WHY AOL TIME WARNER UNDERSTANDS LOYALTY

Advertisers Should Focus on Keeping Customers

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AOL Time Warner's obsessive focus on subscribers is a challenge to the ad industry to start judging media -- and marketing communications programs themselves, for that matter -- by the strength of the customer relationship.

That should be self-evident, yet in the agency business it's anything but. In media, magazines are still measured entirely too much on the basis of newsstand sell-through, not renewal rates. Broadcast TV network affiliate advertising is powered by the one-off ratings generated during sweeps months. In advertising, and brand marketing generally, likeability -- a gauge of how total communications are influencing ongoing consumer attitudes toward a brand -- still plays third-fiddle to single-impact metrics such as recall.

Why value one-hit wonders?
Advertising's fixation on one-time impact is puzzling, and certainly counterintuitive. Throughout contemporary business, executives are consumed by buzz phrases such as "customer relationship management" and "customer solutions." Years of research show clearly that profitability, in just about any category, derives from maximizing sales among current customers, not in the expensive chase for new ones. Yet we still find agencies and brand managers valuing the one-hit wonders.

I was prompted to these musings by a recent get-together with David Kahn, publisher of The New Yorker. Certainly, no sales chief has ever sat in a better place -- or so I thought.

His magazine, only a decade ago considered a relic, had, a week before our lunch, won a record five National Magazine Awards. Its content, under the inspired stewardship of Editor David Remnick, is more delightful and vibrant and newsworthy than, perhaps, at any time in its history. (It's the mix I'm lauding: the magazine's ability to shift, as it did in a recent issue, from an illumination of white discontent -- told through a portrait of Southerners who feel dispossessed by the present -- to a gripping-yet-timeless tale about a search for an allegedly extinct bird, to a witty-yet-utterly informative report on what HBO is doing to follow up on The Sopranos.)

For all these reasons, the weekly's influence among the elite is certainly high. Lest there be any doubt of The New Yorker's strength, its renewal rate is an astonishing 76%. Yet The New Yorker, while on a roll, still must scrape for every scrap of advertising.

Let me be clear: Mr. Kahn was not complaining. He's too circumspect a fellow to unburden himself to a columnist, and his periodical is doing well. But there was hesitation in his manner when I popped the obvious post-National Magazine Awards question: How does one leverage such a spectacular showing? It made you want to grab any media director who happened to be passing by at Michael's, put your hands around said agency executive's throat, and scream, "Don't you get it? People are reading this -- week after week, year after year! Don't quality and the loyalty it generates count for anything?"

Don't trust newsstand sales
In the magazine world, the secondary (at best) accord given renewal rates and subscription pricing is increasingly counterproductive because newsstands are becoming an ever-less-reliable source of readers and revenues. Last week, an industry consultancy, Harrington Associates, said newsstand periodical revenues fell last year, "possibly for the first time ever," The Wall Street Journal noted, in reporting the study.

Unit sales have been dropping for five years. One worries that this trend, coupled with advertisers' continuing, tiresome reliance on newsstand figures as a measure of vigor, will continue to drive periodicals down the path of sensationalism, sex and abject gimmickry -- exactly the sort of sweeps tactics that help TV networks win the quarterly battles for their affiliates, while their medium loses the long-term audience wars.

Refreshing strategy
That is why AOL Time Warner's corporate strategy is so refreshing. To the world's largest media company, loyalists -- that is, subscribers to one or more of its multiple properties -- are its core focus. They are offered deals, such as tickets to concerts by Warner recording stars, unavailable to transients. And they are generally thought of, not as a commodity to be brokered to marketers, but as what they are: living, breathing sources of direct revenue.

That is, as people who prove their worth -- the sort of people media and advertisers ought to cherish more.

Mr. Rothenberg, an author and longtime journalist, is chief marketing officer at consultancy Booz-Allen & Hamilton.

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