The document discusses how the economic climate in 2009 will favor performance marketing initiatives that demonstrate accountability and ROI. It outlines 8 steps companies can take to prepare for and optimize performance marketing efforts, such as determining customer lifetime value, capturing prospect information, and building marketing assets. Performance marketing focuses on cost-per-acquisition and risk-sharing media buys that directly generate revenue.

1. 09
20
R
FO
PS
TI
G
IN
ET
RK
A
M
CE
N
A
RM
O
RF
PE
[1]

2. As CEOs and CMOs increasingly demand accountability and ROI on marketing
dollars, we expect 2009 to be a great year for performance marketing and media
initiatives. Fundamentally, this means that creative executions and media placements will be placed
on a cost-per-inquiry or cost-per-acquisition basis in the media markets. This is a very significant shift that
rewards marketers who develop coordinated, mutually-beneficial revenue sharing partnerships among their
[1]
advertisers, agencies and media vendors. Moreover, there are material benefits to being a first-mover in
your industry.
A Shift That Will Endure. The CMO Council reports that nearly 50% of all companies plan to
restructure or realign their marketing departments to better support sales and drive revenue.

3. Driving this shift to ROI and measurement is the combination of several key
factors, including:
• The Internet is now a major force in the economy and delivers trackable metrics, so ROI measurement is
now accessible to any company
• There is more Internet traffic than ever, with near-saturation levels of penetration of broadband access and
money-saving entertainment options available on the home computer and mobile phone
[2]
• Over 81% of Internet users researched a product or service on the Internet before buying according to
the 2008 Pew Internet Survey, making the Internet a natural place to find your target audience late in
the sales funnel
• The economy has pulled a large percentage of advertisers out of the media markets (or has reduced their
budgets,) which has put a financial strain on publishers and search engines alike
• Web publishers and search engines are looking to new revenue sources from advertisers that would not
otherwise be interested in their offerings

4. 48
Jan ‘09
PEOPlE ARE SPEnDIng MORE TIME OnlInE...
43
% of people spending more
than one hour per day Jan ‘08
37
Jan ‘07
33
32
Jan ‘06
Jan ‘05
27
26
Jan ‘04
Jan ‘03
source: Gallup Poll

5. $6
...YET OnlInE ADVERTISIng REVEnUES ARE FlAT
$5
$4
Billions of Dollars
$3
$2
$1
$0
2003 2004 2005 2006 2007 2008
source: Interactive Advertising Bureau

6. Here are eight steps to help your organization prepare for, build and optimize your 2009
performance marketing efforts:
1 START WITh A lITTlE PERFORMAnCE In YOUR MARkETIng
Skip this point if you’re already knee-deep in performance marketing. But if you aren’t, and you are
still executing branding campaigns almost exclusively, then this is the year for you to identify at
[3]
least one marketing initiative that can be managed in a performance-driven way. If you’re an airline,
maybe you start recruiting mileage plan members at a fixed cost metric. If you’re a hospital, maybe
you start delivering leads through cost-per-lead media placements for one of your specialty practices,
such as cancer care. If you’re a university experiencing significant competition from dominant Internet
players, consider starting with your fully-employed or executive MBA program. You get the point.
How do you decide what might be a good performance candidate? The key is to understand the
value of a new customer.

7. 2 DETERMInE ThE lIFETIME VAlUE OF A CUSTOMER
Strangely, this is a difficult question for most traditional marketers, but if you ask a Chief Financial
Officer he or she may know down to the penny. Determining customer value is an exercise that needs
to happen on an ongoing basis.
[4] Start with Revenue-Based Segmentation. Ideally, you establish customer value first by
segmenting your customer base into distinct pools and then formulate a cost per acquisition for each
separate segment. In contrast with audience-targeting segments common among marketers, such as
“men age 35-49,” performance marketing segmentation focuses on revenue-based segmentation
(which we call “RBS”). For example, “Customer A purchases four times per year” or “Customer B
always buys more than one product at a time” or “Customer C, by virtue of their age and gender,
tends to convert at a 50% higher rate than the average customer.”

