Where is the true value of acquisition marketing?

This article, written by Neil Mason, was originally published on Clickz.com on 27/08/10 and is republished here with permission.

Despite all the known issues and problems with the way we measure the effectiveness of acquisition marketing activity such as the use last-click attribution models, I often wonder whether we’re measuring the right thing at all. By that I mean the point at which we define “acquisition” and therefore the point at which we determine the return on investment (ROI) of our marketing budget.

In the old days we generally considered acquisition to mean getting traffic to the site. We measured the ROI of different channels and different activity using metrics like the Cost per Click (CPC) and we managed the budgets to try and optimise the CPC. To be honest we often didn’t care what happened when traffic reached the site, we were just interested in getting them there.

Gradually that began to change as the value of a business was determined by how much money it was making rather than how many visitors it had or how many page impressions it was generating. The focus shifted to defining acquisition in terms of some conversion event, such as a transaction, a registration or the like. The point of measurement changed to further down the value chain and new metrics were used to measure ROI such as the Cost per Action (CPA). This changed the way that we viewed the effectiveness of different channels or campaigns and we discovered that some activity might be great at driving traffic but it was generally of low quality and didn’t actually generate much value. So by changing the concept of what “acquisition” meant we added in the notions of value and quality into our measurement framework. But have we gone far enough?

Obviously the meaning of acquisition is dependent on the nature of the business and the organisation involved but as a generalisation most marketing activity tends to be measured in terms of the transaction rather than in terms of the longer term customer value. Let me give you an example from a type of business where this is more relevant. Often in subscription type businesses acquisition is defined as the point of registration or sign up. CPA targets may be set based upon an overall expected life time value. But often with any subscription type model there is churn and people stop subscribing or using the service. So the notion of value is not that they necessarily signed up but the extent to which they continued to use the service and for how long.

In some work we did recently where we tracked the customer lifecycle from initial acquisition through to the point at which people stopped using the service, we found that generally is people had used the service four times, then they were very likely to continue to use it. The point of true customer acquisition in this case was when someone had used the service four times, not when they had initially signed up for it. Analysis of the effectiveness of different marketing activity in different markets showed different patterns when you compared the ROI based on initial subscription compared to actual usage. Certain types of activity were great at driving registrations but the level of initial churn tended to be quite high and so not that many would eventually turn into longer term valuable customers, whereas other activity wasn’t so good at driving great volumes of registrations but the ones that did register were of better quality and were more likely to pass the magic “four times” mark. By shifting the point of measurement and focus, radical decisions about the mix of marketing activity could be made.

Maybe it’s time to move our understanding of the effectiveness of acquisition marketing to a CPC model again but this time evaluating the Cost per Customer rather than the cost per click. Acquisition is about customers rather than actions and certainly for some businesses it’s about taking a longer term view rather than focussing in on a specific point in time.

I’m not pretending that this type of analysis is necessarily easy to do. It’s not something that really comes “out of the box” from your typical web analytics tool or from your campaign management systems. It will usually involve some level of data integration between these tools and internal data sources such as the customer database. However as we continue to try and improve the efficiency and effectiveness of our marketing spend we need to move the measurement capabilities forward and to get that “cradle to grave” understanding of the customer lifecycle.