It seemed like a great deal for e-mail list owners and marketers alike: You bring me a customer, and I'll pay you a hefty bounty. Gone were the bad old days of paying for mere usage of media (the cost-per-thousand, or CPM, model), which, according to advocates of the new cost-per-action, or CPA, model, had no value at all. Enter the bold, new era of risk-free marketing — a win-win for media buyers and sellers alike.
That was the hype. The unfortunate reality is that the CPA model for Internet advertising has failed to create much of a win for anyone.
Quite the opposite. Many cash-strapped e-mail marketing vendors threw out the list management rule book in exchange for the throw-everything-against-the-wall-and-see-what-sticks method. They pummeled their databases with the same shop-worn CPA offers to the point of exhaustion, overlooking recency and relevance in favor of broader reach. All they got in return was a worthless database and a batch of spam complaints.
Meanwhile, CPA marketers lost sight of the importance of targeting. To them, direct marketing became a numbers game more akin to accounting than to customer acquisition and lifetime value. Because CPA marketers failed to police their e-mail database vendors' use of their brands and accepted all new acquisitions with open arms, the marketers ended up creating unresponsive house files and tainting the brands they had spent millions of dollars to build.
The recent news concerning financial losses at NextCard, one of the biggest credit card marketers on the Web, illustrates the dangers of pursuing an aggressive CPA strategy to win new customers. In a news story reporting NextCard's losses, a company official was quoted as saying that “many of these losses come from phony accounts opened on the Web.” NextCard would clearly have benefited from investing a few dollars more to rent a highly qualified e-mail list of targeted prospects to drive serious credit card applicants to its Web site.
Somehow, in the rush to make a quick buck on the Internet, the tried-and-true concepts of direct marketing got lost in the CPA shuffle. Fortunately, savvy mailers are going back to basics and rediscovering the value of traditional CPM pricing, the only pricing model that makes long-term sense for mailers and list owners alike.
Here are what I see as the three key benefits of CPM pricing:
· CPM pricing is fair to mailers and list owners alike. The list owner is responsible for providing a fresh, targeted and responsive list. The mailer's job is to provide a high-value offer and compelling creative.
· CPM pricing forces mailers to choose their lists wisely, preserving the integrity and responsiveness of the lists to which they mail. Similarly, list managers are encouraged to be more diligent in reviewing new list management deals and to discourage mailers who come to them with irrelevant or weak offers.
· CPM pricing saves mailers money because it allows them to test list, offer and creative, allowing mailers to hit their target market rather than forcing them to pay for leads that don't convert to paying customers. With CPM, the focus shifts from generating quick hits to building lifetime value.
It's hard to blame marketers for testing CPA. After all, the Internet was supposed to be the first advertising medium that was 100 percent measurable — welcome music to any direct marketer's ear.
Fortunately, direct marketers are a pretty pragmatic bunch. Smart marketers tested the quality of these CPA leads and discovered that they didn't deliver before they blew their entire marketing budgets on CPA programs.
So, now it's back to the drawing board. Marketers have learned that there are no shortcuts to acquiring customers either on or off the Net, and e-mail list owners have learned that they must charge prices that reflect the level of response that their lists can generate as opposed to what they think the market will bear.
That's why I'm gratified to see major mailers and list owners alike coming to the table and hammering out long-term partnerships that create a win for both sides.
CPA is dead. Long live CPM.