Established companies spend a lot on branding.  Over the weekend, I saw a completely amorphous 60-second spot during the Olympics that included 10 very expensive seconds of silence.  At that point, I knew what was coming at the end: a white Nike swoosh on an all black background.

Nike, Coca-cola, and luxury companies spend most of their advertising on brand-centric marketing: it’s not about the product, it’s about making the consumer feel good about the brand, which leads to them buying the product.  this is an advanced stage to get to, and very very tricky to accomplish online, especially given the ruthless elasticity of online customer acquisition through paid keywords, affiliate linking, and online marketplaces. These acquisition methods seem to reward extremely short-term marketing, while branding requires a more long-term conversation about values and quality with the customer.

Whatcha got?

Most online (pure-play) retailers spend the lion’s share of their marketing dollars on paid keywords– probably 65%-85% of the marketing budget takes the form of writing monthly checks to Google.  (If you’re smart, you’ll put those huge payments on an AmEx card, and at least pick up the frequent flyer miles.)  The rest goes to affiliate marketing commission payouts, usually going to Commission Junction (also owned by Google. Hrmmmm…).  Any scraps left over take the form of paying some college kids to screw around on social networks which are “free” but also “severely under-performing in terms of acquisition”.

For catalog-centric retailers, these acquisition methods work in the short-term: they have thousands of products for sale, so it just comes down to finding ways to get those products in front of a searching customer.  Any methodology would center around solving the problems of how to automate for thousands of products, how to write catchy 1-line product descriptions, how to manage the keyword bid level, and how to manage the price of the product.  There are some cool SAAS providers to answer each one of these problems.  Note, however, that all of these activities are focused on the product and the immediate sale.  This is sales, not marketing.

If a company decided to dedicate a portion of their precious keyword budget to link through to the About Us page, or some nice feel-good blog post about company values, then that would be brand marketing.  Unfortunately, all the automation and management techniques are hinged on the conversion rate or “return on ad spend (ROAS)” or “Cost as a Percentage of Sale (CAPS)”.  For feel-good branding, the immediate sales return is zero, thus the campaign would never bubble up in the keyword management software.  Affiliates only get paid when something gets sold, so they won’t carry it either.  Social networks are puny in terms of sales, so they’re no help either.

In short: there is no branding in acquisition.

What have you done for me lately?

So, where/how can an online retailer build brand?  As with any retail, it’s all in the experience.  Physical retailers have the luxury of painting the walls a certain color or installing some really nice marble in the entryway.  Online retailers have often taken this as written and focused on the page design, thinking that’s where the branding magic happens.  To some extent, design certainly influences brand value, but in the end, there are only 256 background colors available, and only a dozen or so fonts, so the options are a bit limited here.  Innovative design that leads to intuitive functionality has a much greater impact on brand, which is the obvious clue: Online branding is all about the experience.

Because the online customer experience must depend so much on the customer’s own will (she needs to actively click on something to even get to the website, then keep clicking on through to make any progress), online retailers cannot simply “brand” their website and hope to invoke any sort of value to the customer.  It’s all about the experience.  Specifically, it can be broken down to distinct phases:

• Site design: first impressions.  Clean or muddled?  Bright or cluttered?  This phase of the experience lasts 3-4 seconds, tops.
• Site navigation: intuitive or laborious?  Anticipating the customer, or shotgunning everything?  This phase lasts longer, and will be repeated 5-6 times by a serious customer.  This is the where she really starts to make up her mind whether or not she’s having a good experience, and thus if you’re a real brand or not.
• Checkout: intuitive or laborious? Clean?  Do you trust the customer to know what she wants, or are you trying to squeeze more money out of her by pushing some crap at the last second?  Careful what you wish for: those additional incremental dollars may be costing you long-term brand value.
• Fulfillment and call center: here’s where your brand sinks or swims.  Everything up until now has been acquisition and sales.  If you don’t deliver quickly, transparently, and honestly, then your brand value isn’t worth the cardboard it came in.

All competent online retailers know these steps, but have you viewed these steps in terms of your online brand value?  What would you do differently if you were to see each of these phases as they are relevant not to short-term acquisiton and sales, but long-term branding?

Calculating online brand value

Okay, so how can we actually calculate online brand value?  One of the nice things about online marketing is the plethora (aka flood, cascade, swamp, overwhelming onslaught) of data that is produced form each customer interaction.  The same math that is pushing online retailers to constantly chase acquisition might actually show some indicators on how we might be able to calculate online brand value.

Let’s imagine a case where two online retailers sell the exact same products.  One has a ‘strong brand’ and one has a ‘weak brand’, for whatever reasons (better purchasing experience, cross-channel exposure, superior email marketing, etc.). Proposed assumptions:

1. The strong brand retailer will have lower acquisition costs because people recognize the domain when viewing the paid keywords
2. The strong brand retailer will have a higher retention rate
3. The strong brand retailer will have a higher percentage of organic traffic
4. The weak brand retailer will spend more per keyword
5. The weak brand retailer will have a higher percentage of sales through 3rd party marketplaces (e.g. Amazon, Ebay, Overstock)

From those assumptions we can actually build some math:

Total Brand Value = BrandValue(keyword) + BrandValue(organic) + BrandValue(retention), where:

• BV(keyword) = [TotalKeywordSpend for position 1 or 2] – [TotalKeywordSpend for position 3 or 4]  Assume that you can acquire 1,000 customers/day spending $100 each, for a total gross revenue of $100,000 per day.  If you’re while being listed in position 1 or 2 will cost $18,500 for those keywords.  If you could be listed in position 3 or 4 and still get 1000 customers/day while spending only $10,000 (lower position = cheaper price), then congratulations, your brand is worth $18,500 – $10,000 = $8,500.
• BV(organic) = OrganicTraffic * ConversionRate * AcquisitionMarketingSpend % of Sales  Assume that 1,000 people come to your site every day organically, and they convert at a rate of 2%, or 20 orders total.  With an Average order value of $100 per order, your organic traffic brought in $2,000 today.  Congratulations!  This isn’t the brand value, however.  The brand value is how much you didn’t have to spend on marketing to acquire those customers.  If you usually spend 15% of sales on keyword and affiliate marketing, then take the $2,000 in organic sales and multiply by 15% that you didn’t spend: $2,000 * 15% = $300.
• BV(retention) = [RepeatTraffic * ConversionRate * AcquisitionMarketingSpend % of Sales] – EmailRetentionMarketingSpend  Similar to the BV(organic) equation, think of every retained customer that you only spent pennies sending an email as an opportunity where you didn’t have to spend dollars buying keywords.  If you’re getting 1,120 customers a day, and your retention rate is 12%, then 120 are coming in through retention and you’re having to pay to acquire the other 1,000 [see above].  Assume the same AOV of $100 and these retained customers are bringing $12,000 in gross sales.  Still assuming that the AcquisitionMarketingSpend is 15%, you would have normally spent $1,800 to acquire them.  Instead, you spent $50 emailing/retaining them.  Your retention brand value is $1,800 – $50 = $1,750.
• So, in our example, TotalBrandValue = Keyword $8500 + Organic $300 + Retention $1,750 = $10,550 per day on a daily gross revenue of $114,000.

In this case, our ‘Online Brand Value’ can be estimated at $10,550 / $114,000 = .09254 or 9.2% of gross revenue.  As an online marketer, try running this math sometime.  Where is your total value as a percentage of revenue?  Is it increasing or decreasing?  There may be a Roche Limit minimum value to and online brand, below which, the Jovian gravity well of Amazon will soon swallow the minor players, but we’ll talk about that tomorrow.