8. Operating Margins help Calculate Customer Value. Marketing departments are
used to being handed a budget and some more-or-less nebulous total revenue targets to try to
hit assuming all the media placements work. Performance marketers, however, effectively create
their own budgets delivering new customers at or below the required Customer Acquisition Cost.
Repeating the process for each segment, we calculate by establishing an appropriate percentage of
operating margin that can be used toward customer acquisition.
Example - $200 Software Product. You market a software product that sells direct to
consumers for $200 and carries an operating margin of 75% ($150), and you’re willing to allocate
[5]
50% of the operating margin toward marketing ($75). This means that we can arrange media
placements for $75 or less provided the cost is only incurred upon each sale, and is known as cost-
per-acquisition media placement (CPA media).
Establishing a CustomEr aCquisition Cost:
Sales Price: $200
Operating Margin: (75%) $150
Maximum Cost per Acquisition: (50%) $75

9. Working with the Sales Funnel. If your business is built on generating and converting
inquiries (leads), you need to calculate your maximum cost per lead (CPL), which will differ by
revenue segment and by media source. For example, if your average customer acquisition
cost is $150, and you expect that your sales team will convert one in three qualified leads,
[6] your maximum cost per qualified lead is $25 ($75/33%). Performance marketers also know that
many factors determine the percentage of leads that will convert, from media type to number
of qualifying fields. Quillion is expert at assisting companies in predicting and planning the
maximum CPL for a wide variety of media based upon planned creative executions. Once
established, you can happily push forward with a powerful performance marketing program.

10. 3 SWITCh RISk
Even the most ROI-savvy marketers are used to buying online media on either CPM (cost per
thousand impressions) or CPC (cost per click) metrics, which means that the marketer is stuck
with the financial risk. In our book, these “old school” digital marketers who are still comfortable
hoping that their media vendors deliver the right number of the right visitors to their Web
sites are taking on too much risk given the opportunities in the current market. Even the best
optimization efforts, which may eventually deliver a favorable ROI, often result in cancelled buys
and significant sunk costs; in the end, legacy buying approaches unnecessarily stick the advertiser
[7]
with the bulk of learning costs.
What shifted-risk media buys look like. Since media vendors ultimately know their
media properties and, hopefully, audience profiles best, performance marketers demand that
media vendors take on the engagement risk (getting people to the advertiser’s Web sites) and
the conversion risk (delivering visitors who convert to a lead or sale). This is the most natural
structure in an Internet marketing scenario for no other reason than because it can exist. We often
suggest to our clients that if the Internet had been developed before other advertising media,
there is no question that media vendors would be taking more risk.

11. Does it hurt to ask for a risk-shifted media buy? Performance marketing
principles seem simple and concise—in fact, they are. However, performance marketers like us
walk a delicate line between advocate for our advertisers and protectors of our media vendors.
As specialists, we understand the key nuances that allow media vendors to concede to our
[8] demands on behalf of our advertisers. For example, high-quality creative and premium brand
representation are increasingly a requirement for performance-based placement on quality sites.
Most performance marketing companies, however, are media-centric direct response agencies
who are generally disinterested in creative, rather than a full-service performance marketing
agency such as Quillion.

12. 4 REWARD RISk
Publishers need to know that they’re treated as partners and not just commodity vendors.
Performance marketers go to great lengths to establish data infrastructures that allow advertisers
to be transparent about the number of leads or sales a media property generates. We also
work hard to be protective of the vendor’s audience by providing fresh offers and creative, and
[9] by limiting the number and frequency of impressions to avoid message blindness and wasted
impressions. But most of all, performance marketers must reward the media’s adoption of your
engagement and conversion risk by providing a real financial incentive. Offer a compelling
cost-per-acquisition bounty and reward performance through extra bonuses to ensure that your
media partnerships can be a long-term, consistent revenue stream for your media partners. As
a performance marketing agency, Quillion offers the game-changing advantage of extensive
performance-driven media relationships that would not be available to individual advertisers.

