Building a successful e-commerce business requires a strong online customer acquisition strategy, especially when the competition are big platforms like Amazon or Zalando. How can brands leverage their strengths to compete?
A brands’ ability to operate a successful e-commerce business clears the path to bigger margins and critical access to customer acquisition insights compared to wholesale channels. If you are an executive working for a ‘traditional’ fashion brand and want to better understand the marketing of your online store, ask your e-commerce director this simple question:
‘How do our online customer acquisition costs and our customer life time values compare?’
Unlike to the ultimate question of life, the universe and everything, the answer should not be 42. And, while there are as many answers as there are strategies, you should expect break-downs on costs, revenues and profits by channel, location, product categories and so on. Did the words channel, attribution, segmentation or allocation come up for instance?
If you don’t receive a sufficiently detailed answer, your company is likely subject to one or several digital marketing blind spots. Your competitors, particularly if they are multi-brand platforms, retailers or marketplaces, have built their success on mass-acquisition and conversion strategies and are certain to exploit those very blind spots.
This article explores the differences in acquisition strategies between platforms and brands as well as the opportunities for brands.
Online Customer Acquisition in a Nutshell
First, I return to two elements already mentioned, customer acquisition costs (CAC) and life-time value (LTV). They sum up most of what there is to know about online customer acquisition marketing, especially for e-commerce.
In theory, it’s very simple. The CAC shows how much was spent on acquiring a new customer and the LTV expresses the revenue (or even better, the profits) generated by that one customer. From there, an e-commerce director can finetune their strategy by choosing what to focus on. For example:
- Profitability: LTV must be (much) higher than the CAC
- Gaining market shares: LTV might be equal or even lower than CAC
- A mix of both depending on seasonality etc.
Like I said; it’s simple. In theory. Because in the past 15 years, the definition and calculation of those indicators have progressed a lot, as analytics, information systems and marketing networks have evolved.
Today, customer acquisition are assessed with multi-device, omnichannel journeys, with attributions based on the multiple marketing channels a user can go through before eventually converting. Well-defined LTVs would include not only revenues but all relevant and allocated costs, segmented by customer types (by location, gender, age or even the time of the first purchase). The more a company is focused on e-commerce performance, the better things like information systems, finance and marketing are integrated. This in turn allows more precise calculations and therefore more efficient acquisition strategies.
Factors Impacting Customer Acquisition Strategies
Enough with the theory, let’s have a look at differences between platforms and brand strategies.
CAC and LTV both rely on other metrics. A great ad campaign might generate traffic but if the goal is getting new customers, the end goal is the ‘thank you’ page that follows a sale, or even further down the line after returns or cancellations have been accounted for, certainly no earlier. Similarly, having a customer spend hundreds of euros for a bestseller on sale is not going to build strong LTV on its own.
Let’s begin by refining our CAC as lots of things happen between a marketing channel interaction and a conversion:
- How much was spent on bringing a user to your site from a particular channel?
- How many users stayed on your site? On average, 45% of users will ‘bounce’, that is, leave your site almost immediately after entering. Of the 55% of users that stay, fewer than 5% will end up actually purchasing something.
- Have you factored in cancellations, returns, lost orders and other undesired outcomes?
- In the end, for 10.000 users coming to your site via a channel that cost 1.000€, fewer than 300 customers will buy something.
We can use this information to extract the factors that are important for conversion. And in many cases, multi-brand platforms tend to have an advantage.
A well-designed site can convert several times better than a badly designed one, but good visuals and style are not all it takes. The most competitive e-commerce companies, particularly platforms, usually run experiments to optimise every single aspect of their sites to grab any conversion point possible.
Brands should fully leverage their identities and visual power to support conversion. But that is not enough either. Brands also need to continuously optimise their interfaces, which means building capacities and resources to run experiments and learn from them. In reality, brands remain very far from this ideal scenario. Out of the 110 brands I’ve tracked on love the brands in the past 12 months, about a third went through big site changes that often involved complete system transitions and risky redesigns rather than progressive, measurable optimisation.
Selection and prices
The wider the selection, the easier it becomes to weather seasonality, appeal to wider audiences, offer discounts or loss-leaders. Platforms featuring products in the thousands or millions with sophisticated pricing algorithms and recommendation engines are usually much better equipped than brands. That is unless a very specific product is targeted by customers.
Here, brands can leverage their central role with exclusive products, product customisation or even temporary cheaper prices. Uniqueness is key.
Shipping and returns
Free shipping, 100 days free returns and similar perks are elements that, along with product prices, rank high on the list of users’ considerations. Platforms can leverage economies of scale to offer better conditions and they have already set the bar at a very high level.
However, brands have something unique to offer: a physical, localised presence. Brands can leverage their brick and mortar stores to provide new options like free in-store deliveries and returns. Zara is enabling ‘ship from store’ options for its e-commerce business which will lead to super-fast deliveries, potentially beating most platforms.
