In my previous blog, Personalization is not a substitute for critical mass – from Zagme to Blyk, I talked about the importance of critical mass.
Here is why I think it’s critical to get to high volumes – and only then is personalization relevant. The model draws from memory with Zagme and also may apply in a similar context to newer players like Blyk and also Operators who are attempting similar strategies
Too early to say why .. but we have friends in both places .. so sad news ..
Coming back to the question ..
The question is – Why do we need critical mass and why do we say that critical mass is a prerequisite to personalization
Assume a total audience of 100,000 people (Zagme was 85,000 and Blyk aims to get to 100,000 later this year)
Assume 20p/MMS which advertiser pays
With 100,000 – campaign costs = 20,000 GBP (hypothetical case of hitting all 100,000)
With 10% response 10,000 people respond
Assume that 5% buy from within 10,000 – so we get 500 sales
Assume cost of each ‘shoe’ (or whatever the campaign is selling) is 12 GBP
Hence, sales = 6,000 GBP
Against campaign costs of 20,000 GBP
That can never work? Unless you have volume!
Also, the retail price of the shoe is £12, but you’d have to factor in costs – manufacturing, postage, returns etc to end up with a margin.
The model will not work even for Starbucks and SMS since the same principles apply there.
From a marketing standpoint, Reach (critical mass) has always been important. This may be because of high fixed costs historically, which need to be amortised over high volumes. Obviously, that’s not the case with a Google AdWords or AdMob – but still the equation needs Reach as I indicate above.
Thus the very factor which makes the medium attractive (targeting/personalization etc) – becomes its undoing since the numbers are ‘back of the envelope’ calculations and they don’t add up at lower volumes especially when you co-relate to sales/fulfillment.
Consequently, I say that critical mass is a pre-requisite to personalization and one could argue that even the Operators lack critical mass when it comes to advertising. The players who are gaining the biggest traction have critical mass or are addressing the problem. For instance, Admob, itsmy, flirtomatic and others have got critical mass by virtue of their strategy/cross operator vision. Nokia ad service is another significant player for the same reason (all Nokia devices). So is Android potentially (unites the stack) and the iPhone (combines the Web and the Mobile Web)
However, no matter how you look at this – I believe that critical mass must come first and only then is personalization relevant