The rise of digital commerce has caused the traditional marketing funnel to be transformed into something entirely new. With the convenience of traffic drivers like paid search, social advertising and the rise in programmatic advertising, customer acquisition has become the new bucket that marketers are increasingly pouring more and more of their budget into.
And for good reason – with a quick snap of marketer’s fingers, these tactics reach the right customers over the channels they frequent most. It seems like a recipe for success, for customers and marketers… but is it really?
Uprooting loyal customers
Not so much. While it may drive new customer purchases, over-investing in customer acquisition takes away from a revenue source businesses already have – their current customer base. As it costs 6-7x more to acquire new customers than it does to keep a current one, businesses have to spend an unreasonable amount to acquire that many more customers to replace the cost of losing one loyal one.
Driving traffic without conversion
Even if we ignore the expense of lost customers, the return on customer acquisition tactics still aren’t very compelling.
Combine the cost of digital advertising which is rising 5x faster than inflation in the U.S with ecommerce conversion rates that are hovering at a fixed 1-2%, and you have acquisition investments that are increasingly less profitable.
Let’s use numbers to illustrate this dilemma.
Say a marketer is currently paying $2.00 for every click on a paid search ad. With a budget of $100,000, they are capped at 50,000 clicks. Multiplying the total clicks by the average ecommerce conversion rate (for simplicity, let’s use 2%), we can assume only 1,000 of those 50,000 users will turn into buying customers. To break even on their investment ($100,000), every customer would need to spend at least $100 on their order.
With low conversion rates and AOV, the impact of new customer acquisition is diminished. So, even when retailers are lucky enough to convert more than 2% of customers, the $100 AOV renders marginal returns.
Bring together the costs of waning customer loyalty with low conversion rates, and marketers are left with a quickly diminishing ROI – a problem which will only get worse as digital advertising costs keep climbing and loyalty continues to be eroded.
Invest in your ecommerce site to increase conversion and drive loyalty
Despite the grim and dim forecasts, this problem can be relatively easy to turn around. And it starts with the ecommerce marketplace.
By allocating some of the customer acquisition budget to the ecommerce site, marketers can adopt the necessary technology to create a highly personalized online experiences that drives conversion and AOV while, over time, gathering the customer data and insights that are key in driving long-term loyalty and revenue – in-store and online.
Short-term wins: drive AOV and conversion
Take 4-Tell as an example of how real-time personalization creates impactful, quick wins.
On average, our product recommendations increase site conversion by 15% and AOV by 13%. Both these numbers increase as merchants fuse more of our personalization capabilities, such as content recommendations, inline search, and category recommendations, into their website.
Just these quick wins alone propel customer acquisition investments substantially. Taking the simplified example from earlier, let’s say marketers improve site conversion from 2% to 2.3% and improve AOV from $100 to $125 (though not the 13% average mentioned above, 25% increase in AOV is common among our customers who deeply integrate our personalization) by optimizing and personalizing their ecommerce website. With 1,150 customers now converting with a $125 AOV, sales would increase from $100,000 to $143,750. Not only does this recoup the initial digital advertising costs ($100,000), it gives marketers a $43,750 profit.
This example goes to show that even a marginal increase in AOV and conversion rate equates to more impactful returns on ad spend.
Long-term wins: loyal customers
However enticing these immediate wins might be, they don’t stack up to the long-term impact of personalization technology, which drives sustainable revenue by forging emotional connections, and therefore deeper customer loyalty, with customers.
While personalization enables customers to quickly find the items most attune to their preferences, it also allows marketers to glean revenue-driving customer insights. 4-Tell, for example, surfaces real-time customer data into 360 customer profiles and individual predictive recommendations that can be used to further personalize the 1:1 shopper experience in-store with a sales associate or over the phone with a customer service representative.
Connecting the online and offline experience through personalized, human-assisted experiences is what will make the difference in driving long-term loyalty with today’s customers. In fact, according to an annual benchmark published by Forrester Research, a strong emotional connection with a brand is a stronger driver of loyalty than factors like ‘ease’ and ‘effectiveness’.
Differentiated online experience
Despite what’s riddled in the headlines, customer loyalty CAN be won in the online environment. However, it requires merchants to create a differentiated experience that is both efficient and highly personable. It needs to balance automation with the human touch so merchants can bridge the gap between online and offline experiences and fluidly build customer relationships.
4-Tell has brought this experience to fruition through Your Store – a microsite that is automatically created to the unique preferences, history and real-time behavior of each customer while also including the participation of sales associates. With the ability to publish product boards through Your Store, sales associates are empowered to build fluid relationships and emotional connections with customers over time.
Ultimately, it’s these holistic and personalized experiences which will allow marketers to garner repeat purchases and long-term revenue from a loyal customer base. To grasp just how much revenue, increasing customer retention by just 5 percent boosts profits by 25 to 95 percent.
Balance the marketing scales – your future profitability depends on it
While digital advertising is a necessary ingredient for a successful marketing mix, future profitability depends on marketers to balance the scales between top-of-the-funnel customer acquisition tactics and bottom-of-the-funnel investments that nurture loyal customers.
By investing in an online experience that is personalized and optimized to the needs of every customer, marketers can immediately improve conversion rates and AOV for a higher ROAS, while cultivating a loyal customer base in the long-run which will dispel the dependency on new customers so businesses can start capitalizing on loyal ones.
About Molly Judge of 4-Tell:
From writing to web design, Molly is always looking for opportunities to create and collaborate. Having graduated from Gonzaga University with a B.A. in Management Information Systems and Marketing, Molly loves the challenge of articulating complex technologies in ways that speak to the needs of the market and to the value of the solutions. When Molly isn’t brainstorming ridiculous names for her non-existent band, she enjoys tennis, karaoke and long runs on the PDX waterfront.
4-Tell is an innovator in data-driven personalization and predictive analytics. At the forefront of digital transformation, 4-Tell is changing the way businesses build customer experiences online through AI-driven product and content recommendations, predictive search, and personalized microsites. Offline, 4-Tell is empowering back-office teams by reporting valuable metrics about customers, products, and content in their Smart Commerce℠ Platform. Placing rich insights in front of sales, marketing, and merchandising teams allows for informed decision making and ultimately leads to increased revenue and LTV. For more information, and to see how 4-Tell can transform your online experience, please visit Get4Tell.com/demo.