Gary North's REALITY CHECK
Issue 373 August 27, 2004
HOW TO DRIVE AWAY CUSTOMERS AND LOSE MONEY, TOO!
Whenever I discuss the basics of making money in business --
the best way to make a lot of money -- I keep coming back to the
same themes.
Identify the customer you want to serve.
Be sure he has money to spend.
Find out what motivates him.
Design your product/service to meet his desires.
Think through your marketing strategy.
Find out why he might be willing to listen to you.
Do whatever it takes to offer this.
Make it easy for him to find you.
Make it worth his while to return.
Make it easy for him to take the action step you want.
These themes sound simple. They sound elementary. I keep
repeating them because they are innate to us as consumers, but
foreign to us as sellers. Business owners must systematically
discipline themselves to evaluate what they are doing from the
perspective of the buyer. This runs against our grain.
The reason is pure ego. As consumers, people think, "Serve
me. I'm important. Do it my way." They are egomaniacs. As
sellers, they think, "Serve me. I'm important. Do it my way."
They are egomaniacs.
What's wrong with this picture? This: the consumer has
money. Money is the most marketable commodity. The consumer can
find lots of people who are happy to take his money. The seller
has to spend money on advertising to get anyone to take his
product or service.
So, the consumer is king. He has what everyone wants. The
seller is not king. He wants what the consumer has.
You would think that sellers would spend lots of money to
find out what buyers want to buy and why. You would think that
sellers would sell people what people really want to buy. But
sellers are driven by ego. They want people to buy what they
have to sell. "My product is important. It's important to me.
It had better be important to you. Do it my way."
This is the reason why socialism produces such rotten
consumer goods. The sellers are in charge. The sellers work for
the government, and the government sticks a gun in the consumer's
belly and says, "Buy from us or suffer the consequences."
Socialism is the ultimate seller's monopoly.
This self-centered outlook is basic to humanity. It is the
genius of the free market that it harnesses human ego and puts it
to work for other people. The seller learns how to control his
ego. If he doesn't, he loses money. The buyer learns how to
contain his ego. If he doesn't, he runs out of money.
If you have a huge ego, you had better have a bank account
to match it. Or else you had better be a socialist dictator.
To understand what a businessman ought to do, let's examine
a multibillion dollar industry that steadfastly refuses to pay
attention to these fundamentals. These firms are near monopolies
locally: economies of scale. Bigger is better. They are trying
to move onto the web by using the marketing techniques that made
them profitable in the pre-web world. They have failed to make
the transition. They are losing market share off-line because of
competition from the web, and they cannot make much money on-
line. They are dinosaurs. The web is their tar pit.
NEWSPAPERS
Local newspapers usually control a region, sharing
circulation with no other paper or only one. This was not true a
century ago or a generation ago, but it is now. Economies of
scale worked for printed newspapers.
The web is eating them alive. We can get more news than we
can handle by going to www.drudgereport.com, which has links to
dozens of newspapers, news services, and columnists, all free.
We can click the newspaper icon on the Google toolbar
(http://toolbar.google.com), which you really ought to install,
and get two dozen stories, with hundreds of different web sources
for each story -- all free.
When things are free, competition is stiff. The traditional
printed newspapers are competing for the reader's time. The
reader is overloaded with digital information. So, he cancels
his subscription to the printed version. I used to get calls
from the local paper to subscribe. I always told the girl, "I
read it on the web for free." They no longer call me.
There is a huge battle for readership going on. The problem
is, how do you make money from readers? The on-line newspapers
have yet to figure out a bankable answer. People will not pay
for a digital subscription, except for "The Wall Street Journal"
and other investment newspapers. They will subscribe to a web
site, but not a web paper.
The larger papers have adopted a new strategy. They require
registration. Everywhere we turn these days, the famous on-line
newspapers are requiring registration. These registration forms
have one thing in common: when you register, you don't stay
registered. Or, when you try to register, you are told that you
don't have cookies enabled, even if you do.
I understand their strategy. They make money from
advertising. They want to be able to tell advertisers that their
on-line readers are ready to spend money on stuff. They have to
prove that advertising pays. The only way to prove this is for
advertisers to adopt direct-response techniques that let them
measure response. Newspapers have fought this for 150 years,
except in the classified ad section. They don't want the
advertisers to test the response of newspapers. That's because
newspapers, like the Yellow Pages, want to be able to charge a
lot of money for one-shot ads that don't pay for themselves. So,
they "prove" that an ad will work by touting the subscriber base
and the income level of the readers, which they require on-line
free subscribers to provide.
Fact: on-line readers are cheap. They like free stuff.
