Beyond E-Commerce

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Valassis: Print key for grocery retailers, but social and digital expected to surge
Valassis: Print key for grocery retailers, but social and digital expected to surge

4. Don't think about digital in terms of new customers. The traditional lifetime value (LTV) formula—used for the past several decades to determine marketing budgets—is being upended by the shift in how companies and customers interact. The LTV formula predicts the net profit attributable to a company's entire relationship with a customer. The math is complicated; It takes into account churn and retention rates, retention costs, contribution margins, and time period. Traditionally, if the cost of acquiring customers is lower than the LTV of those customers, marketers would spend more on campaigns aimed at finding new customers.

Today, that's not always the best strategy. Ideas about customer lifetime value and customer acquisition costs need to change because the markets they describe and predict are changing. Customers don't want to be bought, they want to be wooed. Customers still seek immediate gratification to a certain extent, but they're much more concerned about identifying with a brand and its values than they were in the past.

Beyond that, consumers don't want to hear about a product or service from the company that sells it. They want recommendations from their trusted friends and family. Study after study has shown that word-of-mouth marketing, while slower to pay off, delivers nearly twice as much long-term customer value to companies as advertising.

However, the thinking behind word-of-mouth needs an update. Traditionally viewed as low-cost advertising with a high return, it could perhaps be better described as high-cost brand building with a high, long-term return. Companies could spend a lot of money creating apps, tools, and customer service programs that their audiences view as cool enough to share with their friends and family or to tweet about. But because all of those investments have a long shelf-life, unlike a month-long ad campaign, they will continue to generate returns for years. They are also likely to deliver ongoing word-of-mouth returns, which traditional marketing formulas don't account for.

Companies that are able to turn marketing efforts into content or tools of real value to their customers will typically build a customer base that is loyal for life rather than acquiring the one-off customers drawn by catchy ad campaigns.

5. Stop trying to be cool and be useful instead. Consumers want companies to show them the value of a product, not a cool concept vaguely related to the product. There are plenty of good examples of this, ranging from the Nike+ running app, which links products, an app, and a digital community, to the Omaha Steak app, which simply helps consumers figure out when their steaks are done the way they like them.

The Nike app took years to develop and has delivered significant returns to the company. The Omaha Steak app is simple, took very little investment, and has won the attention of new customers as well as the loyalty of existing customers. Point being, there are plenty of ways to make your marketing useful.

Marketers must identify gaps to fill in parts of the experience chain that their competitors are missing. To be effective in today's market, they need to develop digital tools and experiences that extend and enhance their brands. In short, marketing has fundamentally changed and marketers need to evolve to keep up or risk becoming irrelevant.

Tim Ross is CEO of SolutionSet and a 2012 40 Under 40 winner.
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