The Good, The Bad and The Absurd – The ‘Hidden’ Value of the Kenny Powers Marketing Strategy

WARNING: The video basis for this article contains some explicit content and may not be suitable for children. Watch at your own discretion.

I don’t know how many have seen the video, but about two years ago K-Swiss released a series of promotional videos featuring Kenny Powers, (a fictional character played by Danny McBride in the show Eastbound and Down) who was “hired” by K-Swiss to, among other things, develop a new marketing strategy for the release of the new shoe dubbed “K-Swiss Tubes”. This seemed to be created with hyperbolic intent, capitalizing on humor as a new product promotional technique. Effective as it was it seemed that as overly crass and explicit as Kenny Powers was in the advertisements his ideas were intrinsically new as to their approach to advertisements and provided a decent commentary on the potential future in advertisement. I pinpointed four implicit techniques Kenny Powers suggests, that could be implemented into a new product marketing plan.

1) Above all, Kenny Powers utilizes a comparatively explicit form of advertising. As he states in reference to his employment, ”…nobody is gonna be bamboozlin’ anybody with this lawyer lingo, jingo, (expletive) mingo.” This brings up an interesting question. Are advertisements using implicit referencing being too implicit? In other words, are ‘sexy’ models, fast cars, large parties next to/around products reaching consumers associations on a sub-conscious level? I did a blog post a while back about Kate Upton in a Mercedes-Benz commercial. I bring it up only because what Kenny Powers would seem to be suggesting is that too much of what is being said or portrayed in advertisements is being interpreted as industry jargon. Incomprehensible to the average joe sitting on his sofa with a Budweiser and bag of Fritos. In other words, when people look at the Kate Upton ad with the new Benz are they saying “wow she is hot I want her”, or “wow she is hot, I should buy that car so I can get her?”. It is a simple question of presuming deduction by a target audience and that advertisements may be presuming too much continued deduction within the 30 seconds of the ad or even beyond.

2) In one of his marketing ideas Kenny Powers, he suggests that he is put in the ring with an MMA fighter and “through the power of the sneakers” knocks him out. I thought this was very progressive and in a way cost effective. With the increase in popularity of MMA it surprised me that when I thought about it I couldn’t think of one ad pitching to the increasing number of MMA fans. I would presume that it would be cheaper to get an MMA fighter to do a Doritos as than it would Lebron James, and the audience is still considerable. Although, I do concede that UFC is not as popular as the NBA the crowd is younger on average. On another note it is interesting that he also re-approaches the average joe sports hero angle which I haven’t seen since the infamous large hockey goalie commercial.

3) His next suggestion is quite simple at its core, sex sells. Period. It also reaffirms number 1 in that he doesn’t restrict his “vision” to an innuendo and promotes an approach that pushes the envelope, so to speak. What is rather ingenious about his scheme in particular is he doesn’t let the product determine the suitability of the marketing strategy. He sort of bashes the mold for advertisements that a vice begets a vice, that is to say that sex in advertisements is only appropriate when promoting a product that is related to sexual products, cigarettes, alcohol, revealing clothes…etc. This was done similarly (and controversially) by Jimmy Choo in his “dead girl” ad seen below. A little barbaric but effective in its own right, as it achieved what every good ad campaign should, it got publicity.

4) The last one was arguably the most interesting in terms of the practical possibilities. Kenny Powers at the end of the meeting suggests blatantly switching the name of K-Swiss to K-Powers.This is not the first time this has been done. Athletes have sold their names to endorse a product in a larger brands catalog (i.e. Air Jordans by Nike). This can be expensive but a useful tool in brand expansion and association. But, I cannot think of a major brand that creates a product based on a fictional television character as limited editions. I know that Disney and several others are exceptions but I was thinking along the lines of a Gucci clothing line called McDreamy, based on Patrick Dempsey’s character from Grey’s Anatomy. This started happening a little. I remember hearing that a “clothing revolution” started to develop after the show Mad Men came on the air but not exclusive Donald Draper Collection was ever released.

In the end, my purpose for writing this was to first, highlight some potential product and marketing strategy development aids and second, to show that we shouldn’t be so hasty to discount that which seems ridiculous. Often there is some truth in the absurd it just might be buried behind a thick persona.

Why We Can’t Seem to Find a ‘decent’ Marketing ROI and How To Handle It.

