iDate 2005: Customer Acquisition and Retention for Online Subscription Businesses

1. iDate 2005:Customer Acquisition and Retention forOnline Subscription Businesses January 20, 2005 Scott Butler Chief Executive Officer Boehm-Ritter, Inc. © Boehm-Ritter, Inc.

2. What is Boehm-Ritter? Business Models Pricing and Offers Marketing Channels Optimization Launching New Channels Creative Banners/Buttons/Boxes E-mail Landing/Order Pages Product Packaging The Subscription Problem Retention through CRM Customer Service Finance “Sweat the Assets” Discussion Overview © Boehm-Ritter, Inc.

3. What is Boehm-Ritter? • One of the fastest growing health and beauty businesses on the Web • 18 months old • Offices in San Francisco and Napa, CA • 30 employees • $17mm in sales (goal of $30mm in 2005) • Marketing spend of ~$5mm annually • Primary product line: Nexiderm-SP (active ingredient Matrixyl™) • Five new products in development for launch in Q1 • Continuity model with Free Trial entry-point My Background • CEO, Boehm-Ritter, Inc. • VP, Marketing, True.com • Sr. Director, Marketing, MyFamily.com • Director, Business Development, Alcheme • Marketing Manager, Nortel Networks © Boehm-Ritter, Inc.

4. Business Models Two fundamental questions of online businesses: • Am I products and services company? • Am I a media company? Answer: You are both! You are whatever the customer wants you to be when the customer has a need. Examples: • When a customer types in OnlineDatingCompanyX.com, you are a products/services company. • When they need a recommendation for a restaurant for a first date, a better photo for their profile, etc., you are a media company. But it’s not about banners—it’s about creating contextually relevant experiences. This doesn’t always require more money—more often it just takes smart thinking. © Boehm-Ritter, Inc.

5. Pricing and Offers There are three pricing strategies that I hear over and over again: • “We’re going to offer a super low price point, make it up on volume, and blow away the competition.” • “We’re going to keep our price point very high and be the Mercedes-Benz of our industry.” • “We’re going to offer our product at exactly $24.95 because that’s what the leader in our industry does. Clearly they know what they are doing.” Answer: Let the market determine your price—especially online! That’s why we are all working online, remember? • The answer is in the data. • No, you will not get in trouble (just keep your attorney in the loop). • There is nothing wrong with changing prices on existing customers (assuming your terms and conditions allow you to). • Same thing goes for offers (Free Trial, 1/3/6/12 month packages, Pay-Per-View, etc.) © Boehm-Ritter, Inc.

6. Marketing Channels • Volume • Obviously, achieve the highest number of registrants, subscribers, customers, etc. • Cost per Acquisition (or Campaign Ratio) • Inverse relationship with volume, but with inflection points. Make sure you are tracking the customer’s lifetime sales. Customer LifecycleImpression  Click  Visitor  Reg.  First Sale  30-Day Value  Lifetime Value • Diversify, Diversify, Diversify! • Channel (online vs. offline, search vs. e-mail, contextual vs. RON) • Partner (Yahoo, MSN, Google, Overture, Advertising.com, Azoogle) • Media Placement (banners, pops, e-mail, text links, etc.) Footnote: Be careful with incentivized marketing! © Boehm-Ritter, Inc.

7. Optimization Use people first… • Campaign Managers (people who spend their entire day in Excel and campaign reports…) • Tough people to find: Blend of creativity and science. • Start your optimization at the channel, partner, and placement level. Study after study has shown that a bigger bang for your buck is going to come here instead of at the creative level. • Raising CPA is easy—anyone can raise CPA. Optimization is hard. But build/buy technology quickly… • Campaign tracking • Ad serving • Auto-optimization • Creative attribute tracking • Marketing/accounting tieback © Boehm-Ritter, Inc.

8. Launching New Channels • Focus • Focus on a single channel at a time, dedicating resources creates learnings faster. • Shitty Phase One • Just get something up and get the data/learnings coming in. You can always improve upon what you have. • Negotiate • Early on, half of your efficiency should come through negotiation and half through optimization. • Scale • The moment something works, scale it as quickly as you can while keeping the ROI in line. Don’t be afraid of CPC, CPM, and CPV. • Growth • Always be pursuing the next channel, possibly separating out new channel development from existing channel management in your organization. © Boehm-Ritter, Inc.

