Why all Lead-buying industries/verticals (not just mortgage) need to embrace semi-exclusivity

By Sean Fenlon on April 14, 2007


As the 600lb. gorilla in the mortgage leads space, Lending Tree essentially forced the issue down the throats of the mortgage industry back in 1998 with “When Banks Compete, You Win,” and all the other players (including iLeads, GetSmart, TheLoanPage.com, eLeadz, LowerMyBills, etc.) fell right in line. In other words, the lead-generation companies were in the driver’s seat – “Oh, you want these leads, Mr. Mortgage Co., OK then, well here’s the deal…”

In online ed, and the other leads verticals, the buyers are/were in the driver’s seat (ostensibly since no big lead gen company came out in their vertical to force the issue). All other things being equal, what leads buyer would ever want semi-exclusive vs. exclusive?

But all things are NOT equal.

Moreover, it’s not a zero-sum game. I have yet to witness any lead vertical where there was a finite number of “deals” associated with any lead source and that one single competitor was capable of extract 100% of the available deals to be had. Rather, I have found the number of deals to be quite elastic to the number of competitors. In other words, new competitors often extract their own net new deals from lead sources.

Don’t get me wrong, conversion rates do indeed come down when new competitors are introduced, BUT only INCREMENTALLY and NOT at the same slope as the as arithmetic cost-sharing. For example, OnlineEdCo may be enjoying a 5% conversion on their $50 exclusive leads today. However, if the cost of that $50 lead was split with their competitor InternetEdCo, then OnlineEdCo’s marketing costs are instantly cut in half. The downside is that their conversion ratio will indeed drop, but it DOES NOT drop to 2.5% (half of the original 5%). My experience shows only incremental decrease to maybe 4.7% or 4.6% or so. In other words InternetEdCo brought some net new deals to the mix, and anything above 2.5% is FOUND VALUE for OnlineEdCo.

How/why does this happen?

Typically, in any vertical, leads are assigned to individual sales professionals and then tracked individually and in the aggregate. It is the one-company/sales-professional to one-consumer paradigm that causes the inefficiencies. Here are some examples:

Contact patterns – Even with extremely high-quality lead sources, 30-40% NO CONTACT rates are not uncommon.

Consumers that cannot be contacted cannot be sold anything. Sales professionals typically develop their own unique contact patterns. Some work early shifts and call all their leads as soon as they come into the office. Others work the late shift and call all their leads before they leave. Some prefer email, others ignore email. Since the method and the best-time-to-contact consumers is wildly un-predictable (even if the lead includes “best time to contact” data), overlapping contact patterns is the best way to increase the net contact rate with consumers, hence squeaking out net new deals.

Comfort/Culture Fit – This is simply the first 30-seconds of contact with a consumer. Is this consumer a “Georgia peach” being contacted by a hard-edge Long Island sales veteran with a raspy smoker’s-voice? That deal will obviously face significant friction in just getting to first base. A second call by a soft-spoken female rep with a southern twang may face significantly less friction.

Sales skills – It’s a well documented fact that a lead in the hands of a strong salesperson will often convert into a sale whereas it dies in the hands of a weaker salesperson. We all must concede that many leads are being put in the hands of weaker sales people every day and in every vertical. Thus, putting the lead in the hands on another competitor (who may be a stronger sales person) increases the likelihood of a sale and the value of the overall source of leads in the aggregate – again, creating net new deals.

Nature of the Offer vs. Target – The general offering of every company within a vertical is seldom identical and the likelihood of mis-matches remains quite high irrespective of sophisticated filtering options. For example, Ameriquest is not known for competitive interest rates. Rather, they focus on consumers with significant debt or other cash needs where interest rates aren’t always the driving factor. However, despite their best filter-tweaking efforts, they will often buy a lead which represents a consumer with no debt looking for nothing other than the most competitive market interest rate. In this type of situation, Ameriquest will seldom convert this lead. However, if Countrywide was also a buyer (Countrywide typically DOES offer extremely competitive interest rates) a net new deal can be brought to the table.

Of course the issue of branding somewhat complicates the matter (mortgage is a largely un-branded industry whereas online is ALL about brand), but not to the insurmountable level.

The smoke is clearing and the mirrors are shattering.

SPF

p.s. originally posted as comment/reply on the Jay Weintraub Blog: http://www.jayweintraub.com/2006/02/effectiveness_i.html


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