It is the debate that growth marketers and UA managers are all too familiar with- short-term conversion events vs. long-term LTV optimization. In one of our previous posts, we dug deep into breaking down the difference between targeting early birds and late bloomers.
- “Early birds” refers to users that are easy to target because they conduct purchase events within conversion windows.
When optimizing campaigns for purchase/value optimization the early birds do get acquired, but the CAC for this audience is high. In most cases, the growth marketer does not know how many of the early bird users will continue to make purchases over time.
- “Happy birds” (a term we happily coined and have yet to trademark) are a subset of early birds, which will purchase a few more times outside of the conversion window, thereby making them high LTV users.
- “Angry birds” (not to be confused with the addictive game) are a subset of early birds. They are users who purchase early on within the conversion window, but won't purchase again.
The limitations imposed by ad networks, along with mounting pressures from the higher ups often place growth experts in the position to focus on the quick wins, which are akin to hit and runs. Here at Voyantis, we refer to the hit and runs as the “Angry birds.” In the back of our minds however, we all know that the best way to scale on ROI is through loyalty focused marketing, and specifically targeting the happy birds.
Forrester Research states that it costs five times more to acquire a customer than to retain and enrich customers, however the majority of companies are failing to make the right kind of loyalty investment, because they are not dedicating a significant amount of their marketing budget towards UA. Loyalty needs to be at the forefront before acquisition for both optimized and maximized results. Research by Gartner indicates that 80 percent of futue profits can potentially come from just 20 percent of existing customers. The proof is in the pudding—loyalty focused UA marketing is the way to go.
There are many ways to promote loyalty
DTC brands make use of many ways to promote loyalty, because it pays to continue marketing after the initial sale with an upsell, cross-sell, or other promotion—from social sharing campaigns, to questionnaires, to ambassador programs, and referral ads. This can also tie in with content marketing, by filtering people who engage with company content and running ads to them. In their own unique way, each of these approaches focus on the commitment and profitability that can be gained in the long term rather than the profit gained in the short run.
In an effort to bypass the limitations brought on by ad networks, many D2C brands have changed their models to subscriptions, making sure users would yield high LTV and loyalty. While it may seem like a harmless fix, it actually presents two unique challenges:
- Fitability - subscription models do not fit all types of D2C and require commitment from the user.
- Churn rate - many customers churn with the first few months
Ad networks view the angry birds as the same thing as early birds. While this is absolutely one of the roadblocks in loyalty focused marketing, there are ways to go around it and still make the system work for you. Our own data suggests that the average revenue per user can be up to four times higher over time with the right signals set in place for loyalty.
According to an article by Smart Marketer, most businesses can easily shoot for a repeat purchase rate in the 25-50 percent range. Long term profits and scalability rolls in more efficiently by targeting loyal customers, rather than constantly searching for uniques.
Timing is of the essence
Let’s say there are two different and completely unrelated customers that purchased a product—but how can ad networks determine which customer would have a better LTV over the other? This is where predictive models come into play. While they may both initially be seen as early birds, predictive models can help distinguish potential happy birds (and late bloomers later on) based on signals tied to unique company data, such as product engagement. Naturally, the customers that demonstrate greater interest will be of greater value in the long run. That doesn’t necessarily mean you should wait several weeks to signal them.
In our experience working with numerous D2C companies on loyalty focused campaigns, we learned that one of the strongest indicators that can be used in building such a predictive model is a customer questionnaire. Of course, questionnaires are not solely for D2C companies—any company with the goal of cultivating a long term relationship with customers should implement a pre/post purchase questionnaire.
Slow and steady wins the race, and that applies towards loyalty marketing as well, as it yields high value users. Many companies tend to dive into the components of loyalty marketing after acquisition. After all, it is tricky for ad networks to distinguish between which users are worth a lot of money and which aren’t, as well as differentiating between loyal customers and repeat buyers.
We say you can acquire those loyal users in advance, for exponentially better ROI. Signaling users who are more inclined to make purchases over time is where the real impact and value lies. Predictive models tap into the power of AI to create campaigns that target these users, all with algorithmic expertise in mind.
You can’t afford not to
Focusing on loyalty shouldn’t be an afterthought. It’s natural for companies to try to gain new and unique customers, but not enough are taking full advantage of the existing base. It’s a missed opportunity considering the fact that it is easier to monetize on existing customers through loyalty marketing. Keeping them engaged will keep them profitable, and will ultimately provide you with a great source of user-generated content and referrals.
First and foremost, it would be best for growth marketers to analyze their data to see how many Happy Birds and Angry Birds they are acquiring and understand the potential before going all-in.
In a nutshell, loyalty focused marketing is sustainable marketing. The best part is that it is easier to conduct loyalty focused user acquisition campaigns now more than ever. Predictive models eliminate the guesswork, and help amplify efforts with long-term profitability prediction. Marketers can use this technology to target users with high revenue potential at a significantly lower cost than targeting Early Birds (who may or may not offer LTV profitability). The best part is that this can be done without significant BI, data expertise, or R&D resources. The utilization of predictive models is the most efficient and cost-effective way for growth marketers and UA managers to work smart.