November 02, 2014

You Get What You Pay For

This is a frequent outcome in e-commerce. I run a principal components analysis to segment twelve-month buyers into nine groups.

The most valuable customers are on the far right. What do you observe, when you look at the three segments with the best buying behavior in the past year?

Ok, I'll walk you through the three segments.

Bottom Right: Loyal customers, with prior purchasing behavior. They tend to use the company blog, email marketing, and tend to visit the site via SEO.

Middle Right: Loyal customers, with prior purchasing behavior. They are similar to customers in the bottom right segment, but they are much more active online - influenced by retargeting, affiliates (they want their discounts), paid/branded search (they know the company well), and they are socially active via text-based social channels (i.e. Twitter / Facebook).

Upper Right: Highly productive customers, mostly first-time buyers (newly acquired). These customers "do everything". They are literally scavenging the internet before purchasing ... they digest corporate content (blog, email), they are online carnivores as illustrated by retargeting, search, and display attributes. They thoroughly consume social channels, including Pinterest / Tumblr / Instagram (image social channels).

Marketers adore customers in the Upper Right segment. This segment is "proof that online marketing works". Well, of course online marketing works!

CFOs adore customers in the Lower Right segment. How much do you have to pay to get these customers to purchase? Nothing. NOTHING!! Your blog, email, and SEO. I know, I know, there are fixed costs associated with the disciplines, but those fixed costs are close to zero as a percentage of net sales. Marketing expenses are often 10% to 40% of total net sales ... think about that one.

Vendors demand that you go after the Upper Right segment - and for good reason - vendors generate profit when you attract that type of customer.

Every company needs to have a huge chunk of customers in the Lower Right segment - you generate profit when you attract that type of customer.

I know, vendors are going to demand that you "do both". So go ahead and do both.

But every dollar you save in marketing expense is a dollar that can be reinvested elsewhere. By cultivating customers who do not purchase because of online marketing, you have more money to spend growing in other ways - or to pay staff or owners or shareholders.

You get what you pay for.

P.S.: If you'd like me to run this analysis for you, send me an email message (