Finding the Business Case for Customer Acquisition that Drives Long-Term Value

October 27, 2016 — by Parker Noren    

Brand success means driving sustainable growth, and marketers typically turn to three overarching strategies to achieve it. Two strategies-for-driving-growthare focused on existing consumers and aim to get them to either use more or pay more. The last option—finding and acquiring new customers—expands the brand’s penetration and can produce the greatest gains when executed successfully.

None of this is a breakthrough concept. But what may be surprising is how often customer acquisition is deprioritized in digital advertising campaigns. We’ll review why this happens and how to drive organizational change to produce better brand outcomes through customer acquisition.

When high value gets low focus

It isn’t a discrete choice between finding new consumers and activating against those that are already engaged with a brand. Most brands pursue a combination of both—usually allowing fluidity between tactics to maximize performance on what is working best. Do they get the best results across their consumer funnel? The answer is sometimes no.

Marketers demand that their campaign managers meet specific performance goals. This is well-intentioned and meant to drive continuous campaign optimization. However, in metrics commonly used to understand performance (e.g., Cost per Acquisition or Return on Ad Spend), customer acquisition will almost always perform worse than the path of least resistance—remarketing to those already engaged with the brand. When budgets are fluid, campaign managers will shift funds away from acquisition tactics to meet the marketer’s requirements. Performance metrics look better, but the brand misses out on valuable opportunities to grow their buyer base.

There are a number of factors that contribute to customer acquisition being undervalued in digital metrics, but two are particularly important. First, the most common mechanism for attributing credit for a purchase only values the last impression served to a consumer. Impressions from customer acquisition tactics occur early in the path-to-purchase. This results in tactics further down the funnel “stealing” credit. (To learn more, read Part I of Four Fatal Flaws of Digital Attribution.) Second, the time horizon for digital measurement is short—in most cases, less than 30 days. Value created as an acquired customer repeats her purchase over the following year is ignored. Both these issues add up to the deck being stacked against acquisition tactics in measurement and, as a result, deprioritized as campaign managers optimize towards marketer goals.

Unleashing growth from customer acquisition

When we understand how campaign execution is impacted by measurement, we can structure our strategy and objectives more effectively. Marketers that are up for the challenge can realize financial gains through expanding brand penetration that often outpaces tactics focused on existing customers. Beyond the financial rewards, expanding penetration de-risks a brand by mitigating the effects of customer departure due to changes in needs. And, in every category, usage per customer is finite. Said another way, there is an upper limit to increasing consumer loyalty or premiumizing your product line. In some categories, this limit is easy to spot. There are only so many Take 5™ candy bars I can eat in a given day, for example. In other categories, the usage cap is less obvious, but even for apparel, my closet is only so big, and I’m only willing to spend so much on those awesome new kicks.

What’s the solution? The first step is determining what the real value of an acquired customer is for your brand. This does not require sophisticated lifetime value modeling; rather, finance or analytics teams can evaluate the longer-term value of acquiring a new customer based on historic CRM data. They can simply look at new purchaser order values, repeat rate (i.e., % of prospects that buy again after initial purchase) and repeats-per-repeater (i.e., average number of repeat occasions) over a one- to two-year interval. This exercise will establish the average value of converting a new user and can be compared to incremental revenue created when increasing existing customer purchasing. The result is an understanding of the relative value of going after net new vs further engaging existing customers.

Think about it this way: Let’s assume the finance team found that the average new consumer generated $400 in revenue over two years. In comparison, activities to increase loyalty only resulted in an incremental $100 from the average customer. That means the marketer can spend 4x as much on acquiring a new customer while still maintaining the same long-term ROAS and deliver better topline growth to the business. Short-term campaign goals can be set with this in mind.

Marketers that use this approach give their execution teams the framework necessary to prioritize brand growth over a myopic focus on beating the measurement system. Of course, the ocean of prospective customers is large. All this effort to establish momentum behind customer acquisition in your team will only pay off if the campaign is executed smartly. The efficiency at which a brand acquires customers can almost always be improved by better aligning execution with how consumers adopt brands. (To learn more, read 4 Forces That Affect Consumer Adoption and How to Leverage Them in Programmatic Advertising) When done successfully, your brand will gain new opportunities to broaden its consumer base and achieve new channels of growth.