I have read numerous blog posts regarding the ROI and what it looks like for marketers. However, the metric, as a far as an consistently applicable model is concerned, is seemingly elusive. I agree with Margie Clayman,  that the marketing world has taken to treating the ROI like a proverbial “mythical unicorn” and that it need not be so mystifying. However, the ROI is a very simple concept in and of itself but is sort of the chameleon metric in the finance world which I believe to be causing much of the confusion. The ROI or Return on Investment is simple:

ROI = (Gains from Investment – Costs of Investment) / (Costs of Investment)

That’s it. In all its glory. What is particularly interesting is that there is no requisite for this formula that gains and costs even be monetary. Meaning if you wanted to use ‘gummy bears’ as your value determinant, there is nothing stopping you. This is cool because it allows those in fields such as, social media marketing, to show profitability using clicks, or pixels.

Now, that being said I fully concede that when determining revenue as a dependent function of one’s marketing strategy is not a measurement of gummy bears. My point was simply to point out that while gummy bears is an unconventional measurement, the ROI is an “unconventional” metric. Furthermore, being that the unambiguous purpose of all marketing, as aforementioned, is revenue accumulation it would seem to be illogical to use an equation that did not represent,  at least in some regard, revenue as a monetary value.

So, what does one use instead? Well, it is kind of interesting that the ROI, in fact, is often confused with the ROA or Return on Assets. The ROA is a much better metric with regard to being a revenue determinant and as a representation of a proportional gain from “asset” increases. In its simplest form it is arithmetically defined as:

ROA = Net Income / Total Assets

= (Revenues-Expenses) / (Long-Term + Short Term Assets)

The reason I mention this is because if these two metrics were to be confused it would mean that Assets were being implicitly denoted as a Cost, which, with rare exception (i.e. your interpretation of asset depreciation/amortization), there is no reason these two should be considered equal or even indicative of one another.

That being said it seems logical to use the ROA as opposed to the ROI in marketing profitability calculation. However, then we are broached with the question of how to incorporate something like “clicks” or user activity, into the ROA well the is not simple nor is it absolute. One way to do this would be to generate a regression model to estimate of future revenues on an operating and non-operating basis as it pertains to the Marketing segment of total revenues. In other words, what we really want to know is what percentage of total sales or operating revenue, is generated by our online marketing? Furthermore, we want to know how an increase in expenses from marketing (i.e. an increase in the marketing operating budget) will effect our revenues?

Unfortunately, there is no real universal way of approaching or solving this problem and the ROA is far from perfect as a sole “justification” for expenditures. Other metrics to consider as per their relationship with marketing operating expenses, would be the Inventory Turnover Ratio and the Operating Margin. But, in the end, as far as I can tell, a complete analysis this would require extensive data compilation with subsequent regression analysis. Since this would likely require significant statistical review I will sum up by saying that there is no universal measure that will tell you the relative worth of your particular marketing strategy and be weary of blogs or experts claiming to have a simple answer. Take the time to find your own and the end result will be well worth the effort.

My favorite Social Media ROI graphic sort of sums it up:

Now, cost has to be in there somewhere right?

Groupon's next leader (savior?) will be an outsider, report says

Reblogged from VentureBeat:

Groupon's board of directors is looking outside its current management for candidates that could assume the now vacant position of CEO, according to a Bloomberg report that cites anonymous sources familiar with the situation.

Last week, long-time Groupon CEO and founder Andrew Mason was terminated from his post after the company lost a fifth of its value and for its consistently…

Read more… 159 more words

Oooo! This should get interesting....

Apple banking on iWatch as its next megahit

Reblogged from Windsor Star:

While chief executive officer Tim Cook has dropped hints that Apple Inc. is hard at work on a television to drive the next era of growth, the company's wristwatch-style device, still in development, may prove more profitable.

The global watch industry will generate more than $60 billion in sales in 2013, said Citigroup Inc. analyst Oliver Chen. While that's smaller than the pool of revenue that comes from TVs, gross margins on watches are about 60 per cent, he said.

Read more… 911 more words

Personally, I don't think that a watch is going to save Apple. No matter how much my desire to look like Marty McFly would be satisfied by wearing that thing, I really can't picture a time piece pulling Apple from an internal recession. Characterized by corporate mismanagement and a 52-week low in a Bull market. But, I guess there is no harm in trying right? What's the worst that could happen? Brand dilution causing irreparable harm to corporate image and future revenue valuations? Estrangement of customer base segment (depending on final design of course)? Who knows? It is a brave new world and I think apple might just be out of Soma.

