March 15, 2016

But The Customer Is Worth Less

Here's what you keep telling me.

Source #1 = Catalog Co-Op.
  • Profit per New Customer = ($11.00). You lost $11.00 profit to acquire the customer.
  • Year 1 Profit Per New Customer = $17.00.
  • Year 2 Profit Per New Customer = $12.00.
  • Two Year Net Profit = ($11.00) + $17.00 + $12.00 = $18.00.
Source #2 = Some Form Of Digital Marketing.
  • Profit per New Customer = ($13.00).
  • Year 1 Profit Per New Customer = $13.00.
  • Year 2 Profit Per New Customer = $9.00.
  • Two Year Net Profit = ($13.00) + $13.00 + $9.00 = $9.00.
At this point, you tell me that the catalog co-op customer is worth twice as much as the customer acquired from digital marketing.

At this point, you tell me that you don't care about acquiring customers via digital marketing, because they are "worth less".

Two years from now, you'll call me to tell me that your co-op sourced names are all 65 years old and that they are driving your merchandising assortment into an array of merchandise preferred by retired customers ... and the merchandise assortment is no longer appealing to customers sourced from digital marketing ... and therefore, you cannot afford to leverage digital in a meaningful way.

Oh, wait, this all actually happened between 2010 - 2015.

Here's how thinking can evolve.

Be content with acquiring two customers that generate the same profit as one customer. Treat these customers differently downstream. You'll end up with a bigger customer file, but one that is less productive. Regardless, profit is the same, right?

And isn't profit what matters most?

I know, I know, I just talked about how December buyers tend to have lower lifetime value. You'll tell me you just need to ramp-up your efforts in December. But for most catalog-centric brands, market share is being lost in December to online brands, to Amazon, and to retailers who really stepped-up their e-commerce efforts. We need to find other times of the year to find new customers.

And if we cannot do that, and if our primary source of new names is shrinking, well, then we have to think long and hard about finding new customers from other sources, regardless of reduced lifetime value.