In Focus: Permission Marketing by Seth Godin (Part-1)

(This part only the summary, critical analysis will be covered in part-2)

Summary

Introduction

In the “good old days of marketing”, the early 20th century, the focus was on product not the customer. The combined strength of assembly line, distribution and mass media ads encouraged marketers to treat customers as a commodity. This means they were easily replaceable. Every customer was same as the one before him. Actually, the customers were equally culpable. For the first time in history of mankind, seller was more important than the manufacturer & the actual product itself. This gave rise to the big brands who in turn spent more on ads.

Supporters of free market/capitalism would say it was the industrial revolution which made money. In reality it was marketing. The effect of brands eclipsed the savings from higher production & increased efficiency. Geography wasn’t a constraint anymore and demand outstripped supply in most markets, so knowing every little details about each customer wasn’t important anymore. Targeting so many customers in so many locations gave rise to standardized message which we know as ads.

Today most employ the same methods even though the market has changed. (Pg13) The standardized nature of ad & non-distinction among customers means most marketer have no idea whether their ads are working or not & if they are working what is their actual contribution. Every campaign, which is awfully similar to last one, starts from scratch.

Ch 1: The marketing crisis that money won’t solve

Marketers want us (customers) to act (search/seek/buy) and to mould our action they need our attention. Human biology makes us susceptible to change in our environment or a new information. So marketers figured the easiest way to get attention is through interruption. It did work for a long time. But today, we are frequently exposed to new information, our environment is changing constantly. So people don’t react to interruption like they did a century ago.

Still, smart marketers have found some ways to keep mass marketing alive. They’re spending more in odd/weird places, the places where we people didn’t expect ads before like parking meters, bench, back side of bus ticket or even “news”. To increase the reach, they are making more controversial and entertaining ads and updating it frequently. For this, they are ready to spend a lot of money.

Ch 2 Permission marketing—the way to make advertising work again.

As the interruption marketing is losing its effectiveness, author suggests to adopt permission marketing. It is a process of seeking attention through approval not interruption. It is anticipated as people look forward to hearing from you. It is personal & relevant as the messages are targeted & customized according to your need and buying pattern. In interruption marketing the investment (which constitutes of planning the campaign, getting consultant, paying media for ad etc) is made beforehand, so even though marketers don’t see any fit, they are compelled to see through their interactions, whereas in permission marketing investment is towards tail.

Permission marketing is an iterative process. Here both party, buyer & seller, constantly assess each other. They commit more into this “relationship” depending on their fit i.e. what the other party can do for them. With each iteration investment by both party increases, so when one party doesn’t find the fit they can just end it. Unlike interruption marketing, the cost of continuing a bad relationship is more than the initial investment in permission marketing.

Permission marketing try to gain the consumer’s consent to participate in the selling process. Paying attention is a conscious act & it requires conscious effort. Therefore, if you can’t reward customer for their precious attention, they will ignore you. The incentive can be information, entertainment or payment. Irrespective of the nature of incentive, it must be overt, obvious, and clearly delivered. This will inspire more participation. As we have discussed earlier, with each iteration this incentive to continue with the relationship should increase (for both party).

Ch 4: Getting started—focus on share of customer, not market share.

Focus on market share is old way of marketing which started during the industrial revolution. Focus on share of customer’s wallet is even older way of marketing. This was the time when customer relation was at its peak. The seller knew every relevant information about the buyer. Due to lack of mass media & that of ease of distribution, there was a limit to how many customer or rather how big geographical area you can cater to.

The new way is a combination. The use of new technology and branding can grow the customer base & increase our share of wallet simultaneously. We can use the vast amount of data about each of our customer through big data analytics or a free tool called logic (comes pre-installed from birth, though most people never use it) . We can leverage what we know about them, their need, want, aspiration & lifestyle to make a additional sale (cross sell or upsell). The same can be used for retention to increase CLV. We can track the benefits of our investment by focusing on how deep is our permission with each of our customers.

Frequent interaction breeds awareness which leads to familiarity. Familiarity & observation builds trust. If we do this right, they will give us more permission and information to serve them better. Don Peppers and Martha Rogers, authors of one to one future, believe increasing sales from the most profitable existing customers is more profitable than finding new ones. They prompt you to:

1. Increase “share of wallet” of existing profitable customers by leveraging your relation/trust/information advantage. This can be through new product offering to target their needs or improving existing product portfolio.

