How to make money from niche audiences in Mobile data ..

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

Source for BMW ad campaign : Tomi Ahonen – Communities dominate brands, mobiadnews and Romi Parmar

Comments

  1. Tomi T Ahonen says:

    Hi Ajit and readers of Open Gardens blog
    Great analysis Ajit, very valid, and shows how great a well-tailored yet simple and elegant mobile marketing campaign can be.
    This is what mobile advertisers should aspire to, not the moronic shotgun splattering of random WAP banner ads and SMS spam to clutter our moobile phone screens.
    Tomi Ahonen :-)
    http://www.tomiahonen.com

  2. Ajit Jaokar says:

    thanks for your kind words Tomi! rgds Ajit

  3. Hi Ajit, this is a fantastic analysis and shows what potential there is for the mobile multimedia ecosystem. It also shows that the model is currently crippled by high costs per message. If, in your first example, the price to the shoe company was 5 pence instead of 20 pence the calculation changes:
    Sales = 6,000 GBP
    Against campaign costs of 5,000 GBP
    Operators can make handsome profits on this business by driving high volume – which will build rapidly as word spreads about the efficacy of channel. The issue is then in bringing down the on-network cost per message and Operators (with assistance from their vendors) having enough faith in the new market to bring down the price to the advertiser.
    As with all advertising, campaigns should still be well targeted with engaging creative and a compelling call to action – spam is lazy marketing and on the mobile it’s harmful to the whole ecosystem.