“The biggest lie in the history of media—information wants to be free. Information, like the rest of us, wants to be scarce and expensive.”
This provocative quote comes from author and business professor Scott Galloway, and it has profound implications for FP&A—particularly as it relates to marketing.
But first, let’s talk Econ 101.
Galloway’s quote came as he discussed the reason behind the New York Times' 41-percent stock price increase in 2017. He notes that the newspaper reduced the number of free articles it makes available online each month, which pushed visitors to pay for subscriptions to access proprietary content. The net result was increased site visits and subscriber growth and increased consumer pricing, reversing downward industry trends.
Galloway explained that news sites like the Times, Washington Post and FoxNews have found an “audience” rather than survive on “traffic.” By traffic, Galloway means the number of customers that visit a website, shopping mall or store. The business challenge is to bring customers into your orbit and then convince them to transact with your company.
Audience, on the other hand, is defined as the market segment where you advertise—but lately we see that definition merging with “community”. A community is a group of people with common interests or needs that are shared by the organization—in this case, the Times. This leads the audience to seek out the Times and develop an affinity. If you make your product scarcer, such as fewer free articles, your audience will seek it out and pay for it. If it is more of a transactional relationship that stems from mere traffic, organizations will need to spend to attract customers. This was the case for BuzzFeed, which recently missed earnings targets, Galloway noted. As Galloway put it: “Only two firms can monetize traffic at scale: Facebook and Google.”
So what does all this mean for FP&A and marketing?
First, FP&A must understand where the organization’s customers are on the spectrum, from traffic to audience, to see what kind of marketing and ad spend will be most effective for your business model. This is the “churn” model—bring in lots of customers, interact on a transactional basis, and then repeat. For the company, monetization occurs on a transaction by transaction basis, creating a state of permanent prospecting through expensive paid advertising, acquisition fees, and referral costs.
Second, FP&A must consider what it takes to move the business towards an audience. Marketing is expensive; it is often more economical to build loyalty through delivering great service, product differentiation, accessibility, social connectedness, or emotional tie-ins. This approach maximizes the lifetime value of a customer and redirects capital to increasing the duration and intensity of the interaction. Note that his approach builds brand loyalty that, when combined with a unique product or service, is a strong defensive against competitors that the traffic model can find hard to replicate.
Here is a link to Professor Galloway’s blog. (Note: Rated PG13 for mild adult language):
Bryan Lapidus, FP&A, is a contributing consultant and author to the Association for Financial Professionals. Reach him atBLapidus@AllegianceAG.com.
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