2. Increase the durability of customer relationships by shifting focus from customer acquisition to customer retention as this demands less time & money.

If an ad agency advises not to change the ads which are working, it is termed incompetent or lazy both by their clients & the ad community. Everyone wants to look cool, fun. But it’s not the marketer who should decide when to make a new ad/promotion, it should be the accountant. Only when the ad stops working i.e. it doesn’t bring new business, we should change it.

Ch 6: The five levels of permission

Highest level of permission is the intravenous permission level. Here, the seller can make the buying decisions on behalf of the consumer: e.g. Surgeon has the permission to take the best decision for a patient in OT. There can be many reasons for this from saving time and/or money to customer feeling uncomfortable about making a choice. There is a sub level: purchase on approval or negative option. Here if you don’t specifically say “no”, that is taken as a “yes” or approval to sell. Truth be told it is a plague. In most cases, they are counting on you to forget you ever gave them this authority. If you forget they can bill you without delivering anything.

You might think this does not happen. Actually this happens a lot. It’s very common in the case of automatic periodic purchase. Take the example of a data recharge. In addition to your normal balance for call/text you have opted for a data/ internet balance. Towards the end of validity of the plan, you would receive hundreds of calls & texts to recharge again but not one to remind you to use the data you have already paid for. So they bill you without delivering anything. This also happens in a much larger scale. Most small businesses are family run. Their accountants are not professionally trained. They know how to make calls & write cheques not the accounting analysis. They are the perfect target. They don’t look at accounts payable and resource management together, so the person handling the accounts have no idea what they bought, what they got and what they spent. It is one of the biggest reason for failure of so many small businesses.

The 2nd level is the points permission level. Cash discounts are transactional. They don’t build any emotional connection to the brand or store. Even if something is sold at no profit, you still feel seller has already taken his cut (as you don’t know what is the normal profit margin), so you don’t feel like you owe him anything. Points are not so transactional. It’s like a game, just like people like to collect ticket stubs or cola cans, they like to collect points even when they have no plans to actually use it. Points programs are of 2 types: liability and chance.

In liability programs, the points ensure more visits by customer, which leads to higher revenue. Every point promised has a specific & real value. E.g. frequent flier mile by airlines. It can be claimed, so it is liability for the seller. It eliminates fear of fraud or scam as consumer can track the progress towards the reward they had initially signed up for. There needs to be a balance between cost of claimed points of past customers & profit from current paying customers. In finance, this comes under working capital management. Even if the firm makes good profit, it can still go bankrupt if it doesn’t take care of its cash flow. So if all the points are claimed in short duration, the company can’t handle its day to day operation, doesn’t matter how much profit it made in the past or expected to make in the future.

So, how does airlines handle this dilemma? Points are valid only for certain duration, if you don’t claim it in that period you forfeit your right to claim. The airlines also limit the number of seats available in each flight or each month for frequent flier redemption. You might feel this is like a pyramid scheme & you would be right (to a certain extent, of course) as the new users fund the trip of old ones. (In pyramid/Ponzi scheme you need to find more and more targets, which makes it unstable. This is because the return promised is more than practically attainable return. It isn’t productive in the sense that it only manages cash flow not the investment. These are not applicable in the case of points liability program. The promised frequent flier mile is only a fraction of real mile, so it is a stable system. As long as you manage new (paying) and return (claiming) customer, the system works.)

In the point chance model, on the other hand, there is no guaranteed reward, only a chance to win the reward. This is basically a modified lottery where instead of buying lottery tickets, you purchase items to earn a chance to win the prize. The perceive value of point is high to consumers (That’s why they participate). Just like a lottery, here you pay more to earn more chance to get the same reward & the cost of providing one extra chance is practically zero. This is both good & bad for the seller. As the prize is fixed, seller would push for more participants to earn more. But if a consumer feels there is no real chance (or fun) of winning, he wouldn’t like to participate at all. Future group (Big bazaar) uses hybrid points. Every time you shop at Big Bazaar you get cash back point depending on the invoice amount. You can redeem it when you shop next time (point liability program) or you can use it to play lottery to win a prize (point chance program).

