Digital marketing fallacies

In this post we'll look at popular marketing activities that could be having a detrimental impact on your business and why looking at economic policies and the reason they fail can help us understand the reason why.

Henry Hazlitt was a philosopher, journalist and economist, he wrote the acclaimed book "Economics in One Lesson". In Hazlitt's book he reviews government economic policy and argues that many are fallacies, he states 2 fundamental factors are responsible for failed policy:

1) Self-interest. While certain public policies in the long run can benefit everyone, other policies only benefit one group at the expense of all other groups.

2) Failing to analyse. There's a persistent tendency to only look at the immediate effects of a given policy, or only to look at the effects on a special group, and to neglect looking into the long-run effects of a policy, not just on that special group but on all groups. It is the fallacy of overlooking secondary consequences.

It's clear to see how these factors don't only apply to economics, self-interest is a problem in many businesses and it's compounded with dysfunctional org structure that can create competing teams, bonuses and egos. Failing to analyse can be caused by system/data limitations, lack of expertise or not wanting to know; Upton Sinclair's quote can often be applied: "It is difficult to get a man to understand something, when his salary depends on his not understanding it."

Before we look at marketing initiatives fraught with mistakes, let's close this introduction by reviewing the one lesson from Hazlitt's book "Economics in One Lesson". Notice how we can just as easily swap out "Economics" with "Marketing":

Discounting

Fallacy: discounting increases sales, so it must be good

Now, I'm not trying to argue that all forms of discounting are bad, however, when little thought is applied it's probably the worst marketing activity possible with severe financial/brand consequences. Discounting, is everyone's favourite marketing trick, sprinkle some here and there and if by magic sales 'pop' and everyone is a genius! With that being said I understand the short-termism of the business-world and the pressures of "making the quarterly number", therefore making a special offer can be the most effective lever in your marketing toolbox. However, it's probably fair to assume that the majority don't reflect on what the financial consequences of discounting can be, so let's look at some bad examples of discounting.

Discounting by device
Many of the examples I've seen to date will most likely suffer from market cannibalization. Unless intentional, cannibalism, which can be seen as competing against yourself, can often harm profitability. Here's a great (bad) example from match.com - one of the largest online dating and subscription services:

Prices shown to desktop devices:
Prices shown to mobile devices (*for the same subscription/product*):


At the time of writing, this is how pricing compares for the same subscription:

Device	1 month	Saving	3 month	Saving	6 month	Saving
Desktop	£42.99	-	£92.97	-	£113.94	-
Mobile	£29.99	30%	£59.99	35%	£59.99	48%

Strategically, I don't see how charging half the price based on your device can be a sustainable long-term plan, especially when you consider an individual can be exposed to both sets of pricing which must be off-putting. The mobile pricing will undoubtedly relate to "mobile not monetising" which is a common complaint amongst marketers, and I'm sure when the mobile pricing was dropped there was a jump in sales but would a jump be pure upside? or are there longer term ramifications? Hazlitt's point of failing to analyse would certainly apply or more comprehensively put: neglecting to look into the long-run effects and not just on a special group (mobile in this example) but on all groups (all channels/ devices). Now, I'm not suggesting that looking at the long-term effects of match.com's device specific pricing is straightforward and from a technical standpoint creating an a/b test with control group across devices would be challenging, so faced with the alternatives then sticking with price parity has to be the sensible approach vs. throwing against the wall and hoping something sticks.

Discounting by channel
A bad example of discounting by Channel is when affiliate sites offer a coupon/ discount code that applies a lower price compared to that found on the merchant's front-facing store. Have you ever gone to checkout and seen a "promo code" box and feel you're missing out, so you go search Google instead of completing your purchase? Yeah, it's annoying! But when our enthusiastic marketer opens his/her analytics report, what they see is "new" sales attributed to a different Channel, what a stroke of genius! Even crazier examples include paid media offering lower prices on special landing pages compared to going directly to the merchant's website, one can only assume to improve the advertising program ROI at the determinant of the company as a whole. These are all examples of self-interest and failing to analyse the whole group and not just a special group; sales go up in one place and down in another. Debunking such events can sometimes be as easy as looking at a first and last touch report for highlighting sales/channel cannibalization.