To return to our initial formula, let’s take a closer look at LTV. This could be the topic of a whole article focusing on retention and loyalty, but we’ll keep things simple for the time being. LTV is the sum of all revenues generated during the ‘lifetime’ of a customer (until they stop buying) minus all costs related to those revenues. Increasing the LTV has been a priority for many companies, especially through loyalty programmes. Platforms, spearheaded by Amazon with its Prime offer, are racing each other to building the most effective schemes aimed at keeping users captive in their ecosystem while maximising how much they spend.
Brands have been building loyalty programmes for a long time. There are great examples of online and omnichannel focus coming from sports brands, such as the NikePlus programme. But most brands will find that their site’s retention power is much lower than a platform’s. And a user who buys a brand via a platform can be very difficult (and costly) to bring back to the brand’s own online store.
In short, this means that brands not only need well-designed retention schemes but also need to invest in retaining customers throughout their lifetime to prevent their successful targeting by platforms.
Now that we’ve identified some factors to consider, let’s look at how brands and platforms tend to differ in their online customer acquisition strategies.
In the ‘old’ world, a marketing budget was spent on media: TV, magazines, billboard, radio, and so on. That allowed for promotion of both, the retail and the wholesale side of a brand but the tracking of results was difficult, especially at a granular level. We now live in a ‘new’ world, where spending on digital marketing has overtaken TV as the primary spending channel in 2014 (WARC). This has a big impact on brands as well as platforms, but in opposite directions.
Platforms are built on expertise in digital performance channels, defined as channels where a company pays for a specific, trackable metric (clicks, impressions, views, purchases) and are increasingly experimenting with traditional media to build their own branding. From Zalando’s TV commercials to Amazon’s presence at Fashion Weeks or net-a-porter’s own magazine, platforms are trying to transcend the digital realm to become household names.
Brands, on the other hand, have the opposite problem. They already have that wide recognition but have had to dive into performance marketing headfirst to build their online traffic and were often late to the game. This gap in performance marketing remains quite visible today:
Looking at the e-commerce of a few well-known fashion brands in Germany, some clearly seem to focus on very few select advertising networks. Checking which ad trackers the browser extension Ghostery detects, reveals that Tommy Hilfiger apparently uses a single ad tracker, or that Birkenstock uses a mere three. Others, like Diesel with 39 ad trackers seem to already have embraced the opportunity. For platforms, the number of trackers tends to be consistently high (33 on AboutYou, 27 on MyTheresea, 21 on Otto.de).
Advertising on more networks is not necessarily better but it tends to demonstrate a higher commitment to finding performance (cheaper, more converting users) wherever it happens to be.
The portfolio of ad networks aside, some strategies may be more complicated to implement for brands than for platforms. While advertising on Google AdWords or Facebook with targeting related to brand names is easier for brands, targeting ads in more general ways (category keywords, broad Facebook segments etc.) is likely to generate fewer conversions for brands due to the factors discussed above.
Similarly, brands seem to underspend in channels like affiliate marketing. Platforms usually pay commission of 8-15% for converting traffic (Zalando and Sarenza at 8%, Amazon and Otto over 10%). For the 30+ brands I’ve researched, commissions were between 4% and 8%. This sets brands at a clear disadvantage because affiliate partners who chase such commissions will not sacrifice business for companies that reward them less and have lower conversion rates for the traffic they provide (my own site love the brands is the exception here).
Finally, influencer marketing has drawn in a lot of brands, primarily on social networks like Snapchat or Instagram and on blogs. Brands have tapped into the public’s appeal for product endorsements to make their products more visible. Influencer marketing comes with a few risks, such as the difficulty to track results, unreliable follower and engagement numbers, and a dependency on social media platforms like Snapchat and Instagram. But it has allowed brands to leverage some of the skills they had already honed through more traditional public relations activities along with their strong product identities. Influencer marketing is thus a strategy that platforms cannot easily replicate.
In summary, brands must (and can) do better at leveraging their strengths against platforms when it comes to online customer acquisition. Here are a few key ways of doing so:
- Make better use of customer acquisition for site conversion and influencer marketing, coupled with data-driven optimization.
- Attract shoppers with exclusive or customisable products and price optimization.
- Make better use of omnichannel for cross channel promotion and improve user experience.
- Increase lifetime value and reduce churn with well-built retention programmes.
- Improve customer acquisition with performance marketing by matching platform conditions wherever possible, building experimented teams and diversifying networks for maximum optimization.
- Make organisations more data-driven and use daily insights for continuous improvement.
Brands cannot continue to let platforms dominate e-commerce and should work hard and fast on putting their money where their mouths are! Make customer acquisition work for you.
About the Author:
Thomas specialises in e-commerce. After a tenure at Amazon Fashion he launched his own company, love the brands, to help brands build stronger independent e-commerce businesses while keeping the connection with their customers alive and strong. Get in touch with him via e-mail to further discuss online customer acquisition strategy or read more of his work here.