How an Economist Would…Determine Departmental Profitability within a Firm

For the purposes of this article in the series, I will be focusing on the relationship between my Grandfather (Economics) and I (Finance). Economists, so far as they are in the grandfather role, are not exactly ignored. But, rather,  ”selectively heard” by the other family members. The information that is derived from the Economist, ends up being twisted around and turned into finance. Before you know it, the Economics behind it is gone and it is just finance.

This is an understandable phenomenon. Due to the large degree of assumptions and a lack of specificity, that come packaged with Economic models or explanations, it is completely reasonable to favor to more tailored, Finance-based, point of view when determining department or firm profitability.

I would argue though, that Economics is discarded a little too much in this case. Economics possesses the potential to show profit prospectus for a firm or department better than Finance. This is especially true in the case of determining the minimum profitability acceptable from a potential department addition. As well as the optimum number of employees and wage rate, for that department. The added benefit of Economics is more time expansive with less alteration than Finance. In essence, Economics possesses the simplicity define basic minimums with ease. Not getting too bogged down, as it were, like Finance often does, in the exact details. In short, Economics was made to be generic, Finance was not. Below, I go through my logic for the above process of adding a department to a firm. It must be said that the particular economic model used, is not absolutely applicable to all businesses or departments. Therefore, I selected a single model for analysis. I will use the model for a firm in a monopolistic competition industry. I chose this model due to its neutrality compared to the major alternatives and its simplicity. The potential alternatives, such as using perfect competition, monopoly, oligopoly (with and without cartel) and so on. But for the sake of any sort of brevity I will stick to one for now and most likely approach the rest in a supplement.

How To Make The Two Sides Equal

Alright, now for the good stuff! First, we need an example. Since I have seen a lot about the profitability of Social Media Advertising and its return on investment to the firm, I will use a related example. I saw this question posted on Linkedin a little while back:

Question:

How much time do I spend on Social Media in marketing for my business?

 

 

 

 

 

 

Using this question as a foundation, I will show through economic modelling, how to calculate the optimum amount of time to spend on Social Media for marketing. As well as how that time variable relates to profit maximization in the short run and long run.

Brief Economics Lesson:

An industry in monopolistic competition is characterized by:

1. Products are imperfect substitutes and therefore, the competition is also imperfect.
2. There are multiple consumers and producers with no absolute market price.
3. Producers have proportional control over market price.
4. There are limited entry and exit barriers. (Not really important for us)
5. Economic Profit exists only in the short-run due to the duality of control of industry market price.
6. Can be inefficient (i.e. loss to producer/consumer surplus or cause of excess, respectively) when a firm produces where Price(p) = Marginal Cost (MC) or if a firm produces a profit maximizing Output (Q*) < Output at minimum Average Cost (ACmin)
7. Profit maximization occurs when Marginal Revenue (MR)= Marginal Cost (MC)

Answer:

When using the monopolistic competition industry model in our case. I replaced the word “industry”, with “division” and the word “firm”, with “department”. So, we then have a Social Media department in the Marketing division as opposed to a firm in an monopolistic competition industry.

It also, made sense to me because the two relationships are very much alike in the way they interact with each other, derive price and so on. Therefore, we can assume a Social Media department would yield a short-run profit so long as MR=MC and Q*>ACmin.

Total/Marginal/Average Cost(s):

Now, since our example is slightly more specific (How much time should you spend on social media?), we need to convert the variable, “time”, into economic terminology. So, we assume “time” is equivalent to Labor Hours (Lh), which then we monetize using Wage (w) and quantify by number of related employees (Ln). Finally, we isolate the cost of “time” by assuming the only calculable direct cost of Labor (L) is Wage (w) and that “time” is only applicable to Labor Hours spent us Social Media.

Note: It is important to recognize that due to the nature of our problem Quantity (Q) is substituted for Labor Hours (Lh) and Price (P) is substituted for Wage (w). This is due to our examination of the, per unit or per hour, cost of Labor. 

Therefore, we calculate:

Marginal Cost (MC) = ΔTC/ΔQ = Δ[(w)(Ln)] / ΔLh

Total Cost (TC) = (w)(Ln)

Average Cost (AC) = [(w)(Ln)] / Lh

Marginal Revenue Product of Labor:

This one was a little more difficult to determine, which was only fitting seeing as it has been a heated topic of debate to determine the return from time spent on Social Media.

Note:

• The Marginal Revenue (MR) and Average Revenue (AR) curves are downward sloping in this model,
• The MR curve has exactly 2x the slope of the AR curve, and
• The AR curve = Demand (D).

