UKNM Roundup: 12-01-2001

Rising Cost of Customer Acquisition
UK-Netmarketing Weekly Round-up - January 12, 2001

Last year, flush with IPO/venture capital money justifying marketing spend didn't seem like such a difficult task. Nowadays with a very definite squeeze hitting the industry, justifying the budget and measuring the cost of acquiring the 'eyeballs' has leapt up the agenda.

'Bob S' asked, "Has anyone [got] any research into the typical cost of getting a new visitor to a site, averaging out ... e.g. PR, advertising, viral marketing, etc. ... I appreciate some methods are more cost effective per visitor but may not be able to pull in large volumes. I have a feeling it is about £1 per visitor... it seems that a lot of the figures are skewed due to some companies claiming a person who has simply registered is a 'customer' so they can ramp up their figures. Filtering these out seemed to indicate a rate of about 1%."

Neil Durrant replied, "Now that depends on how good a job the site is doing to convert the sale! You're doing better than average if your hitting a 2% conversion rate. Improve your conversion rates and start working to beat the CPM game. Affiliate programs, pay per click search engines, [search engine] optimisation, email marketing - welcome to performance marketing."

David Cabrera outlined a number of factors affecting the cost of customer acquisition and website visitors/response, citing:

1. The effectiveness of your media (targeting) strategy
2. Any incentives or special offers being used
3. Creative
4. Campaign timing

These aspects can be tested and measured to establish their impact on the acquisition mix. However 4 further factors which are harder to quantify will also have a significant bearing on visitor/acquisition costs.

5. How well known/regarded is your company or brand amongst your target market
6. The degree and type of competitive activity
7. The basic demand for your product (e.g. how many CD's and how many holidays do you buy each year)
8. The propensity of consumers to consider and then buy from a new source."

David illustrated these points with an example, "For example in the online banking sector the average cost of acquiring a new customer is reported to be £265 (FT late Nov/Dec 00). If you were to assume a conversion rate of 1:20 then visitor costs are £13.25. The key starting point is to try and estimate the lifetime value of a customer, the cost of customer service and then determine how much can be invested in customer acquisition."

So, is anyone achieving decent response rates online? Melanie Beech emailed, "... shall feel very smug indeed, as one of our clients has ... for the last 4 months of 2000, had an average conversion rate of 6.59%. However, IMHO, this is all a little piece of string-ish: it depends very much on the type of site, market sector, how you are marketing it, where your referrals come from, etc. The above stats are for a cultural venue selling tickets to events, so market conditions are clearly different from those of the average retail site."

Are these figures typical of the new media world at large? Robin Edwards shared some of the numbers he'd spotted, "Seen >20% on high traffic retail B2C, but then that is my job! I did speak to one very large entertainment retailer who said if they could reach 1% he would be a happy man. Someone recently told me Amazon achieves 9%... The comment [earlier] about margins and lifetime value of the customer is clearly of serious significance when planning the marketing."

John Duffy shared his experience (and specific numbers) from a recent campaign: "For a B2C / C2C online conference, (www.autism99.org), this was the (rough) breakdown of registered delegates and costs. Figures are based on just over 23,000 delegates.

I'm afraid the figures can't be relevant to you, but the main points are:

1. Don't overlook the free. It takes time, but it's worth it.
2. It mattered HOW people found out about us.

We found that folks who found us by word of mouth were 3 times as likely to trust us - and so to transact with us. In our case, this was to register, as there was no fee attached to the event. I guess a lot of the 'don't knows' came from display advertising, but it's still difficult to make the figures add up against free/viral/word of mouth..."