Discounting frequently
This article wouldn't be complete without mentioning the problem of discounting overuse, we probably all know a website or retail shop that always seems to have a sale - are sofas ever not discounted at DFS?? Your customers build a tolerance to your discounting just as you do to consuming sugary energy drinks, in the early stages you get a kick which helps with your cognitive/physical load but the effect lessens with usage, to the point your overall health deteriorates. Hopefully, that analogy made sense! Below is an anecdotal example from my inbox, I'm regularly exposed to "limited time" promotions, but if I ever decide to buy the product and it's not on "sale" then I won't make the purchase, I'll just wait a month or 2 for the next "special" event or maybe I forget and don't buy. There does seem to be a culture now with everyone expecting a discount, in such a scenario it could be worth adopting what Amazon do where everything has a discount all of the time, the prices are inflated so it allows for an always on discount.

Smarter people than me have comprehensively discussed the negative consequences of over discounting so if you want to read more I've included a link to an article by Jim Novo in the further reading section below. In summary, this is a cautionary note, discounting frequently is likely to cause problems and would require proper analysis on primary and secondary consequences on both the short and long-term (which is challenging) to be sure there isn't a detrimental impact on your business in the longterm.

A/B testing

Fallacy: winning a/b tests improve business KPIs

Moving away from discounting, another common fallacy is thinking we're improving our business with lots of a/b testing. This is probably every marketeer's favourite pastime, the problem is most people don't know how to do them; this results in losing a/b tests being called winners that have no or negative impact. With the mass availability of tools such as Google Optimize, the problem will only increase, more so with the WYSIWYG editor trend. It's great that running a/b tests has never been easier, however, this only glosses over the difficult aspects of running tests, which are:

1) Validity. There is a host of reasons why your test is flawed, caused by statistical and setup errors; common problems include calling the test result too early, this happens due to lack of understanding and/or self-interest as we want our test idea to be a winner.

2) Hypotheses. What are you testing and why? Many people's idea of a hypothesis translates into guesswork, which most of the time is a waste of time. Testing larger more tangible changes, generally have a higher chance of success compared to small copy and layout changes but these generally require more effort and buy in from the broader organisation.

Even when tests are run correctly there's still the risk our winning test idea is actually a fallacy; this is due to us tracing the effects of our test in the short and not the long term, sometimes this is due to our final topic, the novelty effect.

Novelty effect

Fallacy: conversions increased with the introduction of a new feature so this must be good

The novelty effect is the tendency for performance to initially improve when something new is introduced due to increased interest, quite often once the newness has disappeared then performance regresses to the mean. Do you remember those "punch the monkey" banner ads when they first came out?


As you may have guessed, the concept was to punch the monkey! Click through rates must have been off the charts when they first started appearing but it's easy to understand why there would be a strong correlation between time and deteriorating click throughs. If you work in Digital then you're frequently exposed to new best practises, tools and marketing tricks. A few that spring to mind and could suffer from the novelty effect are:

Exit overlays
Remember when these first came out? What a cool idea to grab an email address or offer an intensive to buy before leaving a website. But, they seem to be everywhere now, not just when exiting but on arrival too. I can't be alone thinking these are overused and annoying, as people become banner blind they must also become overlay blind. If you still think they're the coolest thing since sliced bread then here's a post on how to implement.

Cart abandonment remarketing
There are various tools that offer cart abandonment remarketing. Assuming you've entered your email then you receive communications that offer assistance or an incentive to complete the purchase. Is this cool or creepy? How many of the "recovered" sales would have purchased anyway?

Lapsed subscription discount
You have an annual subscription to a newsletter or some software and don't renew immediately, before you know it you're receiving emails with big discounts trying to win you back.

The 3 marketing activities above could bring incremental conversions, however, over a period of time the effectiveness can disappear or worse run negative. Although anecdotal, I have tech-unsavvy friends tell me how they add items to cart and intentionally abandon to see if they receive an incentive, I'll admit that I always let my subscriptions lapse and wait to see if there's a better offer coming. The more prevalent an activity is, the more expected it becomes, so previous gains can disappear further down the line. Because of this, it's important to run validation campaigns to vouch for previous winners, time can be a majorly influencing factor so don't assume a winning treatment will always be a winner, it's healthy to be a sceptic!

Right, that's it - thanks for reading. If you have any comments, questions or feedback please leave them below. And you can follow new posts on Twitter, Email or RSS.

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Further reading
Economics in One Lesson
https://www.amazon.co.uk/d/cka/Economics-One-Lesson-H-Hazlitt/0517548232

When Does a Visitor Need a Coupon?
http://blog.jimnovo.com/2010/12/17/when-does-a-visitor-need-a-coupon