August 15, 2011

Two For One

I've never understood the logic.

When confronted with two customers, the folks I speak with routinely prefer Option 1:
  • Option 1 = Acquire a customer via a preferred advertising channel for $10 profit, customer pays back $20 in the next twelve months, net profit = $10.
  • Option 2 = Acquire two customers via online channel or offline mass-media channel for $10 profit, customer pays back $16 in the next twelve months, net profit = $6 * 2 = $12.
I'll take the two-for-one trade any day of the week.  Most people won't.  They'll simply work harder trying to find more customers who pay back $20 in the next year, and they'll pay more to acquire that customer.

Our future requires us to take on more "two-for-one" relationships.  We need to acquire two customers at a lower value (and no, I'm not talking about 20% off plus free shipping as an incentive), and prioritize that over acquiring one customer at high value.  

Honestly, we determine long-term value.  Catalogers, in particular, sabotage long-term value by mailing online buyers twelve catalogs a year, then incorporate 30 day and 60 day matchback windows, meaning that every future order is tied to a catalog, when the customer could be far more profitably mailed four times a year if the business factored in the organic percentage.  This alone changes the long-term value equation in favor of an online customer.

Again, we're going to need to focus on finding two-for-one deals, two customers with lower value that are greater than one customer with high value.

Memorial Day Weekend

There's the obvious reason why we "celebrate" Memorial Day. And then there's the secondary outcome ... an unofficial ...