Argyle Conversation: On December 5, 2011, Jason Redlus, Managing Partner, Argyle Executive Forum, interviewed Dave Husain, Co-Founder and Chief Executive Officer of Leapfrog Online, regarding the new digital marketplace and how Leapfrog has been successful building digital sales and marketing channels for their customers.

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JASON REDLUS: Can you give us an organizational overview of Leapfrog along with an overview of your professional background?

DAVE HUSAIN: Leapfrog is a digital direct marketing company that we founded in 1995. Originally, I came from the financial services industry, specifically the credit card section, and that’s where I grew my direct marketing roots. When we started the company, we saw what was happening with the Internet and the exciting changes for the consumer. We believed in the potential of the Internet as a new direct response marketing channel. At that time, there really were no rules. My partner, Scott Epskamp, and I took the insights we’d gained as credit card marketers and focused on this new and emerging media arena. We knew the same principles applied, but the practice would be very different. We had a previous relationship with a large credit card marketer, and we approached them and said, “You are phenomenal direct marketers, and you have a business model that needs to acquire large volumes of new customers each year. You’re using a lot of offline channels very successfully and efficiently, but you’re not using online channels to acquire new customers.” Our value proposition to them was very simple. We offered to figure it out for them. We knew what they were willing to pay per customer. We knew which segments represented the highest value to them. We would be allowed to market with their brand, and in exchange, we would cover the cost of the media, construct and support the right customer experiences for each segment, and then send them the application data for a credit decision. They would make their credit decisions in the way they always had, send us back what was approved, declined, and canceled, and we would optimize it. Compensation was on the basis of sales produced. It worked. And it became a very large source of customers for them.

That experience began a business model that’s about creating a partnership with brand name clients. It’s very different than some of the traditional supplier or agency relationships our clients have experienced. We find ways to grow our client’s business by identifying customer segments and issues that are blocking them from growing digital market share. Key elements could relate to marketing, media, data, or operations. We build an end-to-end customer experience that solves the challenges they are facing at a target ROI. The Internet changes rapidly, so we continuously innovate to keep our clients ahead of their competitors. That makes us a unique partner.

Will you tell us more about the card marketing side and how that fits into the online model?

Thinking back to 1999, the practice of using the Internet for sales of services was very narrow. Credit cards had some advantages that other services did not. They were nationally marketed and fairly easy to segment. Consumers were open to transacting against that product on the Internet, even at that very early stage. If you had a brand that was trusted and a variety of media formats against which you could test, you could drive to a branded consumer experience and capture the application.

It parallels offline direct response marketing, but the tools used and the approach required are very different. We learned to set the process by aligning all the pieces that are critical to success first. We set a compensation structure that’s directly tracked and simple to understand. In a nutshell, the brands knew they only paid us for the new business they accepted and earned. In very black and white terms, even in 1999, this meant a card marketer could look at our programs and determine whether he or she received true value from the experience. From our perspective, then and still today, we’re forced to measure and adjust our focus based on what’s working to grow our client’s business.

Another key point of appeal that the digital sales and marketing space brings is speed to optimization insights and results. There is an opportunity to optimize and make changes rapidly, especially because responses are received within seconds. We can change and redirect course immediately to capture market share. That was a major shift for our clients as they entered the online model.

Once the basic programs are running for our clients, the challenge becomes staying close to the client and understanding what they’re trying to solve next. It may be new product launches, outreach to new segments, or a sales promotion they want to integrate into the process to keep the wheels spinning faster. If you’re creating more value for them, then both companies grow. It’s an aligned business model.

Traditional suppliers or agencies, whether offline or online, rarely optimize across a closed loop to produce sales. They tend to be a component within a marketing process, thus lacking a holistic view. As a result, they tend not to have the capacity to react quickly to what’s working and what is not. Our ability to look holistically at what’s happening, from the minute a consumer interacts with the brand all the way to the online or offline purchase decision, enables us to quickly optimize across the engagement process based on the data model that underpins it all. This approach allows us to deliver meaningful results and a new set of insights that our clients may not otherwise have the opportunity to uncover.

Regarding digital marketing strategies and their adoption across normalized industries, where do we stand? To use a baseball analogy, which inning is it?

Let’s put it this way. The relief pitcher has not yet been invented. In my opinion we’re probably in the third inning. I can see it taking another five to ten years to really normalize a digital direct marketing thought process. Certainly across brands and industries, digital is highly visible and a high priority strategic issue. CMOs are also under increasing pressure to show return on investment for marketing spend. As it applies to digital spend, they know that creating applications or bright, shiny digital programs for brand or engagement alone will not suffice for long.

