Short-term thinking yields short-term results. Google’s Chief Search Evangelist Nicolas Darveau-Garneau has worked with hundreds of leading brands, helping them to rethink their audience targeting strategies and understand the long-term value of their customers.
How much should you invest in marketing to sell a $20 pair of socks?
It’s a textbook marketing question, and the classic answer is based on Return On Ad Spend (ROAS). If your ROAS is 4:1, then you can spend up to $5 to win the sale.
But what if that moment isn’t really about selling socks but about acquiring a new long-term customer? What if that sock shopper had also been browsing expensive suits on your website and is using an $800 smartphone? How much should you spend to acquire him then?
Customer-centric marketing offers some terrific new ways to understand the potential lifetime value of your customers. Instead of focusing on isolated sales transactions, you can now invest in attracting and retaining the people who will bring your brand the most value in the years to come.
Whether large or small, companies that succeed in customer-centric marketing tend to do three things well:
There is an abundance of signals that can help identify the most valuable customers. Things like zip code, dollar amount of first purchase, and loyalty club sign-ups can all help to predict customer value. The type of phones consumers use, their household income, and the keywords they searched for are also valuable data points.
Begin with a hypothesis for the five to 10 pieces of available data that are most likely to predict customer value for your brand. That could be metrics like time spent on your website or the number of purchases made in a month. Then, by analyzing that data against Customer Lifetime Value (CLV), you can identify which metrics are the best indicators of long-term valuable customers. Voilà: You’ve got your first customer scoring system.
By embracing a customer score, you can begin to better understand the potential future cash flow from each customer. As a result, you can be smarter about how you bid on ads. And that means winning more of the best customers and paying less for lower-value customers.
By identifying CLV, you’ll be able to better understand how much profit you are likely to lose if a customer goes to the competition. And that means you can invest the right amount to keep them.
A simple CLV analysis can help segment customers by long-term profitability. For example, if users who purchase twice in the first month are three times more profitable than the average customer, then it may be worthwhile to market more aggressively to first-time buyers and encourage that second sale.
Once it’s possible to predict, in a general way, the value of certain customer segments, you can create cohorts of high-value customers—like previous purchasers, newsletter subscribers, rewards members, and in-store shoppers. You can then bid more on valuable segments and less on others.
Using Google’s intent signals, it’s also now possible to find new potential customers who are already looking to buy in your category or who have the same characteristics, interests, and behaviors of profitable existing customers.
Once you’ve identified the lifetime value of customer segments, it makes sense to focus on lifetime profits. Calculate the lifetime profits from a new customer, then deduct the marketing investment you’ll need to acquire them. Take that into account as you set your ad budget. Yes, it will sometimes mean a higher Cost Per Acquisition (CPA), but it also means a healthier bottom line.
If you’d like to stay with CPA or ROAS targets, try this simple change: Create different targets for different customer segments. And set different CPA or ROAS targets based on the average lifetime value of your customer segments.
Customer-centric marketing gives marketers new ways to find and delight valuable customers. To ensure you acquire more of those customers, change your KPI to long-term profits, understand the value of different customer segments, and bid based on CLV.After all, an individual sale is great, but acquiring high-value, loyal customers will pay off more in the long run.
Chief Search Evangelist at Google