One of the stand out trends this year has been the number of brands that have collapsed citing rising customer acquisition costs. Brands that sought rapid growth funded by free-flowing venture capital or cheap debt that have burned through their capital have found that new capital has either dried up or become much more expensive. At the same time, the Customer Acquisition Cost (CAC) for most brands has risen creating a perfect storm squeezing profitability.
Over the last ten years customer acquisition costs have risen by 222%. Brands today lose on average $29 for every new customer acquired, up from $19 a decade ago. This is a fully loaded cost, including contribution to overheads and factoring in returns. It assumes that all the cost of new customer acquisition is borne by the first sale, and consequently puts the emphasis on the second and third sale to drive profitability.
Together with reduced capital availability, Apple’s iOS 14.5introduction of ‘Ask App not to Track’ and increasing privacy regulations has turned a problem into a crisis. It is now harder to target specific segments of customers and with a more diverse set of traffic comes reduced performance and higher customer acquisition costs.
Of the four traditional levers of paid customer acquisition –Targeting, Creative, Landing and Conversion – Targeting now has a lot less scope. At the other end of the process, Conversion has had decades of optimization and while there’s always room for improvement, there is limited scope to really move the conversion rates needle for new customer acquisition. For 2024,perhaps we should be thinking about Creative as the ‘new Targeting’ and Landing as the ‘new Conversion.’
Creative as the new Targeting
Generating good creative for social media channels continues to be a major pain point for many brands and retailers. The move to short form video and the need to entertain raise the bar significantly. Creators, however can help to solve both the Creative and Targeting challenges with authentic influencer led content which will appeal to their followers. AI generated video is also showing early signs of promise which also may make content creation easier and cheaper in the future.
Landing pages don’t solve the problem for many brands
By contrast, many brands neglect the Landing part of the process, opting to send traffic to a Product Detail Page or a Category page where bounce rates are typically high and conversion rates low. There’s always been the option to build dedicated landing pages, and this can work well for long running campaigns if you only have a few products to promote. But if youre a brand with multiple products and categories, and you’re actively prospecting on social, then custom landing pages almost certainly don’t get built. Building a landing page for every social campaign simply isn’t practical – it takes too long and doesn’t provide enough lift to justify the effort and expense. And with a high rate of change in social advertising with new campaigns every week or two there’s little chance of keeping up.
The high cost of getting landing wrong
The impact is significant. Social traffic sent to a Product Detail Page suffers from very high bounce rates (we’ve seen as high as 90% for some brands) and low conversion rates (less than 1% is not uncommon. Having up to90% of your paid traffic bounce straight off is incredibly inefficient, and this impacts your Customer Acquisition Cost directly. Its not unusual for your CAC to double based on high bounce rates on landing.
So, what causes the bounce?
Our research shows that the number one cause of a bounce when clicking through from a social ad is because the shopper cannot find the product they were looking for or it looks different. This is fixable.
Not being able to find the product featured in the ad has a couple of dimensions:
· Don’t make me scroll: Dropping traffic onto a category page causes the shopper to scroll past many of the products in the category to try and find the one featured in the ad. On a mobile device that can involve ten or twenty swipes up looking for the product.
· Different imagery: The product may not look the same because a lifestyle image used in the ad is frequently different from the standard product shot shown in the catalog. This creates a visual disconnect for traffic landing on either a category or product detail page.
· Multiple intents: Lifestyle imagery can also feature multiple products, but this leads to different shoppers clicking through for items other than the one the brand is trying to promote.
These issues can’t be solved using product detail or category pages – there are too many competing objectives. But they can be solved using a campaign microsite, which is not a single page, rather a complete site designed to make it easy to find all of the products featured in the ad, match the landing experience to the ad imagery, and handle different intents. The impact is significant, and brands and retailers have seen in some cases a 50% reduction in their Customer Acquisition Cost.
Of course, if building a landing page takes too long, then building a campaign microsite seems completely out of the question. Unless of course you can automate most or all of the process. This is what SimplicityDX does, enabling a complete campaign microsite to be built in a couple of minutes, courtesy of automation and AI.
If your CAC is too high, reach out to us for a chat and let’s explore ways to acquire customers much more cost effectively in 2024.