Marketing’s so-called ‘Holy Grail’: Acquisition Costs

If we look back over the past few decades, outdoor advertising was extraordinarily important. Calls for direct contacts were not uncommon on posters. And the same applied to direct advertising. Acquiring new customers was a high priority and standing out from the crowd a necessity.

Acquiring new customers is still a priority today. But we don’t acquire new customers today as we did yesterday. Budgets have migrated to new marketing channels, performance-based and automated channels which offer you sophisticated reports: we are now using Paid Search, Programmatic, Cost-per-X, Affiliate, Lead Generation, etc. In 2016, investments in online advertising had already reached 9.5 billion pounds in the UK.

The acquisition of new customers seem to be an ultimate goal for marketing. But there is a question we are not necessarily thinking about: isn’t there a catch with these channels? Is it really that easy to acquire new customers?

Customer Acquisition Costs 

What are Customer Acquisition Costs (CAC)? The price you pay to acquire new customers. This data is closely related to the Customer Lifetime value, the value of the relationship you have with your customers. Thus, if you want your business to steadily growth in the long run, it is important for your acquisition cost to be lower than your customer lifetime value. 

The calculation is based on the division of the money you allocate to acquire new customers by the number of new customers you actually acquire. Here is an example:

Let’s say you are thinking about acquiring new customers and choose to attract them with a banner ad. The cost to display this banner ad on a certain period of time is £1,000. You have also decided to offer a promotional code worth £20 on the banner ad. By the end of your campaign, results show that 15 customers have found you through the banner ad and have made an order using the promotional code. You now need to add up all the costs related to your campaign and divide them by the number of new customers you have acquired.

(£1000 Banner Ad + 15 New Customers * £20 promotional code) / 15 New customers

£1300 Costs / 15 New Customers

= £86,67 : the cost to acquire a new customer

Traditional online marketing is no longer working

A crucial aspect for online advertising and customer acquisition is to draw the attention of potential new customers on your business. How do they react to catchy banner ads, promotional codes or other offers made by advertising companies? They get annoyed and they don’t like being interrupted in their browsing. This leads to a decrease in click rates, an increasing use of Adblockers and a rise in costs to win them over.

For years, Marketers have focused their attention on customer acquisition costs without trying to understand the significance of the customer lifetime value. Is the customer really worth such a high investment? How much brand loyalty can I expect if I have had to convince my customers with such pushy means? How can I retain customers?

Only “(50%) of retailers believe that they offer the same level of customer experience online as they do in store”
Internet Retailing & iAdvize market report – June 2018 

In order to build a successful online strategy, you need to focus on customer engagement as well as customer retention. 

A quest to offer the in-store experience online

What can you concretely do in these market conditions? It’s a very difficult question to answer. On the one hand you need to understand to which extent you can optimise your existing acquisition channels and know if investing in new strategies such as influencer marketing or conversational marketing would make sense for your business. Building a seamless customer experience can also help you improve your customer lifetime value and, thus, make acquisition costs more profitable for your business.

71% of retailers use social media influencers and bloggers to engage with their customers
Internet Retailing & iAdvize market report – June 2018 

Read more: PETIT BATEAU advises its visitors in real-time with the help of brand advocates and enables 22% of customers supported to finalise their order.

Basically, all the strategies you may implement should have one common objective: the customer. In order to implement the right strategies to build your customer retention and trusting relationships, you need to identify and analyse your customers, their customer journeys and favourite contact channels. You need to interact with your customers online and offer them real authentic conversations. In other words, you need to build relationships with customers through communication to unlock the power of conversational marketing and gain a competitive advantage over your competitors.

 

iAdvize have partnered up with Internet retailing to help you identify how the human touch which involves a blend of process, algorithm and humans can help brands to shape their existing customer experience offering to become the digital destination of choice. Download your copy of the report here

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Ludivine Kasteleyn

French and Belgian born in France and interested in everything related to Marketing, Foreign Languages and the Web.

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