13. 5 FORgET “TEST, TEST, TEST”— nOW IT’S TEST, TRACk, OPTIMIzE
There’s a good chance that your performance marketing campaign won’t be fully optimized at
the get-go. However, in contrast with old school digital marketers who must spend considerable
effort looking for placements that generate enough clicks or Web site visits, performance
marketers can shift the focus to metrics that more directly generate revenue—the quality of
conversions. This shift of focus means that performance marketers can be more agile to tweak
and test creative that have large implications for revenue rather than, say, generating a small
bump in banner clicks. Consider using new dynamic advertising technology in which the
creative execution is driven by the media environment—or optimized through initially random
[ 10 ]
“mutations” that eventually reveal consumer preferences that generate better results. Leverage
analytics packages such as Webtrends, Coremetrics, and Omniture, which provide insights into
the way consumers make decisions and where more consumers can be found.
Analytics insights drive negotiation. Do not skimp on the analytics team who,
more than likely, will be the only people to truly understand the depth of information and
insights available. In a performance marketing environment, we use such insights to support the
placement of even lower-cost media placements as well as to know when we can reward vendors
with an even higher bounty (which may result in more conversions). Insights about creative
performance drive further market segmentation and negotiations with media vendors that can
save or earn advertisers millions of dollars.

14. 6 CAPTURE InFORMATIOn
No business converts all of its Web site visitors or leads to customers. In many environments, only
10% of inquiries turn into customers and another 20% of those inquiries are ultimately not interested.
Yet brand marketers have not been trained to continue the conversation with each prospect on a one-
on-one basis; it has traditionally been attempted through brand awareness and recall advertising.
Everyone is a prospect. To performance marketers, each visitor is an opportunity to start
a personalized conversation with the end goal of initial and repeat sales. That’s why you need to
find ways to capture at least some of their information. Do you have an email newsletter, RSS feed
[ 11 ] or alerts? Allow visitors to subscribe simply by entering their email address. Want to learn a little
more about who’s visiting your site? Consider authoring a definitive guide, white paper or report
demonstrating your mastery of the business and allowing visitors to download the report in exchange
for additional contact information, such as their name, email, phone number and potentially a couple
of market research questions.
Profile-driven site customization helps. Additionally, cookie visitors to allow
them to remain logged in, and provide customized views of the Web site so it is clear that there
is an ongoing relationship based upon the user’s profile information. Quillion offers a variety of
site customization tools that assist in relationship development and conversion to support the
other 70%.

15. 7 PRM (PROSPECT RElATIOnShIP MAnAgEMEnT)
CRM with a P — management of relationships for the other 70%. Since the database
of prospects is so much bigger than the database of customers, we think of PRM as a goldmine
of opportunity to test messaging to convert prospects who have already expressed interest.
Investing in an infrastructure to maintain the conversation creates the need for a strategy to build
[ 12 ]
trust and deliver value with every interaction. How often do you reach out to your prospects?
What do you offer in exchange for their attention? How do you measure their interest and when
and how do you try and close their business? While selling again to current customers is the least
expensive new revenue, selling to existing prospects follows closely behind. Last, seamlessly
transferring data from the PRM system into the CRM system is imperative as learnings from the
prospect phase are indicative of the type of customer you have.

16. 8 BUIlD MARkETIng ASSETS
In this current economic climate, there’s a perfect opportunity to build marketing assets that will
create immediate sales and pay dividends in the future. It will take an extra effort on your part,
but there should be little financial investment and risk. Every company’s digital content strategy
[ 13 ] will be different, but you should look into the viability of starting a blog, authoring whitepapers,
informing and following customers and thought leaders via Twitter or launching a series of
instructional videos for dissemination on eHow and other how-to Web sites. These search-engine-
friendly assets ensure more digital mindshare in the competition for inexpensive search-driven
visitors. If you start now, your sweat equity should pay off handsomely once the economy picks
back up.

17. Ready to get Started?
With digital performance marketing, you only pay for actual business results. And 2009 is the year for
you to get started with performance marketing, as many premium online publishers are only selling small
parts of their inventory, creating a plethora of opportunities for savvy marketers.
[ 14 ] If you have any questions about performance marketing, we would love to help get you started.
Please contact Lori Perman, who can answer any questions you might have and/or to schedule a free
performance marketing analysis.
lori Perman
Director of Business Development, Quillion
email: lori@quillion.com
phone: 310-280-7941

18. [ 15 ]