Putting the right promotional offer in front of the right person at the right time was the mantra of old-school direct response marketing. But it’s becoming even more relevant in the digital age.
At time when marketing spending has taken a hit from the economy, programs that can deliver customers cost-efficiently are standing out. Evanston-based Leapfrog Online is so sure of its strategic approach, founded on direct response principles, that it doesn’t ask its clients to pay until it delivers a customer for them.
“We’ll bet our compensation we can get you a new customer on a target price you can live with,” said Dave Husain, chief executive officer of the 100-employee firm.
Still, finding customers in a weak economy isn’t a given. “Leapfrog has to consistently deliver” to win clients and make money, said Tim Calkins, clinical professor of marketing at Northwestern University’s Kellogg School of Business.
But it’s a compelling strategy from the client’s point of view. “It’s much easier to justify a spend when you can see the response,” Calkins said. “They’re just pushing it farther than most.”
Leapfrog came up with the strategy long before the recession hit. Founded in 1995 by Husain and colleague Scott Epskamp, both of whom previously worked at DiscoverCard, Leapfrog’s first client was their former employer. They expanded to the telecom industry in 2002, by convincing giant AT&T Broadband to give them a chance. “Big companies want to know, `What did I get for that marketing spend and why can I believe these guys really have my best interest in mind?’ ” Husain said.
Leapfrog Online’s emphasis on accountability helped win business from AT&T and other large corporations offering products and services that are ongoing, such as financial services, telecommunications and home-security systems. With demand climbing rapidly, it hit 689 on the Inc. 5000 list of fast-growing firms in 2007, with annual revenue of $85 million, up 483 percent from $14.6 million in 2003.
The niche firm, which sold a minority stake to Boston private equity fund Northbridge Growth Equity for $30 million in August 2008, was impacted by the recession, but is now “back on track,” said Jason Wadler, chief strategy officer. It hopes to continue growing by adding clients and acquiring companies strategically.
When working with clients, Leapfrog invests its own money upfront to analyze customer data and identify groups of people most likely to convert to customers, using a direct marketing technique called segmentation. Then Leapfrog sets up separate Web sites using the clients’ logo and brand to promote offers that will entice purchases from the targeted customer group. It uses all types of media to bring customers to the offer site, while fulfillment is handled by the client, Wadler said.
In the digital arena, Leapfrog can get real-time information on whether a particular offer is effective. If not, it tries something different until it’s successful. Over time, Leapfrog attracts customers most likely to purchase. “Our goal is to convert as many people as possible as customers,” Wadler said.
Online test preparation company PrepMe.com also is using analytics to help define customers, so that it can look for others like them who might be interested in the company’s services. That requires an upfront investment. “You have to spend money before you can make money,” said Avichal Garg, co-founder and chief technology officer. But over time, it becomes cost effective because the company avoids spending money in the wrong places. “It becomes a by-the-numbers game,” he said.
PrepMe hired Michael Marchese from Leapfrog Online a year ago to be its vice president of consumer marketing and bring more analytics to the process, Garg said. “A year and a half ago, we had no idea who was buying or why they were buying,” he said. “Today we have a repeatable model. We know where to get people and how much to pay for them.”
PrepMe’s sales have increased, and Garg said its online marketing savvy gives it an edge over larger competitors, like Kaplan and Princeton Review. “This is something most big brands won’t be able to do very well,” Garg said. Online marketing is not part of their core competency, so many end up outsourcing it to a specialized firm.
Started in 2001 as an online firm, PrepMe has made online marketing an integral part of strategy, said Garg, who formerly worked at Google. His latest push involves creating ways for PrepMe users to interact with each other using their Facebook identities. “Everyone has a Facebook identity. Let’s build on top of it,” he said.
Rosemont-based Culligan International, which sells water softening and treatment, traditionally relied on mass media and direct mail, but now is focusing on online media to boost its return on investment, said Eric Rosenthal, senior vice president of marketing. It turned to Leapfrog Online for help about a year ago because it liked its quantitative approach. “Finding our target consumer can be difficult,” Rosenthal said.
Leapfrog creates Web pages with specific promotional offers, tracks results and handles search engine keyword buys. “They report back weekly on, `Here’s where we are having success and here’s where we’re not,’ ” Rosenthal said.
The relationship works best through collaboration. Clients must trust Leapfrog Online with their brands because the agency works as a mini marketing department for them. “We only win when we win together,” Husain said.