That's why they are on-line readers. They don't buy stuff based
on newspaper-style ads, especially the non-digital style ads that
are run in on-line daily digital newspapers. To sell by way of
digital media, you need to design digital-friendly ads and
ordering services: direct-response ads. The advertisers have no
clue how to do this, as you probably have noticed. They just run
the same ads they run in printed papers.
But it's worse than this. The larger papers like "The New
York Times" have so many readers that the overworked subscriber
support staff cannot sort out users' registration problems. The
papers use FAQs instead of paid support staff to solve users'
problems. FAQs rarely work for major problems, and there are
major problems. For example, if you ever erase your hard disk's
cookie-generated address, you cannot get back onto the site. If
you try, you get the message: "Another user has this
registration." That "other user" is you.
I have tried for years to get back on at the "New York
Times." No such luck.
For those papers that sell back articles, fine. It's a
legitimate way to make a buck. Readers who come to the site
every day can save the entire file of an article to their hard
disk. (I don't mean "favorites.") They can access it later.
But for occasional visitors, charging them $1.50 an article may
make some money. But it would make a lot more money if the
papers didn't block people by their registration procedures.
The marketing division at the "Times" cannot make up its
collective mind: (1) make money from advertising (registration
required); (2) make money by selling old articles (y'all come).
In the case of the "Times," you can probably find the same
article, free, on the "International Herald Tribune" site:
www.iht.com. If you use Google, you will probably find that
someone has posted most of the major articles of the "Times"
anyway, and nuts to copyright laws. All you need is the author's
name and a couple of key words.
Free is better. For most newspapers, paid subscriptions are
a lost cause. As for registration, I can read an AP story by
clicking on the Google toolbar's newspaper icon. For every
featured story, there are 200 to 300 variants I can read. I
don't need to register for 90% of them. The same is true of the
links on www.drudgereport.com.
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ON-LINE NARROWCASTING
Broadcasting is what the big media boys do. It is the way
of the dinosaur. Narrowcasting took over magazine publishing a
generation ago. It is taking over television now: cable,
satellite. From day one, the Web has been a narrowcasting
medium. Broadcasting came to the Web years late. The big media
still can't make it work. I don't think they ever will.
The broadcaster thinks, "I must build my audience large
enough so that when I require registration, I will still have
enough readers to impress advertisers."
What astounds me is that narrowcasting websites are now
adopting the "registration required" strategy. Why? Why go to
the bother of requiring readers to register? This will always
reduce the number of readers. And, I guarantee you, the code-
writer will design the program so that it messes up. He will
make the small site as inaccessible as "The New York Times."
Let me give a recent example. I don't want to embarrass the
man, so I will not mention his name. He is a long-time gold bug
who put up a good website a while back. It has no search engine
-- big mistake. It does not post old articles in the archives --
big mistake. But for true believers who came every day, the site
was good. I emphasize "was."
It is a free site. When you run a free site, your #1 goal
should be to increase traffic. You can run ads. He didn't. You
can build an e-letter subscriber base by offering an "insider's
free report." He didn't. But your goal should be to get as many
people coming back to you site as possible.
The model is www.lewrockwell.com. It archives old articles.
It uses the free on-site Google search engine to let readers
search the entire site's archives. His goal is to attract lots
of readers. He gets 28 million hits a month.
Let's get back to Mr. Gold Bug's site. Someone convinced
him to require registration. I think the saying goes, "There's
one born every minute."
He had a programmer code it. Naturally, it doesn't work.
That is to say, a programmer coded it for the ease of programming
by the programmer. What else would anyone expect?
I was asked to register. I filled in my name and a
password. I clicked SUBMIT. I got an instant e-mail confirming
my registration. Then I tried to enter the site. I typed in my
name and password and clicked SUBMIT. The screen went blank and
-- presto! -- I was right back at the log-in page. Yes, it's
just like "The New York Times"!
I was not taken to a page that told me what I did wrong.
Why not? Because that would be extra programming work for the
programmer. So, I was just bumped back to the log-in page, over
and over.
I tried to register again. I entered my name and my
password. Naturally, I was immediately told: "Unable to
register. Member already exists." Again, it's just like "The
New York Times"!
This man has been seduced by technology. He thought: "The
'New York Times' requires registration, so I should, too." But
the "New York Times" has paid advertising and back articles to
sell. This guy just has a stand-alone site: information only.
He spent years (I guess) building up a loyal visitors' base,
and then he shafted them. Why? Either he is trying to set up
some kind of back-door advertising deal, or else he just wants to
feel like the Big Boys. "Look, I have a password-based site.
I'm as good as 'The Washington Post'." But it's not likely that
the "Washington Post" is making any money from its site. It's
there for bragging rights. I mean, if "The New York Times" has a
website, the "Washington Post" wants one, too.