In order to determine the revenue from the social media associated labor, we need to use the Marginal Revenue Product of Labor (MRPL). The MRPL = Marginal Product of Labor (MPL) x Marginal Revenue (MR). A maximizing firm will pursue an MRPL = Wage (w), due to an inefficiency that would occur for the firm if MRPL<W.

Note: The same condition applied to cost exists here where Quantity (Q) is measured in Labor Hours (Lh). But here we further specify variable Labor (L) to Number of Department Laborers (Ln).

Since MRPL is an increase in Revenue per unit increase in Labor, we can find that:

Marginal Revenue (MR) = ΔTotal Revenue (TR) / Δ Number of Department Laborers (Ln)

Marginal Product of Labor (MPL) = Δ Labor Hours (Lh) / Δ Number of Department Laborers (Ln)

Therefore,

MRPL = ΔTR / ΔLn

As stated before,  increases in Total Revenue relative the Number of Laborers (Ln) will cause an increase in MRPL. Since, equilibrium is such that MRPL = w, this increase would either need to be matched by a higher wage or an increase in the Number of Laborers (Ln).

This relationship can be used to find MR as a function of wage and MPL:

MRPL=w

MR(MPL) = w

MR = w / MPL

Conclusion:

We can conclude from the above calculations that the equilibrium value will exist at a point equivalent to:

MR = MC

ΔTR / ΔLn =  Δ[(w)(Ln)] / ΔLh

ΔTR / ΔLn =  Δ(w) Δ(Ln) / ΔLh

Now, to find the amount of “time” one would need to spend on Social Media marketing they would simply need to input the desired Total Revenue (TR) per Laborer and solve for Lh.

Note: Be sure, that during any calculations, all time periods are kept constant across variables to maintain negation. For example, Total Revenue could equal revenue for the day or for the month so long as the Lh are divided by number of periods (pd.) then the calculation will retain significance. Otherwise, one might end up with a calculation of 1000 Labor Hours and be frightened when, in fact, if taken annually, comes out to 2.7397 Labor Hours per day. 

Numerical Example:

Say that my Grandmother, the Marketer, wants a Total Revenue of $30,000 per year to be sourced from Social Media Marketing. Since she is operating a sole proprietorship she will have to do all of the Labor herself, but her wage is equal to Revenues earned. How long would she have to work, per month, to achieve this? Note: We do not include taxes for we do not know too many other variables and this calculation is only intended to find a baseline average. Not provide exact, “bankable”, values. 

Well, first we need to divide TR and W by 12. We also know that she is the sole laborer. So, Ln = 1

ΔTR / ΔLn =  Δ(w) Δ(Ln) / ΔLh

($30,000/12) / 1 = ($30,000/12)(1) / (Lh/12)

2500 = 2500 / (Lh/12)

(2500Lh / 12) = 2500

2500Lh = 30000

Lh = 12 hrs per month

This seems highly doable and I would tell Granny to go for it!

Graphs (courtesy of en.wikipedia.org):

Remember: For our purposes Q = Lh and P = w

Short Run Equilibrium under Monopolistic Competition (Economic Profit displayed in Gray Area)

Long Run Equilibrium under Monopolistic Competition  (No Economic Profit)

Final Thought:

I promise I will keep this part brief but an interesting fact that I ran across while I was freshening up on all this stuff was that:

1) Economic Profit = Net Income (Y) – (Marginal Product of Labor (MPL) x Labor (L)) – (Marginal Product of Capital (MPK) x Capital (K))

 2) Accounting Profit = Economic Profit + (MPK x K)

Just thought this was a great illustration about why the above would be useful in calculating segmented profit as not all industries are effected largely by Capital Gains as a determinant for Profit.

If you have any questions, comments or anything in between, feel free to email me at econowizdanny@gmail.com. Or just leave a comment below. Thanks for reading!

Economics Wizard Danny

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How an Economist Would… (Series Explained)

As I sat at the dinner table this evening listening to my grandfather speak in, largely, incoherent non-sequiturs. It occurred to me, that if the world of business, with all of its divisions and subdivisions and so on, were a family, my grandfather was epitomizing Economics.

In other words, Economics has become like the Grandfather in that, it has developed as the, largely inapplicable, loony ramblings of the past.

My grandmother is artistic. She could convince you to do anything. No matter the motive, my grandmother can convince anyone to do just about anything. My grandmother represents Marketing.

My mother – always kind, helpful, welcoming. All the qualities you would want in a family member, but ball gets dropped you better be nowhere near it. My mother would have to be Human Resources.

