Incentive Marketing: Turning Browsers Into Buyers

The Age of Information has made way for the Age of Attention. The Internet — with its blizzard of information, products and services — is training consumers to be increasingly demanding. Marketers must vie harder first to attract the attention of consumers and then to translate eyeballs to action.

So-called loyalty programs are not something new to the Internet. Airline miles, discount coupons and green stamps are examples of “incentive currencies” designed to reward consumers for brand affiliation. The Internet, however, has taken incentive marketing to a new level.

More than a year ago, companies including Intellipost, Netcentives, Emaginet and Cybergold created online programs to help Web merchants and publishers reward brand loyalty. It has taken several Web years for online incentive currencies to gain widespread acceptance. The incentives market has seen consolidation, cooperation, repositioning and abject failure (remember PowerAgent?). A handful of players, however, are emerging as contenders:

* Intellipost. The company is best known for its e-mail-based BonusMail program, where consumers earn “[email protected],” points for responding to targeted e-mail ads. In November, Intellipost acquired MyPoints and, two Web-based incentive programs, from direct marketing giant Experian. The deal gives Intellipost a combined audience of approximately 1.7 million, with some 6,000 new members joining daily.

* Netcentives. The company's ClickRewards program offers members points redeemable for frequent flyer miles, car rentals, hotel rooms and other merchandise when members make purchases, fill out surveys, register software or perform other actions at a merchant's site.

* Cybergold. The service, with some 1 million members, is the only major incentives player to reward its members with U.S. dollars for reading Web-based ads. At present, members can donate their earnings to charities, transfer them to their bank accounts or credit them directly to their credit card balance.

* Emaginet. Originally, the company required users to download a bulky Java-based “wallet” application to manage ad offers, with limited success. It has since shifted to a Web-based strategy. Members of its E-centives system are offered targeted discounts on merchandise, instead of ambiguous points or real cash.

What Works for You? As marketers gain online experience, many realize that banner “click-through” rates are not the metric that matters. Converting virtual tire-kickers into paying customers is the bottom line. Loyalty programs rely on opt-in participation from members, who then typically reveal many of their shopping interests and other personal preferences. As a result, they generally deliver both qualified prospects and the incentive for browsers to become buyers. Indeed, according to a recent Jupiter Communications survey, 23 percent of those polled said affinity points would greatly increase their willingness to register on a site requiring membership.

The following are some guidelines to help you capitalize on incentives programs to meet your marketing goals:

Set Clear, Measurable Objectives. It's impossible to know whether your online marketing programs are succeeding if you're unclear on objectives or how to measure your return on investment. Unless you are an online publisher whose business depends on generating ad views, click-throughs from banner ads are probably not a good measure of success. A terrible click-through rate that yields a high customer conversion rate is more valuable than a high click-through rate with lousy customer conversion.

Measure the cost of your advertising program against the number of customers who fill out a survey (cost per lead), or those who make a single purchase (cost per transaction) or those who become long-term customers (life-time value).

To calculate customer lifetime value, determine what percentage of those who make one purchase end up becoming long-time customers. That way, you may discover that while it costs you $50 to acquire a customer who makes an average transaction of only $25, over the course of five years every customer is likely to spend $100, and moreover, those who buy a second time are likely to spend $1,000 in five years, and so on. This reasoning demonstrates the importance of retaining customers, and loyalty programs are a great way to do that.

Size Does Matter. Incentive programs are faced with a chicken-and-egg dilemma: Without enough participating advertising offers, consumers are unlikely to sign up for a program; but without enough consumer members, advertisers are unlikely to participate. As an advertiser, you want to make sure the service has enough consumer members that you are going to see real returns.

For standard banner ads, a million impressions per month is a common threshold for whether a site is a serious ad medium. Consider that average click-through rates for banner ads are around 1 percent, and, of those who click through, typically only around 1 percent make a purchase. That works out to 100 purchases per 1 million banner ads shown.

Incentive programs should deliver higher conversion rates than that, given their strong targeting and motivational offers. Nonetheless, a network with only 100,000 to 200,000 members is unlikely to provide enough ad reach to prove worthwhile. An incentive program may claim that 1 million consumers have joined, but if only 25 percent have looked at offers in the last 60 days, the network represents only 250,000 members in real ad opportunities.

Of course, no program can generate a million members from scratch, so if you want to bet on a program's promise, make sure they are demonstrating creative audience development strategies. Are they acquiring other membership bases? Are they co-branding horizontally and vertically on portals and special interest sites?

Know Your Customer. How effectively does any particular loyalty program represent the interests of your target customer? If you are selling basketball shoes primarily to an audience of young men, a reward of airline miles may be less enticing than gift certificates for CDs.

KISS (Keep It Simple, Stupid). This golden rule of marketing is nowhere more true than on the Web. Netizens vote with their clicking fingers. A convoluted points redemption process is a surefire way to lose repeat business.

Make sure that once the incentive program has delivered potential customers to your homepage, your site doesn't then scare them away. Upon humble self-examination, you may discover that low customer acquisition rates are your own fault, not that of your advertising partner. Each additional click you require from users is a black hole for a significant portion of potential customers. Likewise, confusing navigation design, fat graphics, lengthy survey forms and other non-critical features are going to cost you sales.

Don't Put All Your Eggs in One Basket. Trial and error is key to successful online marketing. Incentive programs work best in conjunction with other direct marketing and branding strategies. The Web's measurability and relatively low cost to execute ad campaigns make experimentation easy. Don't feel like you have to make a life-long commitment to one incentive program. Try a few and see what works best.

Push the boundaries. Consider new innovations such as HTML-embedded e-mail (which can include graphics, links, audio files), affiliate networks (where you enlist niche sites to sell for you in return for a bounty), rich media ads (video, animation, interactive forms) and more. Have fun. See what works. Make lots of money.

Leland Harden is partner and co-founder of the USWeb/CKS Audience Development Practice, Santa Clara, CA, a provider of strategic Internet professional services. He can be reached at [email protected]

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