As data privacy laws go global and governments adopt a dead-eyed seriousness toward anything that remotely looks out of the new bounds, customer acquisition finds itself at a crossroads.
Companies can’t rely on browser cookies or unrestrained use of first-party data any more, and it’s driving customer acquisition cost (CAC) higher without a commensurate return on investment. This is forcing innovation — and a fresh look at how to grow revenues.
As Ordergroove Chief Revenue Officer Ralph Robertson sees it, brands and merchants need to use this moment to reset revenue strategies and expectations.
“We have a number of customers that almost have like a cultlike following,” he told PYMNTS. “What they’re starting to realize is that there’s somewhat of a value exchange.”
Consumers, he said, are willing to share insights about themselves in exchange for a personalized experience. And in many cases, companies see “a flip of the script” as retaining customers becomes more important than acquiring them. This new focus on generating more revenue from existing customers via higher average order values and capturing a larger share of wallet comes at a critical moment of change.
“What we’ve seen is that advertising dollars have moved into primarily social and search,” he said. “So businesses are having to spend more to cut through the noise and acquire new customers. CAC has exponentially increased.”
Asked to quantify that increase, he added: “What we’re seeing is merchants and businesses are having to spend 5x to generate the same amount of traffic. We’ve heard that in certain categories CAC is essentially outpacing lifetime value. I don’t have specific percentages, but it gives you an idea as to what some of these businesses are dealing with.”
“I don’t think the traditional ways of trying to acquire a customer are going to be sustainable.”
See also: Relationship Commerce Moves Customers From ‘One and Done’ to ‘One to One’
Out with One-Time Transactions
Change is happening in sped-up pandemic time, so it’s possible to miss some of the major trends taking root in its wake as shopping, commerce and payments all transform.
As focus shifts to driving higher average order values and capturing a larger share of wallets from existing customers, brands have to understand who’s calling the shots in 2022.
“Consumers today control the path to purchase,” he said, emphasizing that there are numerous channels like social commerce, voice commerce, and even the traditional buying in store.
Brands have to work to figure out exactly who their existing customers are and precisely what they want. That knowing and personalization is key to the new engagement. Robertson said eliminating one-time transactions and moving to recurring models is crucial.
“I think one-time transactions in certain categories is a killer for certain brands. If you’re in CPG, you’re trying to go direct-to-consumer and you don’t have a mechanism to drive recurring revenue, you’re going to kind of die on the vine with one-time transactions.”
That means we can expect more subscription innovation from CPG, especially as these feed the need for loyalty and replace one-time purchases with recurring revenue streams.
The Rise of Subscription Commerce
While CAC will continue to be a cost of doing business and no one’s giving up on finding new customers, the meteoric rise of subscription commerce is making a real impression on the business.
Remarking on subscription commerce and eCommerce synergies now showing long-lasting potential, Robertson said subscribers represent a brand’s highest value customers. A lot of brands think of it as recurring revenue, like they’re going to drive 5% of business through subscriptions. However, some of the fastest-growing brands are subscription-first with 95% of their business is recurring, which then offsets a lot of the customer acquisition costs.
That means old-school CAC is on its way out, Robertson said.
“If you’re Gen Z or millennial you expect brands to know you, and [those cohorts] do have more of a cult-like following towards certain brands. If you’re not creating the best possible experience, they’re not going to be loyal.”
As this relationship commerce becomes more common, CAC can become more manageable.
“The difference between relationship commerce and basic subscriptions is that relationship commerce is about meeting consumers where they want to be met,” he said. “If that’s in store, if that’s online, if that’s voice commerce, social commerce, SMS, it doesn’t necessarily matter. It’s about providing on-demand services for those who have not subscribed yet.”
See also: Subscription Commerce Firm Ordergroove Hires CFO, VP of Client Services
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