“To drive the top line, companies need to convert prospects into customers and encourage current customers to buy more stuff more often.” — Anyone who has ever written anything on customer-acquisition or customer-retention marketing
This assertion is repeated so often in the business press that it has become a clichi. However, there are still some stones left unturned along this well-trodden path. For example, every marketer must answer this question: “When does a prospect become a customer?” In the offline world, does this transformation occur when the prospect stops and looks in the window, or is it when she or he walks in the door?
I would submit that most offline companies really think of prospects as customers only after they have actually bought something. If companies claim to think of prospects as customers, they do it to justify counting the revenues associated with each new “customer” in their forecasts. However, most companies do not treat these prospects as customers when they are just browsing.
Cookies as Customers
In the online world, we are able to treat prospects as customers much earlier in the purchase cycle than the point of sale. This is because cookie technology allows marketers to track prospects when they are window-shopping (via view-based conversions) and when they actually enter the door (i.e., when they visit the home page or landing page). Given this ability, online marketers should treat each cookie visitor, once it has entered their site’s door, as an individual customer. More important, marketers should immediately engage this individual customer in a conversation.
To begin the conversation, the marketer will need to capture an email address at that first click or risk losing the prospect forever. In this paradigm, the conversion rate is not necessarily the most important metric in determining success. Instead, it would be more appropriate to understand cost per lead (CPL) as a return on investment (ROI) metric for online advertising dollars.
This begs the question “How many times do marketers declare that acquiring new email addresses is an essential online advertising objective?”
Lowering Lead Cost
Today when marketers focus on increasing their house lists, many use email-list brokers to generate leads. For example, Marty, the Digitally Savvy Marketer, could contract with ACME List Broker to mail to 100,000 addresses at a cost of $21,000, or a $210 cost per thousand (CPM). (All CPMs, click-through rates [CTRs], and drop-off rates are industry averages.) If we assume an average CTR of 3.5 percent, Marty would have a chance to engage 3,500 prospects in a conversation. To be more precise, 3,500 people would have clicked on the link in the email sent to their inboxes and would be sitting at Marty’s door looking for more information or a product to buy. In the end, Marty would have paid $6 CPL for this privilege.
Another, more cost-effective option would be to drive CPL down using an integrated cross-channel message campaign. In this scenario, Marty would create a promotional banner (perhaps using the same promotion he would have used in the scenario above) to entice prospects to click through and register at his company’s site. The registration page would actually be a lead-capture form hosted by an email provider that includes an opt-in page for a prospect to enter his or her email address as well as other pertinent information. In either case, Marty would execute a follow-on message strategy using event-triggered emails tied to customers’ onsite behavior.
In the second scenario, Marty could use the same $21,000 to set up a banner campaign with CPL as an objective and reach more prospects at a much-reduced cost. For example, if Marty were spending, on average, $10 CPM for a banner campaign, he would be able to serve 2.1 million impressions for $21,000. If his average CTR were 1.7 percent, he would have approximately 35,000 cookies arrive at his site as visitors (people who have landed on the lead-capture form).
Even if he adjusted this number down by 20 percent for drop-offs, user error (double-clicks), and Internet snafus, Marty would still be meeting approximately 28,000 visitors and would have paid only $0.75 per prospect to begin a conversation. This is eight times the number of visitors for one-eighth the cost per visitor compared with the list-broker option.
I am not arguing to replace all list-rental buys with banner CPL campaigns, and many list brokers will argue that their lists contain targeted users who are “ready to buy.” However, if Marty is worth his stock options, he should be able to figure out a way to create a compelling message for those 28,000 visitors driven to his site through the banner campaign to improve the top line.
To be fair, there are several problems with trying to implement a true cross-channel customer-acquisition strategy.
First, although online marketing companies try to position Web media as truly measurable, the recent industry meltdown demonstrates that only the early adopters have embraced the nuances of measuring Web media. Most large companies, those that spend the most on marketing and advertising, think of banners as the online equivalent of a broadcast channel, such as TV or radio, and want to talk in terms of gross rating points (GRPs) or, at most, CTRs. CPL is a metric from the direct-marketing world and will probably further muddy the online waters for a brand marketer.
Second, a Chinese wall still seems to stand between customer-acquisition and customer-retention experts at large companies. These two camps speak different languages and use different metrics. Although the CPL would be a good bridge between the two worlds, I imagine that the customer-retention experts are going to have to be the ones to supply the building materials.
Third, few digital marketing companies can truly offer integrated cross-media campaigns. If Marty uses two providers — one for the banner campaign and one for the email campaign — there will be inevitable integration and coordination issues. For example, who is going to translate the numbers from two different vendors into one report that accurately represents the true cost and ROI of banner advertising and email?
In sum, the art of marketing is evolving toward a more scientific understanding of the lifetime value of customers. In the online world, the lifetime value should be calculated from the first opportunity a marketer has to communicate with a customer, using metrics such as CPL to bridge the chasm between the channels.