for gift cards at just about any place that sold them. As is the case with the flogs today, few if any would have expected the amount of revenue generated and the types of companies who generated a significant portion of their revenue. Not only did one of the better established display ad networks get its start as an affiliate promoting incentive promotion ads, the largest remaining independent public company in the online advertising space earned several hundred million dollars through displaying both third-party incentive promotion ads and the distribution of their own.

At one point, it wouldn’t count as an exaggeration to say that several billion dollars came through the incentive marketing ecosystem annually. And, while that ecosystem doesn’t do nearly the volume it once did, it has settled into a still healthy stasis.

Incentives have long played a role in customer acquisition. Those who have roamed the halls of airports or attended ball games might remember being asked to fill out a credit card application and receive, in the case of an airline, miles and/or a discount on the next flight or as is often the case at sporting events, some article of clothing.

The mechanics there don’t differ too much from the online version which gained traction with Netflip and YourFreeDVDs, where as the latter’s name suggests, offered users a chance to obtain a DVD in exchange for the completion of select advertising programs. In the example with the airline or card at a sports team, the promotion centers around the credit card – “Sign up for this credit card and get this product,” or “Get this product when you sign up for this credit card.”

With DVDs and incentive promotion in general, competition of advertising programs acts as the mechanism for obtaining the promotion, but instead of prominently tying the promotion and offer together, they decouple them. Users begin the process – whether that is clicking on the ad, filling out the one field of data on the landing page, going through the reg path, etc. more often than not without explicitly understanding what it will take to earn the prize that attracted them in the first place. What results is a suboptimal transaction, but one where a fresh supply of unwitting participants at low cost meant a low desire to fix the process.

This classic way of online incentive promotion meant companies make their money not from the process of product in exchange for participation but from attempting to obtain a product and doing some level of participation. While the marketing services companies could make money from users going all the way, they made most of their money from the breakage, those that completed some part but not all. And, in order for the companies to support the offering of products with ever increasing values like flat screen tv’s and computers, they had to make the process that much more difficult, creating more breakage, and leaving a generally unsatisfying feeling among those who started.

In this model, the company must continue to play a fine balance between enticing users and keeping advertisers, as only a handful have the internal processes and savvy to leverage the traffic. We’ve seen far too many cases of marketing companies place unsuspecting advertisers in the flow, relying on their naivety for easy money, but overwhelming them and causing conflict with receivables in the end. Many advertisers try their best to participate because few other channels can match the sheer volume that this one produces. The big question has always been surrounding quality. Can there be high volume and high quality with incentive marketing?

At heart in incentivized marketing and incentive promotion is intent. When people join a book club, check a box saying they want to refinance, or get an auto loan, do they really want those products? Way too many don’t, and countless advertisers will tell tales of leads they purchased where the end consumer did so thinking it aided them in receiving the iPod or similar. In other words, those going through this process have low intent.

Contrast that to pure search traffic (discounting all the games engines play these days on keyword matching) where users end up on an advertiser’s page after stating a keyword preference. In this scenario, advertisers receive users who through self-selection stand a better chance at having a genuine interest in the product or service. It’s high intent, and the relationship between high intent and high quality has been established time and again. That’s not to say that no quality users come through incentive promotion. It’s simply harder to determine which customers to focus on. Most companies get overwhelmed by the volume and don’t have the expertise to separate the good from the bad.

While what might fall under incentive promotion 1.0 – attracting customers into a breakage filled funnel through the promise of receiving a high value product for low levels of activity – a model where you must spend money to make money – has reached saturation and peaked, the total dollars being generated from different forms of incentivized marketing couldn’t be greater. Who is driving this, and more importantly will it last?

Courtesy of DM Confidential editor

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