At the same time, the digital space is changing incredibly quickly. There is a lot of noise around supplier options for various digital marketing needs. There are many smart options from which to choose. It’s difficult to filter the noise and choose a partner with whom to work. When it comes to leveraging digital to build and grow a true sales channel, we’ll be wholly aligned to the client’s objectives as opposed to being a fractional component. We’re going to take on the responsibility for results and make the effort to stay close to both the strategic marketing objective and the sales goals. We will test, read, and react as fast as the marketplace allows at the media level, the online and offline conversion points, and the operational levels.

The way CMOs think about their organizational structures will be important to this transition. The idea of driving digital holistically, on a closed loop basis, is a relatively new phenomenon. In offline direct marketing, it wasn’t quite as essential. Today, it is.

We look for CMOs who say, “Look, I have tested a lot of stuff in the digital space. Some has worked and some hasn’t. I have a fundamental responsibility for ROI and the growth of digital as a true sales channel. I want a partner who solves challenges and innovates to grow my digital market share. If the challenge is a media one, we can solve it. If the challenge is online or offline conversion, we can solve that. If the challenge is a data or operational issue, we can solve it.” Those are the CMOs with whom we fit. Some CMOs are going to say that’s more than they want. Other CMOs will say it’s perfect and they’re fine with that. In the transition from the third inning to the ninth inning, we believe multiple models will win, not just one. We believe we’re going to be a leader in this closed loop approach to digital direct marketing.

As a professional services firm, how do you tactically work with your clients? Is your role as a partner more advisory or one where you actually execute specific tasks for them?

The labels will vary by industry and brand. If you’re looking at the most generic case, our client needs to grow its digital market share. So, we have to demonstrate that we understand the industry, the issues associated with the competitive set, the consumer they’re pursuing, the consumer experience associated with it, the related data capture, and all the operational components. Ultimately, a stream of sales is the goal we are hired to achieve.

Let me give you an example of how far we will extend our thinking to drive digital sales. One of the categories in which we work is the cable category. There are a number of things we’re doing online to bring the consumer into a conversion experience and get them qualified with a pricing plan and installation service. Ultimately, however, there’s typically an installer truck roll happening offline that enables the final sale. While we don’t own that installer truck roll, there are data components of that step in the sales process against which we’re measuring and optimizing. The same thing would apply in the auto category where the objective is to sell cars. We don’t control the auto dealership, but that doesn’t mean we can’t learn from what’s going on inside the auto dealership to optimize the entire digital direct marketing effort. We use a holistic data view and find out where there are friction points or opportunities to optimize, regardless of whether those opportunities are online or offline. We then leverage that information to create better end-to-end experiences for a brand’s target consumers.

If a client is having trouble driving digital sales growth, the challenge could be a segmentation issue, a media format issue, or an operational issue. Any one of these three things, or a combination of them, could affect the ability to grow digital market share. We come in and provide case studies to show clients that the data is far more than a click stream. The data is far more than the conversion rate at landing page and far more than just sales numbers or cost per item. It’s the sum of all those things and the insights associated with them that give you the real strategic power.

Once you have real strategic insight, you start building the program levers required to actually capture the opportunity. That approach becomes an ongoing piece of our client relationships. A client may say that no one has been able to do that or that they didn’t really believe we were going to be able to do it. Once we’ve proven the first piece, however, we go to work on the next generation challenge, and the wheel just starts spinning faster. The relationship is very much aligned to growing digital market share.

We build dynamic client relationships. Our clients want a partner who is going to grow and evolve with them and stay ahead of the changing market. As a result, we can bring our clients insights they would not typically get.

How much of your work is domestic versus international?

Today, the majority is domestic. We focus on industry verticals and the large brands within them. It’s a meaningful and full-time job to stay ahead of the curve in the U.S. digital market. We take this narrow and deep focus rather than a wide market focus because we believe it is the best way to truly bring value to our clients.

With your bird’s eye view of purchasing trends, how do you think the consumer is performing in today’s environment?

We believe we’re seeing consumer activity that would support a comeback. In terms of using digital to drive sales and create economic value in cable, education, home services, auto, and consumer packaged goods, we have seen a lot of activity in these sectors.

What type of technology do you leverage?

The base technology platform we use is proprietary. It is a derivative of the market experience we’ve gained from linking all the pieces together for multiple industry verticals. We’re taking a consumer from a targeted media solicitation into a targeted conversion experience that drives through to an online sale, where applicable, and captures a closed loop of data in the process. When not applicable, it drives all the way to an offline sale and captures the closed loop data. It’s complex and unique to keep all of those components aligned at scale. Our platform is homegrown and closely guarded. When needed, we use purchased optimization tools to plug in or link to our client’s corporate marketing activity.

Do you work with big brands and how do you handle those?

