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Monday, January 11, 2010

Evolve or Die: When Client Churn Isn’t Churn

Posted by @ 7:13 pm
10
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I recently read Dennis Yu’s blog article Evolve or Die: 2010 Local Ad Agency Fiscal Models. Having met Dennis (2009 Search Marketing Expo in Sydney Australia), I have great respect for him as an individual and also for what his company does.

Many of the points that Dennis has made, are right on the money. Others, I feel, miss the mark.

At the centre of Dennis’s article, is a quote that local search marketing firms are seeing a 90% churn of clients every 6 months. When a client churns, one of the following occurs:

  1. The client stops spending money on PPC and will never do so again;
  2. The client moves to another SEM Agency; or
  3. The client takes the learnings and does it themselves.

So while client churn from a particular agency may very well be 90%, the industry churn rate is far lower than that. By industry churn, I mean clients lost from the industry as per reason 1 as this is what I would consider to be “real churn”. Reasons 2 and 3 result in the client’s media spend staying within the SEM industry – a sideways churn.

Don’t get me wrong, the overall churn (real and sideways) is a worry for the industry as a whole and not just the individual agency – any poor customer experience is blight on the industry. This is where I agree with Dennis’s call for a code on ethics.

Where I differ on Dennis’s view is that the companies which are benefiting from this – the search engines themselves – should be the driving force behind setting up an industry watch dog and be responsible for providing the funding to back it. The search engines don’t loose out from sideways churn. In fact, I would strongly suggest they benefit from it due to the general increase in marketing spend.

An industry watch dog should also be responsible for monitoring the search engines themselves, to ensure that the practices that the engines have, encourage responsible management of clients. From my understanding, certain search engine reseller programs actively encourage companies to aggressively and ruthlessly recruit customers, and ignore customer satisfaction. The SEMs are measured and rewarded on acquisition of customers and not retention. The rewards assist in offsetting the costs of managing these clients.

If the search engines rewarded for new customers acquisition and provided a strong incentive for retention, then many of the issues that Dennis calls out would simply go away.

Many of you will ask why don’t the search engines bypass the SEM providers and go directly to the businesses – well they do. However, they have discovered that managing thousands of small to medium businesses is a challenge. SMBs can’t be treated the same as corporate’s. They want and require hand holding, not to mention a multi-vendor approach to marketing. They do not want a self service model and have extremely high expectations of the results. The biggest issue with dealing with SMBs is expectation setting and management.

The company with the best customer service, expectation setting/management and retention will win the game – not the company with the most numbers.









Discussion (10 - comments)

A friend of mine just emailed me one of your articles from a while back. I read that one a few more. Really enjoy your blog. Thanks

By Dan Waldron - January 11, 2010



Warren,

I fully agree with your points– and thank for the kind words, by the way.
Yes, there should be some sort of industry watchdog– a code of ethics.
How do you suggest we get something like that started– who would be on it?
We know enough folks between it to create a “good seal” of approval.

Are you going to be at SMX Syndey– would be great to catch up!

Dennis

By Dennis Yu - January 11, 2010



Hi Dennis

Yes, I will be going to SMX Sydney (at this stage).

Unfortunately, until the search engines see the churn as being a problem, little will get done.

SEMPO may be in a position to do something, but in reality, is somewhat a toothless tiger unless the SEs get involved. Whilst there are millions of dollars to be made (to your point regarding the VCs), there will be little incentive for the industry as a whole, to focus on the customers’ needs first.

One thing I liked about your post, was a checklist on what ineedhits is doing for our clients. We believe in full transparency and whilst we also struggle with getting the right mix between management and click fees, we believe in fully disclosing it.

Speak soon

Warren

By Warren Duff - January 11, 2010



I entirely disagree with setting up codes of ethics or more “watchdog” behavior. The more we seek to “be good” the more expensive and the more likely an innocent person gets kicked in the backside. When a business hires someone they need to have enough education and common sense of what service to expect for their money. If they are ripped off they have outlets such as the American Civil Court System. Granted everybody does not want to sue people to fulfill their end of a contract but unfortunately this happens DAILY. How many smart and/or rich and/or powerful and/or great people cannot run a business? You need to remain competitive.

The more government gets involved, the more regulation, then more than likely great SEO companies will be hampered with more cost factors. They will pass this on to the client. Economically this is a bad move. Bad companies do not last long.

There are new programs in the academic system to include internet marketing, SEO and related degrees. These graduates will have the ethics for a now infant industry which will be in their “terrible two’s” stage by the time they graduate. I have faith in our youth and confidence of their potential.

As a business owner it is their job to know what they are paying for. As for people (companies) who do this for themselves (after learning) have earned the priviledge. Think of what happened to the Graphic Arts industry after the introduction of the PC. Everyone and their mother can do standard graphics on their computer to include: flyers, box covers, magazines and more. In the late 80′s a graphic artists made over $1,500 for a cover (video, cereal box, packaging).

All commercial industries must “Evolve or Die”. This is what happens when we enter the unknown. Computer economics are unknown in the long term. Our demand side economics is unknown for the long term (only 80 years old or so). The “Information Age” is young (less than 50 years) and unknown. We are discovering the answers. It is not the best and not the numbers that win. It is the company who makes a profit (with high churn or not).

By Sandra - January 12, 2010



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Small business

1. Often we forget the little guy, the SMB, in our discussions of the comings and goings of the Internet marketing industry. Sure there are times like this when a report surfaces talking about their issues and concerns but, for the most part, we like to talk about big brands and how they do the Internet marketing thing well or not so well.

2. The Center for Media Research has released a study by Vertical Response that shows just where many of these ‘Main Street’ players are going with their online dollars. The big winners: e-mail and social media. With only 3.8% of small business folks NOT planning on using e-mail marketing and with social media carrying the perception of being free (which they so rudely discover it is far from free) this should make some in the banner and search crowd a little wary…….

http://www.onlineuniversalwork.com

By robert - January 19, 2010



The Center for Media Research has released a study by Vertical Response that shows just where many of these ‘Main Street’ players are going with their online dollars. The big winners: e-mail and social media. With only 3.8% of small business folks NOT planning on using e-mail marketing and with social media carrying the perception of being free (which they so rudely discover it is far from free) this should make some in the banner and search crowd a little wary.

http://www.onlineuniversalwork.com

By davidbaer - January 26, 2010



It is impossible to “protect” people by trying to control the actions of others. The primary reasons for unhappy clients are failure to set appropriate expectations and consultant or agency competence.

Being “Google certified” or learning in an agency only means you have been trained to do something a certain way. It says nothing about whether you can actually achieve any particular results for the client.

In the entire history of mankind control has never really worked and is never going to be a solution to anything. Buyer beware has always been good advice. When it comes to evaluating Search Engine Marketing, information is available although not easy to locate.

You might share my post on How to Evaluate Your AdWords Account which contains a link to Marty Weintraub at AimClear’s 6 minute audit for evaluating the performance of your AdWords account.

By Gail from GrowMap - February 3, 2010




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