Why it’s important to include lifetime value and offline sales when evaluating the success of a marketing plan

Jul 21, 2010 by

Why it’s important to include lifetime value and offline sales when evaluating the success of a marketing plan

By Tom Polanski, EVP, eBrand Media and eBrand Interactive

Many people think of me as just a “sales guy” but for the sake of context, since 2000, I have successfully created, launched, and managed, hundreds upon hundreds of profitable campaigns for companies in just about every industry. I have made companies millions of dollars while saving those companies the millions of dollars they would’ve spent testing to discover and learn what I know from study with leading think-tanks, and from my years of experience.

As my friends in New York would say; “I got the bona fides from which I speak.”

Factoring Lifetime Value into Marketing Decisions

It is critically important to understand that obtaining a customer is only the beginning for a merchant. With careful, smart, strategic husbandry, a company can develop a profitable relationship that will drive revenue through several marketing cycles. The information I share will mostly be anecdotal but I will include a link to the blog of a marketer I respect very much.

Cross channel attribution modeling gives a value/weight to the first “touch” with a company’s brand, products, and or, services. In the case of a leading garden supply client that first “touch” will occur mostly through paid search.  The last click or “last touch” should be considered to be when that customer opts-out from your email list and you are no longer able to cross-sell/up-sell that person.  (As an aside, there are companies that measure and factor in ROI other than return on investment. They measure and factor in return of influence, and return on incentives as well.)

Please note that PEW Studies indicate that it takes 6 exposures to a brand before a person becomes branded. It can be argued that a click is not wasted if it doesn’t lead to a conversion.  It moves the branding process along and it may propel a conversion further down the funnel and result in a sale through an organic listing as a result of exposure to the brand through paid search. Dr Cialdini, in his landmark book, “Influence: The Psychology of Persuasion”, argues that out of necessity we’re all a mass of “automatic responses” to “triggers” because we’re inundated with so much information.  That’s’ why the branding process is so important.  An end-user will be “triggered” by a brand after multiple exposures to it. The greatest content writer who ever lived, Shakespeare, once wrote that “familiarity breeds contempt”. That may be true with family but it’s not true on the web where familiarity breeds comfort with, and confidence in, your brand. The more often an end user sees your brand in relevant and positive placements across the internet, the greater the likelihood that they’ll become a customer of yours.

There are companies that know not only their conversion rates, CPA, and AOV on the first conversion but know that out of a 1000 conversions at $100 AOV (and subsequent inclusion of first-time buyer in in-house database), that (for the sake of illumination) 65% of those people will convert again at $50 AOV, and from that 65%, 35% will convert at a $40 AOV, on another remarketing campaign. And so on and so forth.

If you, like some of my clients, knew that, for example, you will be able to extract a life time value of $360.00, on average, per conversion, then it makes sense to spend more money to drive more conversions doesn’t it? The full economic value of each new customer must be taken into consideration not only for the company but for the shareholders too.

Excerpts from “Customer Based Valuation” by Bauer, Hammerschmidt, & Braehler:  ” Within the scope of this paper, we define customer value from a supplier-oriented point of view as the customer’s economic value to the company….  Apart from the value of existing relationships, the value of new customers acquired in each future time period has to be taken into account.  Further, when considering a company’s value, the individual lifetime values of all current and future customers have to be aggregated yielding the customer equity. Most companies consider a long-term customer value assessment as important and desirable.”

There are companies willing to break even on the first sell because they know they will monetize a conversion, on average, for a certain amount. Others run separate lead generation campaigns for the purpose of obtaining first name, last name, and email addresses of opt-in, genuinely interested people so that they have fresh records to email market to. And there are others like, CCS, a division of Footlocker, whose main purpose for selling skating goods is to build out their email records so that they can rent them to other companies outright or on a rev share.

Volume of conversions is very important, wouldn’t you agree? To many companies, extracting as much ROAS (Return on Ad Spend) as possible per marketing channel loses importance when other marketing channels can be used to actualize more revenue from that conversion.

Our wig client realizes about a 12x return on each email drop. However, they segment their lists according to a number of criteria and mail appropriate offers with relevant content and offers to each segment.  Another of our clients sends out a newsletter 3x and only offers products for sale on the 4th email.  This company’s conversion rate is exponentially higher because it has built a relationship and has trigger the “reciprocity rule” by giving something of value for free 3x’s.

Here is the link I promised: Occam’s Razor

Factoring Phone Sales Generated By Search into Marketing Decisions

For the past 5 years, we’ve managed the SEM for a leading home security business. For the first 3 years, paid search was its only form of advertising (outside of organic listings). This company, during this time, generated another 40% of its revenue from phone calls triggered by paid search (and to a lesser degree organic search), on top of what we were able to track through conversions through the website.  The advertiser factored that into his return on ad spend, and saw his volume of conversions and his revenue grow. Even given a weighted average versus organic search, paid search was adding to the roas and the bottom line even though, again, we couldn’t track it.

The Importance of Customer Service

Our association with Zappos was a happy one because not only did our companies share core values, they introduced us, in a tangible way, through tracking the campaigns we managed for the company, to the benefits of creating a most positive guest experience.  What ever one may think of Tony Hsieh and his stated desire to make the world a happier place; he sells a lot of shoes by doing just that…making Zappos customers feel good about not only their purchase and their association with the brand.  From top to bottom, every person I met, cared about Zappos, its customers and its vendors.  It was palpable and it is shown to customers in a number of ways, including but not limited to, the following:

* Zappos will “surprise” with free overnight shipping
* If Zappos doesn’t have the product its customer service agents will take the shopper to the site of competitors for the purpose of helping to locate the product.
* Customers who come to Vegas (Henderson), and have written in advance, are picked up at the Airport and are treated to a tour and a day at Zappos head quarters.

Please note that Zappos seldom has the lowest prices.

Another client, a leading home/office furniture merchant sends out a number of email after the purchase informing the customer as to exactly where their purchase is, thereby reducing anxiety in the customer (I put this under customer service even though it falls outside of the normal idea of what customer service is. I think you can see why.)

I’m not suggesting that you can or should go to the lengths Zappos goes to but they are a good example of how building customer loyalty, build brand equity, which then completes the circle with increased customer equity.

In closing, even though intuition and observation would lead one to think that most people shop for price, that’s not necessarily so. Please see the report I found on the Amex site:

AMERICANS WILL SPEND 9% MORE WITH COMPANIES THAT PROVIDE EXCELLENT SERVICE

I hope that this helps you to see why so many companies are focused on acquisition and revenue instead of return on ad spend. ROAS is still important but maybe it should be determined after factoring in offline sales and lifetime value.

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