We were chatting about television spend on twitter recently - primarily the Derby prep race spend - and I uttered the words "the CPA was horrid". CPA, or cost per acquisition, is how much it costs you, or any business, to land a new customer.
Marketing spend is not really that complicated; although the people who do it (e.g me) would like you to think it is.
Let's say you spend $1,000 on a billboard and 100 customers come in for your "Free Mortgage Pre-Approval" and told you they saw your billboard. Out of those 100, one signs up for a mortgage, and you make $2000 off that sale. Your ROI is $2, and you find that is a profitable avenue. Time to put up more billboards!
With racing marketing spend, this becomes much more complex, however the principles are the same.
A few years ago I wrote an article trumpeting the work Churchill was doing to attack a demographic that doesn't bet racing as much. Females make up about 20% of all TVG's ADW customers: They are underrepresented as bettors when compared to the total population. All you have to do is pop on twitter and see handicappers like Melissa Nolan or Dana Byerly to know this is not a gender issue. They're interested and they're betting. Bringing women into the mix for the Derby was not really that difficult. Kentucky Derby party's website, the Oaks, the event, the pageantry and all the rest - the things that hard core bettors despise (both women and men who love the game and the sport) on the air each year - surely helped do that.
Online poker did much the same thing early on - showing the pageantry and celebrity at the poker tables. Now we see many female players in a formerly male-dominated game. I bet dollars to donuts women will be the fastest growing demo for race betting over the next twenty years. If they first watched because Bobby Flay was on, a commercial on Bravo, or some women was interviewing someone on a red carpet, so what? Well done.
It appears Churchill's strategy has been working. I read recently that 51% of the viewers of the Derby were women.
The cost per acquisition here is not tiny, but it certainly isn't huge either; and I am pretty comfortable with it, in the absence of hard numbers. As well, by attacking a demo that was not looking at you, that now are, we are not preaching to ourselves. It's probably cost effective.
Conversely, we have the Derby prep races. The narrative is easy to understand, and plays well to insiders who like the game: If we show a race before the Derby, people may watch it, and then watch the Derby. It sounds good, is an easy sell and it makes us feel good that the sport we love is on television.
However, when you are spending finite marketing money, it's all about choices.
I read a few years ago that racing paid $200,000 to get the Spiral Stakes shown on television. The ratings showed there were 200,000 viewers. If so, that means we paid a whopping $1 per viewer. The way racing is presented on the airwaves is to talk to insiders, or to give human interest stories, and I know me, you and everyone else who watches via TVG or HRTV or via the web were probably tuned in. What percentage of those 200,000 viewers were new viewers? I would submit it was a very small number. For arguments sake, let's be conservative and say 10,000. Our cost per new viewer is now $20.
Out of those 10,000, just like our mortgage broker, we can find a conversion number. What percentage watch the Spiral and then watch the Derby (who've never watched it before or planned not to watch)? The cycle is six weeks, the way the product is presented is not overly fun, new viewers don't know the participants, the sport, or handicapping, and they likely couldn't even make a bet on the race even if they wanted to. I don't know about you, but our Derby prep race coverage isn't exactly new-viewer infectious. Just like you don't click every banner ad you see, a lot of the people who watched the Spiral for awhile won't tune in to the Derby in six weeks time either. If we convert 2%* in any meaningful way, I'd be shocked.
We've now just spent $1,000 to get a brand new, never before watched Derby TV viewer, which lands us at a CPA of $1,000.
The revenue from one viewer? Peanuts**.
Well, maybe a huge percentage of them will become bettors and we'll land long time customers? As Jared pointed out on HANA yesterday, that's not likely. There are probably 1,000 leaks from being a Derby watcher to a long time bettor. The conversion rate for those 200 viewers is microscopic. You could make my projections way off and say the money spent on prep races spawned 1,000 new viewers or 5,000. It'd still be microscopic.
Our CPA for a new long time bettor, with lifetime value, may be in the tens of thousands of dollars. In comparison, Online poker, for example, has signup CPA's in the $100-$150 range.
I would submit that we spent $200,000 for something that did virtually no good at all.
If someone says to you about marketing spend that "it has to be helping", it means it probably isn't helping very much, and they certainly can't measure it. There are ways to track television attribution that are primarily in their infancy. There are ways to present the product on television that can attack new demos and gain new customers. Right now, with our TV coverage as prep races as it is, I see no way it can succeed, and unless we change it, modify it, tweak it and test it, it'll be wasted marketing spend.
* - 14M casual viewers saw Zenyatta one week before the Breeders Cup and TV ratings showed a bump, somewhere along the lines of a 2% conversion rate. 2% with a six week cycle and no Zenyatta is probably high. However, it probably can be used conservatively in some sort of empirical fashion.
** - In rudimentary terms, NBC paid $5 million to show the Derby to about 15 million people, so one Derby viewer with that basic measure is worth 33 cents.