magnitude

Spending Tons Of Money To Attract New Customers Is A Stupid Idea

Source: http://www.businessinsider.com/spending-tons-of-money-to-attract-new-customers-is-a-stupid-idea-2011-11


If you’ve ever tried to explain the concept of “make new friends but keep your old ones” to a five-year-old, you have a pretty good perspective on how many high-growth businesses approach customer acquisition and retention.  Growing businesses tend to spend so much of their time and money acquiring new customers that they often overlook their best source of growth: retaining and growing their existing customer base.

One of our clients has more than 90 percent of its resources–people, marketing budget, etc.–focused on creating millions of new customers a year. Their business model is based on monthly recurring feeds, much like the cable or wireless industries. Customers come in and they stay…until they don’t. An analysis of the client’s historical data shows that the average customer stays for an average of 2.5 years. Because their customer acquisition cost is lower than their expected customer lifetime revenue, they reach a break-even point in less than two years. So it’s a great business, as long as they keep generating new customers, right?

Wrong. The problem is that as the management team’s growth expectations increase, it gets increasingly harder to acquire more customers. As a result, customer acquisition costs go up and the quality of customers, in terms of how long they stick around, goes down.

To solve this growth dilemma, the client needs to ask three key questions:

  • What revenue growth will we achieve if we keep our existing customers for just one additional month, on average?
  • What will it cost us to do this by, say, improving customer service or adding customer benefits?
  • How does this growth compare, both in magnitude and cost, to acquiring new customers?

The answer for our client will be the same as it is in almost all businesses. It’s cheaper, easier, and more effective to retain current customers than it is to acquire new ones. In fact, if this business can retain all of its customers by just one additional month on average, they can achieve an additional 3 percent of annual growth. If they can retain their customer base for four additional months, they can create double-digit growth–without adding a single customer.

It’s simple math–something that even a five-year-old might understand.

This post originally appeared on Inc.

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Tuesday, November 29th, 2011 news No Comments

Search Ads versus Display Ads

UPDATED:  April 10, 2012

AdSafe study shows that a quarter of display ads are never in view on publishers’ websites. And it gets worse from there — 41% never in view for content networks and 46% never in view for ad exchanges. Users are there to view content, not ads. And they are conditioned to avoid the top, right side, and bottoms of web pages (see eye tracking at the bottom of this post).

Image Source: http://www.emarketer.com/Article.aspx?id=1008965

Cumulative Time that Digital Display Ads Worldwide Are In-View, by Platform, Q4 2011 (% of total)

ORIGINAL POST:  March 25, 2011

Hands down, search ads beat display ads in click through rates (CTRs).  In every one of the examples below and the several dozen more that I did not screen shot, search is more effective than display because the ads are brought up when the user types in the search term and are looking for something, vs display which is served up alongside content.

search advertising versus display advertising display ads vs search ads CTRs search CTRs vs display CTRs search ads display ads

Facebook display advertising click through rates are even sadder (i.e. worse) as you can see from the chart below — like an order of magnitude

lower (0.024%)
facebook ad click through rate

display ad spending search ad spending emarketer

search ads vs display ads

digital display vs search ads

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eye tracking studies show that most users are already conditioned to avoid looking at the top and right side of web pages because they know that is where banner ads or display ads go.

 

 

 

 

 

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Friday, March 25th, 2011 analytics 1 Comment

Two viral campaigns – one drove sales, the other probably didn’t

Samsung’s extreme sheep LED art video went viral and was definitely passed along as the bit.ly stats show below, but whether it drove sales for Samsung, or whether people even knew what it meant (Samsung makes LED lit LCD TVs), no one will really know.

Whereas JetBlue’s All-You-Can-Jet Pass also went viral (similar order of magnitude of shares, again by way of the bit.ly stats) and it led straight to the page about the All-You-Can-Jet Pass where users could then go on to buy it.

In the case of Samsung, the video was cool, entertaining, and unexpected and went viral. But the link to sales was tenuous at best. In the case of JetBlue, the product itself went viral and the link to sales was direct.

Hmm…  which had a larger business impact?  you tell me.

samsung-extreme-sheep-LED-art

jetblue-all-you-can-jet

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Friday, September 11th, 2009 digital No Comments

Dr. Augustine Fou is Digital Consigliere to marketing executives, advising them on digital strategy and Unified Marketing(tm). Dr Fou has over 17 years of in-the-trenches, hands-on experience, which enables him to provide objective, in-depth assessments of their current marketing programs and recommendations for improving business impact and ROI using digital insights.

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