My father – a pragmatic minimalist, has a great understanding of the little picture. He is Accounting.

My sister – knows people. Good at meeting/greeting and could sell the hair back to the dog that bit her, is Sales.

Me, I live for big and all encompassing. Sometimes gets me into trouble when I try to Copy and Paste, and I might skip a step or two but in the end I get big results (most of the time). I am Finance.

Now, I realize this is a, rather, simplistic view in that I am missing some key components but I intended only to establish the relationship between the most basic divisions. I may add more on an as needed basis, but for now, the above should suffice.

Along, these lines I have decided to start a series, of sorts, surrounding the relationship between the “family members”. In particular, the relationship between the grandfather and the other family members.

The purpose of this, is to approach relatively common issues in Business, from the perspective of an Economist. In my opinion, this can provide some insight for understanding the, often understated, Economics.

Either way, I hope you enjoy and I will update as often as possible.

Thanks for reading,

Economics Wizard Danny

Are the Numbers We Get from Web Traffic Metrics Really Making Cents?

After reading an article on Econsultancys’ Blog, I got to thinking about how one would actually go about converting the traffic patterns of social media into an ROI or even some sort of other sort of revenue producing accounting metric. Considering that “popularity” isn’t really convertible into any revenue account that I know of, I couldn’t help but wonder if the amount being currently expended on social media by companies would soon see a roll back. I personally foresee this happening for several reasons.

1) The fallibility of the current traffic monitoring metrics seems to be becoming an issue. The blog post mentioned above was centered around this issue and posted a 50% traffic discrepancy from Twitter. The author even conveyed a sense of dismay on what to present as the actual ROI? Do you present the figures for the number of clicks on your link posted on Twitter or the number of visitors to your site referred from that Twitter link? Understandably, Google Analytics and others are capable of being fallible but 50% hardly seems like a reasonable margin. Especially when it can make or break your investment.

2) From my understanding, the benefit of social media is largely, if not completely, behavioral in nature. Therefore, any result from tracking user traffic translating with any sort of consistency to a revenue account would be, although possible, improbable. It would be possible to list online sales proportionally as a factor of advertising expenditures or as a percentage of total web traffic resulting in sales. These metrics still, however, rely on a great deal of presumptions. Leaving the connection between social media advertisement and sales conversion loose at best. It also needs to be considered that a fallacy of referral data could be flawed by the nature of user behavior. There are numerous of possible user activities that could result in the alteration of their identity or perceived traffic patterns. In a 2007 report, published by E-commerce, 44% of online sales conversion took more than 3 hours to result in purchase. Which, would seem to suggest that any direct connection between a social media link and final sale would be unlikely as these purchases were most likely across multiple visits. Therefore, making the direct link between expenditures on social media management and profit difficult to determine.

3) Can someone’s internet traffic behavior be converted into the classical models of consumption behavior? After all hasn’t it already been established that people, on average, exhibit different behavior on the internet than in person? I remember a study released by Google some time ago that showed people were more likely to Google their potential health concerns than go to a doctor. I am personally guilty of this behavior but it is hardly indicative of my intent to “consume” medical services. Most of the time I am just curious. Yet this information is inputted into the Google Analytics metric like everything else and for the next two weeks until it is “reset” by other searches all of my ads are for medical/pharmaceutical services. Leading me to the conclusion that too much is being assumed as a derivative of my Google searches. In other words, I would question whether the value of sponsored content placed on social media sites using traffic or search “preferences” as a guiding principle were not, to some degree, over inflated due to the analytic presumption of consumption intent. Along this line of thinking, there seems to be a presumption that a “like”, share, or any real mode of acknowledgment by the consumer as intent on the part of the user to pursue a higher level of service with the company. This may be the case but in reality, there may exist a disconnect between what the user understands their action to implicate and what is being understood by the company. But, this discrepancy is not really provable without a considerable level of market research studies, so I will just pose a question. Does a user openly associating through a social media outlet imply that they intend to pursue a continued relationship with your company or even go to your web page? I am not so sure.

In the end, for me, it would be difficult to justify paying someone any wage to manage/provide social media content as the directly related profitability from the outlet is unclear. There just appears to be too much inconsistency that could vary the measurement and when writing a budget report any amount of money attributed to this account would have such a high level of error it would also not be justifiable. I just don’t believe that social media is the marketing outlet many think it is. But I could be wrong, and if it is really useful I would want statistical evidence showing me that it is worth the investment.