In our simple shoe example, we saw how knowing a metric like the lifetime value of a customer helps us work backwards and figure out our profit margin.
Pop quiz: How would you increase profitability for this shoe company as a digital marketer?
Let’s take this apart step by step.
Our friends in manufacturing and design might be able to make some additional tweaks and help drive costs down for creating and building shoes. As the company grows, it will be able to negotiate better terms with factories and reap some financial rewards based on increased volume. So, we can indirectly help here by growing the brand and thus the sales that let such profitable negotiations take place.
But as smart digital marketers, we like to prove our value in more direct and measurable ways.
Given, we have a good handle on our customer acquisition costs. Next, we look at how much we spend and tying our efforts back to sales conversions using web analytics, customer support sales, etc. We seek to build a culture around tracking where a customer comes from and why they ended up on our site or phone line. We are focused on coming up with ideas and methods to always drive this cost down as low as possible and still meet our conversion goals.
If you look over the example, something should jump out at you – this ideal customer is buying five pairs of shoes per year. That equals a new pair of shoes almost every ten weeks. We have a serious brand fanatic on our hands and we have to nurture this kind of devotion!
So, how can we incentivize the next sale? Here is where we would turn to the tools of digital and start to set up some smart campaigns. We would let this customer pick when they would like to hear from us, what channel, and what that message should be through some smart research and ongoing testing. Maybe we create value around letting this person into a VIP brand club where they get first access to the shoes a few months ahead of the general public through an email marketing campaign.
We nurture, reward, and shower them with much love. Why? Because it’s critical to the success of our business as we shall see when we look at profitability.
What happens next if we deliver on this promise?
- Well, if we are really lucky they tell their friends. They go on Twitter and Facebook and go off about how awesome we are.
- Remember, research from Nielsen shows that 90% of consumers trust recommendations from friends and family.
- So, we might pick up a couple more customers as a result of this powerful word of mouth which is all sparked from a remarkable brand experience.
But what did this do to our profitability?
We just dramatically dropped our customer acquisition costs or rather almost eliminated them. If our team members can provide a remarkable experience and deliver on that promise to these two or three new sales leads, we can further drive down our acquisition costs (and in turn drive up our profitability).
Over time, leveraging the holy grail of marketing (positive word of mouth), we might be able to drop this acquisition cost across the board from $20/customer to just a few dollars. Again, here’s where the speed and power of digital tools and social media make this possible.
As a result, we see a beautiful exponential curve, as more customers come in through positive word of mouth, evangelize, and convert a few more. Granted, the whole organization must align with this type of customer vision and each see how they play a crucial role in ensuring the almighty positive word of mouth happens repeatedly.
Note: While it is beyond the scope of this text to go into organizational structure – ensuring such a customer experience must come from the top-down. Incentives across all business divisions must tie directly into such metrics and here is where digital marketers can really get visibility to succeed or fail in prime time. To this trend, companies are appointing a different type of CEO – that of “Chief Experience Officer”.
Smart companies today get this. This basic strategy is how companies like Zappos are able to grow without mass advertising driving the brand. Digital marketing just speeds up this communication, lowers acquisition costs, and makes some companies very, very rich. But only if they align their entire organization against achieving such a goal and delivering a consistently remarkable experience. Easier said than done.
Key takeaway: Tying revenue goals to clear metrics is absolutely key for successfully deploying a digital marketing strategy for business growth. The challenge with digital is not the technology but rather in knowing where to apply the technology to achieve a business objective like increasing profitability.