For too long, middle metrics have ruled the marketing departments and their budgets; these are not the Key Performance Indicators (KPIs) they care about in the boardroom and yet marketing departments seem to thrive on them. Unfortunately, as a result, Return on Investment (ROI), Customer Acquisition Cost (CAC), and the like have all lead to substantial market share losses for some the largest consumer brands in the world.
Especially in times of economic shift, business should be focused on the big picture, rather than the middle metrics that are often disassociated from the bottom line.
Christopher Skinner, managing partner of the global online strategy firm MakeBuzz, encountered this issue when working with an international travel company that was attempting to cut online marketing costs for their SEM campaigns:
“Initially, they were focused on maintaining an ROI of 100:1, rather than exploring how to increase profit volume. They had set the maximum customer acquisition cost at below $5.00 for both brand and non-brand customers, which, after factoring in conversion rates, left them with a cost per click of less than $.10 cents. At this cost, they couldn’t afford to buy relevant terms and their competitors were able to outrank them – even for their own brand,” recalled Skinner.
The problem with the dominance of middle metrics is that they are taken out of a larger context that involves cost, volume, profit and brand variables.
“To compound this issue, for over a decade ticket consolidators had taken ownership of their brand terms online, creating channel conflict and brand equity loss. Since they weren’t profiting as much from a ticket sold by the consolidators as they would have from direct sales, they were essentially paying the consolidator to acquire customers at a higher CAC than they were willing to pay for themselves.”
Skinner suggested that a focus on broader performance indicators, such as overall profit volume, would provide the online team with more realistic, and ultimately more profitable, sales goals.
“We illustrated how an increase in CAC would lead to increased sales and higher profit volume and determined that sales could be scaled from the low thousands to over 250,000 bookings per month to attain maximum profit volume,” says Skinner. “Companies need to experiment with diverse customer acquisition cost strategies. In this case, raising the cost-per-click for brand customers allowed them to dominate media brand space, resulting in a higher conversion rate and diminished, yet appropriately allocated consolidator sales.”
Beyond the brand space, Skinner found that engaging customers at earlier stages in the acquisition cycle increased brand impressions and worked towards the companies overall goals of maximizing profit volume.
“Region-specific SEM and SEO campaigns were a good strategy in this case. We found that conversion rates were highest in areas considered to be the airlines hubs, and customized their search marketing for those regions. It allowed them to save on costs, rather than implementing a national search campaign. By gearing campaigns to reach earlier in the customer engagement cycle and further from their original customer base we shifted focus from their budget-based objectives of ROI to business goals based on macro-economics.”
So open your eyes, marketers and businesses! Look at the big picture. “Companies should really be asking themselves how ecommerce fits into their econometrics – their overall business framework,” says Skinner, “With more people than ever going online, the Internet media has the potential to reach further and faster than any other medium. The desired outcome shouldn’t be ecommerce – it should be sales and profit volume. It’s just Econ 101; brands need to stop letting middle metrics determine their budgets.”
Christopher Skinner has a degree in Abstract Mathematics from Louisiana State University. He is a global speaker on topics of Internet Integration and is managing partner of MakeBuzz, LLC, an online strategy firm, with offices in the U.S. and U.K.