Martin Lloyd shared his thoughts on the common factors between successful campaigns he'd run in the past, "I think these things tend to explain why most banner ad campaigns have such a high cost of acquisition

1. Right place. In all these cases the ads were in exactly the right place, keyword searches on search engines or niche sites.
2. Right creative. Unless you've got the budget / time to do lots of testing getting 'perfect creative' is a matter of luck. Good copywriters and designers will usually do a decent job, but [a previous] comment about one headline outpulling another by nineteen times is very true online.
3. Small audience - and this is the killer. For most products once you've found the 'perfect audience' that always clicks on the banner and often converts you discover its pretty small. Every time you aim to grow your reach you move away from this perfect audience and end up with worse targeting and worse response to your creative.

All the 'successful' campaigns I mention above had budgets under £5000, attempts to roll them out further stalled when an increase in reach dramatically slashed click through rates and led to a correspondingly high cost of sales."

There are clearly many factors to take into account when planning marketing activity. There's never going to be a one size fits all solution, but the general consensus appears to be following the mantra of direct marketing: test, test, test.

Pricing Problems

Computers are wonderful beasts, but I have strong doubts whether they're really based on logic. Even with the best laid plans strange things can happen. Argos found this out last year when an error on their site offered TVs for £3. The mistake was corrected but not before word had spread like wildfire. A case of viral marketing at its most powerful?

Slip-ups still happen as 'Sharon' posted, "Yesterday we found an absolute bargain on www.unbeatable.co.uk - a Sony TV/Video package for £0.98 (certainly was an unbeatable price!!!) We found it too hard to resist & placed our order... and within minutes received an email confirmation of the order (at £0.98 + p&p)." Unfortunately for 'Sharon', she received an email shortly afterwards cancelling the order.

Having asked the list for advice on the legality of this, Alex Briffa replied "Legally there probably is a contract - however the likelihood is that it will be on unbeatable's standard terms and conditions of business which probably take account of these things. It would be interesting to know what the email confirmation says though. As for Argos - no decision (of any value as precedent at least) yet."

Darren Priest added, "Surely if money has been debited from your card, then offer and acceptance have been completed, and a contract exists? Moot point: does it matter if money has been debited from your card? Does an emailed confirmation count as acceptance on the part of the retailer? The Argos case discussed here, but I can't find any articles regarding whether Trading Standards took them to court (£5000 fine for misleading the consumer) US doesn't seem to be much better - saw The Insider on Amazon.com for 0.00, so ordered 20 copies. Apologetic email arrived, but they did send me one for p+p only! :-)"

John Enser summed up, "Two separate sorts of law, two different answers:

Under public law on misleading price information, Trading Standards can prosecute the site which is liable to a fine. Under private law 'is there a contract?' the real answer is 'depends on what the email said'. In the Argos case, the response to the order was an acknowledgement screen saying 'thank you for your order which is being processed. All orders are subject to availability'. It did not say 'your order is accepted', so there was a good argument that no contract was formed until a later definitive email with order number was sent (which it never was on the £3 TVs). To my knowledge, one large City law firm (whose employee had been one of the first to spot the mistake and ordered 1000) sent a letter before action to Argos, but they clearly did not think the case was worth taking as, so far as I know, the writ never arrived. So the Argos case never went to court. In your case, it sounds more complicated like:

1. what did the email confirmation say - so was there a contract
2. if there was, what were the terms - are you bound by their terms of sale which should probably catch the mistake
3. and are those terms enforceable - because many terms of business are unreasonable and so unenforceable against a consumer (check out the OFT site)"

So it seems the answer is...there's no simple answer. It seems online retailers have certainly got their act together compared to last 12 months, which saw a spate of late deliveries, unfulfilled orders and pricing errors. Perhaps Amazon's healthy Christmas turnover heralds some good news for online retail.

LINKS OF NOTE:
A quick round up of interesting, funny, useful and other links gleaned from the uk-netmarketing list, office gossip and other nefarious sources...we take no responsibility should you chose to click...basically, it's not our fault. Enjoy:

• Handy map of UK universities
• Members of the Internet Service Provider Assoc.
• All the political books you might want?!
• Still not got the right dialling codes?
• Everything you wanted to know about GSM