It’s long been a truism in marketing that acquiring a new customer is anywhere from five to 25 times1 more expensive than retaining an existing one. With the focus on increasing Customer Lifetime Value, it’s become imperative for Marketers to focus on Retention Marketing. Given the low fixed cost of running campaigns, Email Automation has been one of the tools of choice to drive re-engagement and incremental revenue from an existing customer base.
While the ROI on Email platforms is incredibly high, all too often, Retention Marketing is considered synonymous with Emails. Unfortunately, since Email read rates2 top out at 35% – 40% with a median of around 20%, there is a significant opportunity cost in sticking to only one channel to reach customers. This blog discusses the ways in which Display ads in conjunction with the right tools can be a great complementary channel to drive additional revenue from your customers.
A Customer Data Platform (CDP) helps create a persistent, unified customer database accessible to other systems. Data is collated from both online (website, app) and offline (CRM, Email Marketing, Order Management System, etc) sources and combined to create a single, meaningful customer profile. This allows brands to aggregate customer information that was hitherto siloed.
A brand can then use this rich pool of data to draw insights and micro-segment their customer base with the right attributes in order to target the right audience with the most relevant message. This leads to multiple benefits.
a) Targeting an identified segment of the audience saves the brand from wasting unwanted marketing dollars on an uninterested segment of users.
b) Customers who see the messaging are more likely to respond given that they are seeing a relevant promotion. This, in turn, increases the chances of conversion and makes marketing spend significantly more efficient.
Use of CDPs is no longer limited to only branding and marketing insights. Given the integration of website-related insights and the unification of online and offline user profiles, brands can now take the cohorts created and immediately run performance marketing campaigns against them. While this entails an additional cost for the media purchased, the opportunity cost of letting more than 60% of your target customers fall through the cracks by running an email-only campaign is significantly higher. To understand the cost/benefit tradeoff and true potential of CDP in performance marketing for brands, let’s take a look at two scenarios:
Note: All facts and figures are based on Datawrkz’s experience of working with clients across the spectrum.
Case 1: Low Volume – High Margin Brands
Let’s assume the case of online education service providers/ private colleges/furniture dealers/ jewelry brands. These businesses have a smaller customer size but significantly higher revenue and profit per customer. By using a CDP, they can leverage their hard-won customers to generate much more revenue. As an example, let us assume a reputed education services provider has identified a list of 2000 students based on the attributes analyzed by a CDP and uses Emails to reach out to this list and programmatic ads to reach the non-converted potential students.
The flowchart below explains how a CDP (with a boost from programmatic advertising) complements email marketing to maximize revenue and margin from Retention Marketing.
Note: Various rates and ratios used for the emails are aggressive and those for programmatic are conservative. We would generally expect at least 0.5% CTR for the programmatic impressions targeted to the segmented potential audience.
At CPM (Cost per 1000 impressions) of $3 (higher than usual, based on our experience, but we want to show how much incremental potential a CDP can drive even if you are conservative in projections), total spend on programmatic ads (6,000 + 48,000 = 54,000 impressions) to target the additional 1,800 (200 + 1,600) potential customers would be $162.
Assuming an average revenue of $3000 per student, the total revenue from the additional 17 students acquired through Programmatic ads would be $51,000 making the Return on Ad Spend (ROAS) 315.
Case 2: High Volume – Low Margin Brands
Now, let’s take a look at a case of an eCommerce brand or an online aggregator, who have a large audience base but lower margins. The below flowchart explains the process of acquiring additional customers by employing performance marketing campaigns using Programmatic ads on unattended potential customers from a list of 100,000 potential customers identified by a CDP. Let us assume that the average ticket size of an eCommerce product is $200.
At CPM (Cost per 1000 impressions) of $1.50, total spend on programmatic ads (2,820,000 impressions) to target 94,000 potential customers would be $4,230.
Total Revenue from additional 873 acquired customers would be $174,600 which makes the Return on Ad Spend (ROAS) ~ 42 times.
For businesses that deal with large pools of data, a CDP is the way to go! It not only segregates the available data but can also identify the attributes of high-quality pools of customers and segments them into groups based on certain attributes and behavioral patterns. This allows marketers to run highly-targeted performance marketing campaigns on channels that would typically not have been used in the past. When compared to branding campaigns and other traditional media campaigns, the cost of deploying programmatic ads for Retention Marketing campaigns are negligible, and the ROAS on incremental ad spend significantly.
Get in touch with us at firstname.lastname@example.org to see the potential of integrating CDP and programmatic technology for yourself.