9. Creative • Don’t outsource this—unless you need something very, very specific. It is way too expensive and the learning curve too steep. Unless a partner will do it for free. • Create a solid connection between your designers and your marketing team. Designers do not just “make things look pretty”. • Take everything you know and throw it out the window—within reason (75% A/B testing vs. 25% “throw caution to the wind” testing). • Brand design vs. direct response design (0.3 seconds). Let’s look at some examples… • Banners/buttons/boxes • E-mail • Landing/order pages • Product packaging © Boehm-Ritter, Inc.

10. Bad Example Good Example Banners/Buttons/Boxes © Boehm-Ritter, Inc.

11. E-mail Holiday Copy Customize by Partner • Customize creative wherever possible. 19% increase in conversion 11% increase in conversion © Boehm-Ritter, Inc.

12. Landing/Order Pages Direct Response Direct Response + Brand 26% increase in conversion © Boehm-Ritter, Inc.

13. Product Packaging Clear examples of brand design © Boehm-Ritter, Inc.

14. The Subscription Problem The More Obvious Answers • Focus on retention (existing products) • Market more (existing products) The Lesser Obvious Answers • Expand into new markets (new products) • Grow the lifetime value of your existing customer base (new products) © Boehm-Ritter, Inc.

15. Retention through CRM “Plugging the holes in the leaky bucket.” • Communicate clearly with the customer whenever you can. For example, we send e-mails not just upon order completion, but upon return receipt, refund processed, etc. • Communicate the clear message—and then upsell, upsell, upsell. • Engage the customer in your products and services (i.e. communicating with them while they are in their Free Trial is a good thing). • Watch retention rates very closely and create ways to measure the individual components of retention (Free Trial vs. 30 day, Partner A vs. Partner B, incentivized vs. non-incentivized, etc.) Do Not Forget: Retention drives acquisition. Every dollar earned on the backend can be reinvested into the front of the business. We built the entire business at MyFamily.com through annual subscriptions and renewing subscriptions. © Boehm-Ritter, Inc.

16. Customer Service • Your customers’ phone numbers and your Customer Service center are bigger assets than you think. • You should see a 5-20x increase in conversion rate on the phone versus online. The numbers you are working with are smaller though. • Use this to make your Customer Service center a profit center, not a cost center. • Focus on scripting (in the same way you would focus on creative for online campaigns). • Collect phone number! So many companies overlook this as they don’t see value in it… • Start testing phone number co-registration. Examples: Up-sell/cross-sell calls, renewal calls (counterintuitive), call transfer programs. © Boehm-Ritter, Inc.

17. Finance Cash Flow Management • You need razor-sharp cash flow management to find the apex between growth and risk (i.e. $10 in your checking account). • Get a rock star CFO. Merchant Accounts • There are few “do-or-die” issues for online businesses—this is one of them (e.g. no phones, no internet access, etc.) • Watch chargebacks very closely (especially as your marketing changes). • Get backup accounts in place—even if you don’t use them—including an offshore account. • Keep a very close relationship with your merchant processor and the issuing banks (if possible). Credit Card Processing • Watch credit card processing very closely (i.e. billing algorithms). • Create ways (e-mail, phone) to get expiring credit cards renewed—it is money just sitting on the table. • These can be the hidden gems in your business and there are people out there to help you. © Boehm-Ritter, Inc.

18. “Sweat the Assets” Make sure you are squeezing “blood out of the turnip” from every resource you have in your organization, especially if you are a startup: Examples: • Traffic: Use exit pops! You’ve already paid for the marketing in many cases. • Former Customers: Make sure you are re-marketing to them (phone, e-mail, direct mail, etc.) • E-mail Database: Make sure you are constantly mailing your in-house database (no marketing costs!). • Space/Equipment: We now run our facility from 5AM to 9PM on two split shifts to keep phones, computers, scanners, etc. constantly in use. Pushing “offline” tasks to evening shifts (e-mail in Customer Service, returns processing in Shipping). Receptionist concept during peak hours in Customer Service. © Boehm-Ritter, Inc.

19. Q&A © Boehm-Ritter, Inc.

20. Contact Information Scott Butler Chief Executive Officer Boehm-Ritter, Inc. E-mail: scott@boehm-ritter.com Phone: (707) 259-1500 x205 Web: http://www.boehm-ritter.com *I will be e-mailing the presentation out following the conference. Please give me your business card if you would like a copy of the presentation e-mailed to you. © Boehm-Ritter, Inc.

21. iDate 2005:Customer Acquisition and Retention forOnline Subscription Businesses January 20, 2005 Scott Butler Chief Executive Officer Boehm-Ritter, Inc. © Boehm-Ritter, Inc.