We generally work with large brands inside the industries we target. Sample clients include  Comcast (Telecommunications), Career Ed (Education), Ford Direct (Automotive), Kimberly Clark (Consumer Packaged Goods), and a number of the Service Master brands (Home Services). These big brands partner with us because they know we “get digital” in a way that drives results. We work as an extension of their teams. We help them build and execute strategies that transcend the typical silos or departments you see inside many large companies. We create a marketing and operational engine that allows the brand to attract and convert the right target segments into long-term customers. Also, we work to cut through the bureaucracy and operational challenges that make it difficult to truly evaluate what’s happening across the customer experience process.

Our ownership of the entire process is really unique. For example, inside a brand, you may have a media team telling you they’re doing a phenomenal job because of specific results they are measuring. You may hear the call centers applauding themselves for improvements on their latest call time metrics. For some companies, those silo results are still good enough. But for the CMO who is a key player on the brand’s revenue generation team, the reality is that you don’t really care about those specific media or call center results. You care about the outcome, which is the sale. Essentially, you want to know from start to finish what’s happening and how you can make changes across the continuum to achieve the final outcome you need at a target ROI. That’s what we’re able to do for large businesses. It’s often tough for them to coordinate a similar process to bring that same kind of insight.

We haven’t talked a lot about mobile marketing. Will you give us some of your latest thinking on that topic? (Google recently featured Leapfrog Online in a case study and on the Google Mobile Ads blog as the agency that’s cracked the code on driving sales through mobile)

We have constructed a closed loop distinctly for mobile. As a result of our work here, we’re hearing our clients say they were not aware of the growth in mobile sales opportunities. They had no idea how many digital sales were sitting in mobile, just waiting to be captured.

From locally targeted solicitation against multiple mobile technology platforms and driving to online and offline conversion, we’re taking direct response marketing in mobile to a next level of sophistication and efficacy at a targeted ROI.

From 1999 forward, a relatively short timeframe from an Internet perspective, all of the digital direct marketing focus was on the wired desktop. That’s now flipped in a meaningful way. For consumers, the behavior has now changed and so have the expectations. As a result, what it takes to successfully get the sale has also meaningfully changed. Are you treating the consumer differently based on what you know about the mobile channel and the increased urgency in consumer purchase decisions that go along with it? How do all the factors play in? Again, a closed loop provides you with insight into what’s happening with these consumers from the moment they engage throughout the purchase path.

With new and existing channels, is there any pattern recognition related to the adoption of a channel regarding how long it takes to reach a tipping point and experience success in that channel? Is the rate faster with digital than some of the older channels?

Looking back at the adoption curve from newspaper to radio to television to color television, the answer would be that it took decades. During that time and across those media format innovations, new suppliers and solutions emerged to support brand advertisers in their sales and marketing efforts.

Today’s technology is clearly moving much faster. The speed does not necessarily mean that we hit an accepted norm or standard within a tremendously compressed time frame. When you think about the interplay between variables, such as brand advertiser organization changes, consumer behavior changes, technology changes, and supplier relationship structure changes, it is quite a complex equation.

Because of this, we believe it could take five to ten years to stabilize. During a period with this level of volatility, we push to anchor to some type of digital bedrock, and that bedrock is sales. We argue that you need digital sales with two key variables—a defined price that produces a defined LTV and the ability to clearly answer the question, “what did my digital efforts produce for me?” Doing that allows the CMO to continue to get the funding required to keep investing, learning, and staying ahead of the digital curve. If you can’t do those two things, you’re routinely defending your life, and that gets very challenging.

Right now, many of us feel like we are “drinking from a fire hose” with the massive changes going on in the digital marketplace. The reason Leapfrog Online has been so successful with our brands relates back to that closed loop model. We have a platform in place that allows us to test, refine, and quickly make the right decisions to generate the right results.  Because of that, we can drink from the hose faster, process the information, add it to our model, test and refine it, and drive results. The singular focus allows for quicker innovation, and it is what keeps us moving forward.

BIOS:

Dave Husain is Chief Executive Officer of Leapfrog Online, which he co-founded in 1995. His leadership in directing the organization’s overall vision, strategy and growth has enabled Leapfrog Online to become one of the largest digital marketing companies in the country.

As Chief Executive Officer, Dave brings more than 25 years of experience in consumer and business-to-business marketing to this role. Prior to founding Leapfrog Online, he co-founded Leapfrog Development, a successful product development company. Prior to Leapfrog, Dave worked at Discover Financial Services, The Northern Trust Company, and Continental Illinois National Bank.

Jason Redlus is the managing member and founder of Argyle Executive Forum, a professional services firm that convenes and connects leaders from highly targeted business-to-business communities for strategic collaboration and business development. More than 40,000 executives participate in one or several of Argyle Executive Forum’s communities, with more than 700 new members joining every month.

Prior to forming Argyle Executive Forum, Jason launched the private-equity business effort for Capital IQ, which was acquired by Standard & Poor’s in 2004. Prior to Capital IQ, Jason was an investment banker focused on middle-market M&A and LBO transactions. He holds a Bachelor of Science from Cornell and an MBA from Harvard Business School.