Between Acquisition & Loyalty Lies Opportunity

ecommerce's missed opportunity

We know how to acquire customers. And we know how to activate loyal customers. But we don’t focus enough on making new customers loyal.

Two metrics contributed to much of the volatility in modern retail: CAC (cost to acquire a customer) and ROAS (return on ad spend). It sounds like I’m coming for the very foundations of digital marketing, and maybe I am. But focusing on CAC and ROAS has created some major blind spots for marketers. 

Why CAC & ROAS Aren’t Everything

CAC is a customer acquisition metric. It is the dollar amount you spend on pure prospecting divided by the total number of customers you acquire with that spend. If you spend $100 to acquire five customers, your CAC is $20.

We all know that it’s typically more costly to acquire a new customer than it is to convince an existing customer to repurchase. So CAC frames the costly work of acquisition in terms that are easier to swallow financially. To oversimplify: if your average CAC is lower than your average new customer’s first order value, you have a shot at being profitable.

CAC is typically the realm of “pure prospecting”, or campaigns where all existing customers (and oftentimes existing site visitors) are excluded. The entire discipline of growth marketing is built around minimizing CAC at scale. What one does with those customers once they’ve been acquired is less important.

ROAS is a lifetime value optimization metric for customers who are already loyal. I’ll admit that’s a contrarian take, one you’re not likely to hear from your digital marketing agency.

Future behavior predicts past behavior; more past purchases result in a greater likelihood of future purchases. If you’re targeting a mix of new and returning customers and optimizing towards ROAS, you are optimizing towards tactics that address the low hanging fruit of your customer file–typically customers who are already loyal. I go into more detail on why that happens here.

I define loyalty as the point in the lifecycle where the customer’s probability of placing another order is greater than 50%. For most businesses, this happens between the fourth and sixth purchase. Once a customer achieves loyalty, he or she is more likely to return to the business than to lapse out of it.

Both CAC and ROAS have their fervent disciples and their bodies of established knowledge. But maybe you’re starting to see the issue here: we have strategies for winning new customers and we have strategies for activating loyal customers. But we have no strategies for turning new customers into loyal customers.

When you lump all your existing customers into some programmatic retargeting campaign, the algorithm is always going to bias impression delivery towards the lowest-hanging fruit: your loyal customers.

And when you send out email messages to your entire file, your impression of “what works” is going to be shaped by the tastes of your loyal customers. They’ll be more likely to respond to any email you send. So their activity will drown out any signal on what may resonate with other customer segments.

Turning New Customers Into Loyal Customers

Your new customers arrive at your business with varying levels of context. What does that mean? 

On one end of the spectrum you have customers who have encountered your brand in multiple places before making a purchase. The purchase means something in the larger context of their lives. They will showcase the purchase to friends and discuss it.

On the other end of the spectrum are customers who you acquire solely through digital channels. They learn about you for the first time from a paid social ad. They eventually click because a product catches their eye. The only thing they know about your brand is that you’re selling something they want.

The larger your brand is, or the more that you lean on programmatic digital prospecting for customer acquisition, the more low-context customers you’ll bring into the business. So it’s your job to turn them into high context customers, and build enough trust or interest to win the second purchase.

The cliche is true–there’s no such thing as a free lunch. If you want new customers to come back, you either need to invest in brand building up-front or context building post-purchase.

Here are some context-building ideas for winning back new customers:

  • Don’t let them forget about you. Encourage email and/or SMS signup through whatever touch points you have available. Create a separate post-purchase retargeting campaign and budget for this group.
  • If they do opt in to email, don’t drop them into your typical marketing cadence right away–especially if you email daily. Plan out 2-4 weeks of new customer content and share updates like sales and new product releases strategically.
  • Make the unboxing experience as memorable as you can afford. But keep it congruent–no crazy packaging if you’re a “green” brand. Touches like hand-written thank-you notes, low-cost goodies like stickers, or a personal follow-up email from customer care can go a long way.
  • Analyze your sales data to understand what products and categories your customers typically purchase together, or one after the other. Use this to inform the content of your marketing messages. If they purchased a top, showcase the matching skirt. If they bought a pair of Crocs, showcase those little thingies people stick in their Croc-holes (you know what I’m talking about).
  • Developing these strategies will be easier if you create marketing funnels around different categories. Instead of using broad creative that lands on a “view all” page, create acquisition campaigns that speak to specific products and categories. Then build post-purchase campaigns to go along with them.