The Continuity Conundrum

Without a doubt, the flog qualifies as the unexpected eighth wonder of the advertising world – a slightly refreshed take on the classic MLM page of rambling text in the first person promising claims that people doubt but want to believe. The flog is an unlikely, but in retrospect, jump page – enhancing the intent of the user and increasing the number of total conversions. Only a small percentage of people will click on an ad that says – lose weight, free trial. But, they will click on something that says, "I lost 30lbs obeying this one simple rule." And, when that rule happens to be a means to lose weight, free trial included,well, all of a sudden actions take place, whereas before the ads didn’t engage them emotionally and speak to their pain points. The free trial component, ultimately, is what the user signs up for, and the economics of those trials have played a key role in the financial success of the flog. Speak to those in the industry, especially those with experience in flogvertising, and they can recite the metrics cold, both what the payouts of competitors offers are and what the conversions must look like for profitable media buying. In most cases today, the trend has shifted from promoting one product to promoting two on the same flog with both having a high price point to the user who signs-up.

Any current talk of flogs, must include a talk of the continuity programs they promote. At some point, we will see other offers, but let’s face it – Life is a game of go with what works, and in certain industries, it’s go with what works and crush it as hard as possible while you still can. Therein lies the potential trouble. It gets back to the point we touched upon in our earlier article on flogs, the lack of incentive for consumer oriented innovation. No one wants to be the first to take a risk in the safer, i.e. potentially less profitable, direction. If they did take the initiative, it’s a double whammy. First, they must spend money testing a page that will not perform as well. They do so without directly being told to or knowing exactly what it should say. If they happen to get it to maintain some level of profitability, then each day they earn less and can buy less media than those who are presumably less compliant. If, though, they find a combination that works and lets them stay competitive, others will simply copy what they did. It’s a bizarre case of pluralistic ignorance. No one is motivated to go first and once a person makes a move that seems sound, others simply follow.

Narrowing in on just continuity programs, the questions all revolve around price. Let’s look at last year’s continuity program that cleaned up – mobile subscription services, in particular the crush offers. They started out charging between $19.95 / month or in some case $5.99/week. What did you get for the price? Generally you received a text message of some pre-scripted content several times per week. Twitter can’t make money, but this short form text sure did. Is it worth even $9.95/month to receive text messages? How much of that $9.95 are the cost of goods? It’s the same question with most continuity. It’s not the monthly price that is high; it’s the cost of marketing that is, which makes the monthly cost high. That’s just what we see with the diet flogs. The offers pay out upwards of $40 per free sign-up. Already that tells you that the cost to the user won’t be cheap, and it isn’t. Users who do not cancel within the time frame will pay $79.95 per month for their monthly set of pills. Yes, it doesn’t cost but a few percentage points of that to make, but they are simply following a precedent. Just look at Video Professor and the language on their site regarding their trial. "ANY TWO of the three computer tutorial CD-ROMs are yours free without further obligation, PERIOD. Take 10 days to decide if you want to keep the complete set of CDs. After your 10-day free trial, if you decide to keep the complete set, we’ll conveniently bill your credit card just $189.95." Three CD’s, $60+ / disc.

Would you overtly pay $60 for a tutorial? $80 for a bottle of pills that cost $2? What about $200 for sneakers when they say Nike? $400 for a silk scarf when it says Hermes? So, what happens when the price drops? Thinking back to mobile subscription services, when the price dropped from $19.95 to $9.95, did people stay on longer? Not by much. If Nike drops the price of the show from $200 to $100, will they sell double? Not necessarily. From the company perspective, the question is really one of maximum return. And, that’s the same issue with continuity programs. A mobile company would gladly drop the rate to $2.95 if it meant earning the most per person in the long run.

Let’s think of the two distinct categories (which can overlap) of continuity programs, a) a known brand, e.g., Netflix, Blockbuster, or b) those out of necessity, e.g., Internet, phone service, most people. In these cases people often pay knowingly but they also have some price transparency in which to understand if what they pay is what they should, and if for what they pay are there other options. That doesn’t exist with the majority of products we describe here. These are impulse buys. There is no price gauge, no rationality. Charge them $19.95 per month instead of $79.95, will they feel less upset if they don’t like the product? Probably. But companies are greedy and people aren’t rational, so it makes for some sticky situations. All we can really conclude is that there is an inequity. The price being charged and the manner in which they sign up doesn’t feel right, but how can we properly test what that appropriate price will be – one that maximizes the lifetime value of the channel as opposed to maximizes the speed with which we tap the vein? I don’t know, but unless a coalition steps in to create some boundaries, I can only say how it will end. As much as it would be easy to blame our industry, it’s not like a better precedent is being set outside. Have you read Wall Street’s Socialist Jet-Setters by chance?