In a previous post, I said that we may need a niche strategy for the mobile data industry and we need to find a way in making money from relatively smaller audiences.
First, let us see the problems of small audiences.
Consider an MMS campign
Assume a total audience of 100,000 people
Assume 20p/MMS which advertiser pays
With 100,000 – campaign costs = 20,000 GBP (hypothetical case of hitting all 100,000)
With 10% response 10,000 people respond
Assume that 5% buy from within 10,000 – so we get 500 sales
Assume cost of each ‘shoe’ (or whatever the campaign is selling ie a low value product ) is 12 GBP
Hence, sales = 6,000 GBP
Against campaign costs of 20,000 GBP
That can never work – Unless you have larger audience size OR you have a high value product
Now, let us replace ‘shoes’ by BMW tires but still keep the audience size small
BMW sent an offer via MMS to those BMW customers who bought a new BMW in the summer months (when no winter tyres are needed). Then when the first snow fell in Germany, they had a campaign ready to run. The campaign used a customized view of the car model and make that the BMW owner had bought, in the right colour, and onto it, they had fitted (virtually) the recommended winter tyre. Then the BMW owner was invited to hit a link on the phone, to visit the BMW site to see what alternate tyres were available. The results were that 30% of those who got the MMS, actually bought winter tyres (and often also new rims) at BMW dealers.
The value proposition works out as follows:
Cost of winter tyres c. $700
Cost of tyres & rims c. $2500
Approximate average sale $1300
Total sales of BMW in summer 2008: 297k
Those sold to hire/fleet: 180k
Total potential customers: 117k
30% response rate = 35,000 customersHence, 35,000 customers spending $1300 each = $45,500,000
Given that the cost of the campaign was approximately $60,000 – at German MMS rates, for each MMS sent, the average return on investment was 758 dollars.
The second example works with an audience of a similar size because the value of the product being sold is higher