Next comes the personal relationship level which is the old way of marketing. This was the default way of marketing/sales if you wanted to be a successful business before the use of mass media ads. Author ranked this below points in the permission hierarchy as it is not scalable. Personal relation creates lasting trust which has better chance of gaining attention & modifying behaviour. But issue is in many cases the permission remains with the employee or not the employer. Even if the permission is with the employer, when you lose the employee, you lose the minute details about the customer which actually got you the permission in the first place.

Due to the rise of mass media, operational excellence, ease of distribution around a century ago, marketer did a total 180 on their approach. Instead of focusing on customer, knowing every little detail about them, they saw each customer as expendable, replaceable unit or commodity. This was the time of rise of brands. Biggest brands today are result of this approach. Author termed this the brand trust level. Brand trust is the feeling of safety/confidence on a product/company due to frequent exposure. Brands spend a ton of money on consistent, frequent interruptive messages. But author feels brand trust is overrated. It’s extraordinarily expensive to create, takes a very long time to develop. It is hard to measure and harder still to manipulate.

Brand trust can be leveraged by brand extensions. If you already like dove soap, Unilever has a better chance of selling you a Dove shampoo & conditioner than shampoo & conditioner from a totally new brand. Here this gets interesting. Brand extension is a double edged sword; if new product performs according to expectation from original brand, it reinforces the brand trust, which means if, in future, you introduce another product under same brand, existing customers will be more willing to try it. But if new product doesn’t align with existing brand, it can lead to loss of trust. This happened with Pulsar 135. A decade ago Pulsar brand of Bajaj auto was synonymous with big bulky sporty manly. Pulsar 135 though looked sporty/edgy it was not big/bulky/ manly. Not only it performed poorly, it also degraded the brand value of whole pulsar brand.

The last useful level of permission is situational permission. It is time sensitive. When you ask for recommendation from a waiter, a book clerk, or a sales guy at the mall you have given situational permission. They can help us find what we are looking for or help us decide what to buy. If they project themselves as caring & knowledgeable, they improve our buying experience. They have an opportunity to cross sell & up sell. Let’s say you are looking for a fantasy fiction book series. The book clerk tells you Harry potter by J.K. Rowling, Lord of the rings by J.R.R. Tolkien and A song of ice & fire by G.R.R. Martin are the most famous ones. Next you tell him it is for your niece whose birthday is next week & he says Harry Potter would be the safest option. You trust him & buy that. After couple of days he finds you in the mall with your friends. He goes up to you says you should take your niece to Disney world. Obviously you feel uncomfortable because the permission you granted him was situational. It was valid till you were in the store looking for a book.

SPAM is last level. It means interruption without permission. It may or may not be relevant but definitely not anticipated or personal.

Ch 7: Working with permission as a commodity.

Permission is nontransferable. Permission can’t be bought. You have to earn it. Author believes if you buy, sell or rent permission, it loses its value. It can even lead to total loss of permission. Tell that to millions of website who do sell/rent permission. Tell that to all the banks, insurance agency who have been doing it for very very long time.

Permission is selfish. Permission marketing works by giving the stranger a reason to pay attention. This reason or incentive can be entertainment, information, or even money. Most marketers fail to recognize this; they see the program from their perspective, “how to make it look cool?”, “how can I make more money?” not realizing only way to make money is by providing value to prospective customer.

Ch 9 Permission marketing in the context of the web

Using web as a medium for direct marketing has many advantage. No Print, stamps or postal cost. Speed of testing is faster. Frequency is free i.e. you don’t have to pay more for creating additional impressions. Statistically speaking, it also has better response rate than direct mail campaign.

Permission marketing requires technology which makes collection, transmission, storage & analysis of information easier. Amazon & Netflix are may be the best at using predictive algorithm to recommend the product you may like. Imagine instead of using technology if Netflix had to hire an employee to check your usage pattern, come up with a recommendation & call you. This is the real impact of technology. But this technology needs to be employed in such a way to make the consumer feel smart.

Conclusion

It gives the readers a new way to looking at marketing & targeting customer; a way which can be more effective & cost efficient to find new customers & serve existing ones.

PS: For those convinced of permission marketing author has a set of question & direction to use it properly in chapter 11 & 12.

The critical analysis will be covered in part-2.