He will lose the loyalty of some of his readers. He didn't
need to. If he wanted to charge for a "premier content"
subscription, fine. Lots of sites do this. But it is
economically nuts to restrict access to a free site. The goal is
to increase the number of regular readers.
THE AGORA MODEL
Agora has a good e-marketing model. Every day, Bill
Bonner's "Daily Reckoning" is sent out as an e-letter. Twice a
week, my letter is sent out. There are ads imbedded in these
letters. That's like a newspaper. The ads pay for the
operation. I even get a few dollars now and again.
There is also a "Daily Reckoning" website. It attracts
people through search engines. You can sign up for the
newsletter on the site. There are sometimes links to the site in
an issue of the "Daily Reckoning" newsletter. One hand washes
the other.
But, you may ask, why isn't there a "Reality Check" site? I
have asked this on occasion myself. I'm sure there is an answer.
The point is, Agora would be certifiably nuts to require
registration for people to access its website. Why would the
marketing division want to restrict access to a site whose task
is to increase the number of subscribers to "The Daily Reckoning"
newsletter?
[Note: I am assuming here that the annoying blank pop-
up, which keeps you from accessing the site for no
known reason, has been removed.]
Let's return to the model site: www.lewrockwell.com.
Rockwell uses this site, which gets millions of hits, to promote
his other website: www.mises.org. The Mises site is academic. I
know of no site to match its content in the field of economics.
There are lots of free articles and books. It sells books, too.
By using the first site to generate traffic for the other,
Rockwell has succeeded in making www.mises.org the most popular
site on the web for economic theory. No other site is close.
Both sites try to get readers to sign up for a daily
mailing. The goal is to persuade readers to allow each site to
send out its message. Why would Rockwell require anyone to
register in order to access his sites? That would defeat the
purpose of getting the word out.
WHAT WE CAN LEARN
In whatever you do, you must think through your goals. Is
the goal money from product sales? Is it making money from
advertising? Is it getting out your message? Is it getting your
name known, so that you can get a better job? Is it because you
love to see your name and ideas on-line?
Each goal has one or more appropriate strategies, but no
single site can achieve all goals. No single strategy can
achieve all of these goals. You must decide what a site is to
accomplish, and then have a programmer design it to achieve this
goal.
You must not listen to the programmer when he gives you
ideas about how to make your site "really neat." If he knew how
to make a site profitable, he would be making $100,000 a year
working for some money-making site. Anyone you can afford to
hire is not a successful entrepreneur.
Don't set up barriers between you and the customer's wallet
for no good reason. A good reason is, "To get him to pay me
money up front." I can't think of any others.
***********
APPENDIX 97
This is another example from Abraham Case Study #117. We
read:
Abraham technique used: Using the 'hidden assets' of a
company
Customer Problem: Company was over 30 years old with a
large customer base that was very seldom contacted.
Sales remained constant for several years, but costs
and expenses continued to rise and profits continued to
decrease.
Here we have a standard problem: a company with a client
base that is not being used effectively. It is like having a
money tree in the basement and never going downstairs.
Company had tried many new ideas to increase sales and
it appeared that their sales continued, primarily with
new customers because the machinery made had a
longevity of over 50 years. And, most customers did not
need many of their machines.
Getting a new customer is expensive. You must overcome
skepticism, habitual behavior, and a lack of motivation. You
have to be there when the customer is ready to buy, which is not
often.
The company needed ways to generate back-end income from
existing customers and former customers. The cost of selling
something to someone who has bought something is far less than
generating the first sale.
Solution: Since the company had been in business for
over 30 years it was obvious their products were well
made and liked by their customers.
I contacted many of their customers and found out that
they did not know all of the services and other
products offered by this company.
Since the machines continued to work, there was little
contact between the manufacturer and the customer. We
initiated a new program that periodically informed all
of the customers of the additional products and
services offered. In addition, we initiated a
maintenance program and educational program. This
brought in additional revenue and exposed the company's
employees to their customers on a regular basis.
The problem was a lack of information on the part of the
customers. They had not been kept informed on a systematic
basis. It would have paid the company to develop specific
products for this customer base, but this was not necessary.
Also, the educational program showed the customers new
and better ways to use their already owned machines.
The new uses in many cases encouraged the customers to
buy more machines, since they now had a new use for
equipment they were happy with and familiar.
Results: The company's sales increased and they created
a new revenue source, maintenance and education. They
were able to charge $75 to $150 per hour for their
employees that serviced their customers. In addition,
the employees got the opportunity to get out and do
some travel that made their job more interesting.
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