No business can thrive without a steady stream of new customers, but at what cost is a customer not worth having at all? A McKinsey & Company study pegged the cost of acquiring one new customer at $300 for TheStreet.com, while Amazon.com spends just $33.
Neither company is profitable, and TheStreet.com is widely reported to be up for sale. Customer acquisition costs are skyrocketing for e-commerce companies, which now spend an astounding $250 on average to get a new customer, while initially earning just $24.50 from that same customer.
So how do these costs get so high? Using the wrong tool for the job is one way. Think about all of those $2 million to $3 million Super Bowl ads that are long forgotten. Those ads may have generated an increase in brand awareness, but how many new customers did they bring through the door?
Promotions are a powerful tool for customer acquisition, and fortunately, most forms of promotion translate well online. Offline promotional tools such as sweepstakes, coupons, free trials and discounts are all widely used throughout the Internet. The Internet takes these promotions to a new level of effectiveness by allowing for accurate tracking of what's working and by creating the opportunity for a one-to-one marketing channel.
Take the example of product samples. In the offline world, it's very difficult to measure the success of samples distributed on the street corner or in the grocery store. Coupons can help deliver a rough measure of penetration, but manufacturers will never know what the true customer conversion rate is or who their most valuable customers are. By distributing those same samples online — with either virtual or physical fulfillment, the marketer can accurately track what's working and where, generating a true return on investment analysis.
Perhaps more importantly, marketers can use online promotions to find out who their customers are and then create one-to-one marketing channels with those customers. How? Simply by asking them. The permission marketing theory has certainly been proven true. Offer consumers something for free, and they will gladly provide you with rich information in return. Thus, through the use of online promotions, you get potential customers to step forward and say, “I know about your product. I'm trying out your product. I want to learn more about your product, and here's who I am.” With that information, marketers can learn more than ever about their customers and begin a direct relationship with them across any medium.
The key to using online promotions for successful customer acquisition is distribution. You need to reach a large audience, be it hundreds or millions of consumers, but more importantly, you need to reach the right audience. There are a growing number of venues for distribution of online promotions, so it's important to choose carefully.
Use the right tool for the job. Banner ad networks can deliver tremendous reach across a wide swath of audiences but are far better at building brand awareness than they are at drawing new customers. They are an important part of a successful online marketing campaign but lay merely the groundwork for getting new customers.
Beware the Web surfer solely out to collect freebies. There are literally hundreds of consumer-focused “Free Stuff” Web sites, offering visitors a large, random sampling of free promotional offers. With the promise of hundreds of offers, consumers visit these sites several times a week, wading through the flea market-like assortment of offers and taking whatever catches their fancy. In general, visitors to these sites are interested in filling their mailboxes with freebies, not in becoming your customer.
Marketers don't give away stuff to be nice — they give away promotions to find customers. The test of any promotion is how many new customers it attracts, and aggregation sites frequently fail that test.
Don't offer bribes in exchange for desired behavior. There are a growing number of incentive programs that offer consumers frequent flier miles, points good toward merchandise and even cash for registering for promotions. As you would expect, these programs generally generate very high response rates and can quickly distribute a promotion to a large group of consumers. But what is the motivation of these users? Are they really interested in becoming your customer, or do they just need more frequent flier miles?
What works best for many marketers is finding the consumer in the right place at the right time. Just as the cookie company offers free samples and coupons at the end of the grocer's cookie aisle, marketers need to reach potential customers when they will be most receptive to trying something new and seriously consider making a purchase.
The online promotions space is changing at a rapid clip, and you can expect frequent developments in the coming year. The reason for the buzz is simple — online promotions help marketers get new customers quickly, cheaply and effectively.
