From all our work with retailers over the years, I’ve come to believe that the two most important metrics retailers should focus on are customer acquisition and lifetime value (LTV). Getting these two metrics right drives a sustainable business.
90 percent of the online retailers surveyed in the State of Retailing Online (SORO) 2011 study by Shop.org and Forrester Research indicated that in 2010, search engine marketing was one of their top three most effective customer acquisition tactics. If you want to become a master at profitable customer acquisition, study what Amazon.com does when entering a new international market. The products they lead with are books, CDs and DVDs. These products have low average order values (AOVs), short purchase cycles, low return rates, and are fast and cheap to ship. These qualities make them superb customer acquisition vehicles. Amazon’s goal is to get as many new customers as possible, as fast as possible, because Amazon understands the value these customers will ultimately bring. Repeat customers convert at much higher rates and have a higher AOV than new customers.
Here are my recommendations on managing customer acquisition:
- First, as I suggested in my previous post, manage campaigns for non-brand (product) terms and brand (trademark) terms separately, and be willing to spend more on the non-brand terms because they are what acquire new customers.
- Second, realize that new customers tend to have a lower AOV than repeat customers. To balance this, you should set free shipping thresholds or other incentives a bit above your new customer AOV. Amazon sets the free shipping threshold at $25, which is below the AOV of an existing customer but compels a new customer to buy a little more to reach that threshold.
- Finally, don’t use third party payment processors that won’t share customers’ email addresses with you. Email marketing is the most cost-effective marketing tactic retailers have. Offering customers multiple payment options can increase your conversion rates, but failing to obtain their email address limits your ability to encourage subsequent purchases, thereby reducing the LTV of these new customers.
Acquiring customers is one of the most difficult things a retailer has to do. However, deeper investments in customer acquisition activities ultimately pay off as you increase the number of people to whom you can market your brand.
In my next post, I’ll dig further into the issue of LTV.