Why you should switch from CPA to customer lifetime value

What marketing goals are you working towards in your display campaigns? Find out why you should switch from CPA to customer lifetime value (CLV), if you haven’t yet done so.

The bubble of 2021’s exponential increase in online traffic, sales and digital performance was bound to burst eventually. But with the right marketing goals and strategies, you can keep the momentum going in your display campaigns.

This is precisely what was discussed in a recent webinar with Australia’s National Online Retailers Association (NORA). We explored how to drive the best results and increase new customers, convert existing ones and grow customer lifetime value with a lifecycle marketing approach.

The webinar was hosted by Myer GM Omni Experience Nicola Clement, and included industry expert Barbeques Galore GM Marketing and Customer Mike Ainsworth, Ecom Nation Director Mal Chia and Crimtan Business Director ANZ Laura Kleiman.

You can watch the webinar in full to find out more about how running lifecycle versus siloed marketing campaigns makes a difference, retargeting fatigue, how to leverage dynamic creative optimisation (DCO) to target the right customers at the right time, at the right place, with the right messaging, and what metrics to track to deliver the results your brand needs.

In this article, Joshua Wilson, Crimtan Commercial Director JAPAC summarises his key takeaway from the webinar, and explains why you should switch from CPA to customer lifetime value when planning your marketing goals for display.

Focusing too much on CPA is detrimental to your CLV

Customer lifetime value (CLV) refers to the total amount of revenue you can earn from a typical customer. Increase your CLV and you will grow the value of every advertising dollar you spend.

However, too many marketers struggle to work towards CLV as a goal, and instead focus on performance metrics such as cost per acquisition (CPA). There are two possible reasons for this.

1. Siloed marketing teams

Some marketing teams are huge, and while that means more horsepower, it can also potentially lead to silos. For example, there could be different teams responsible for performance, branding, social, CRM, offline and more.

In this scenario, everyone’s focus is on proving that their efforts work best.

The problem here is that marketing efforts are not collaborative and are not looked at holistically. Furthermore, it is probably not in line with the greater business goal of attracting new customers or growing customer lifetime value.

2. Remarketing fatigue

Today, in retail, it can feel like everything is on sale all the time. The priority for businesses will always be revenue and profit, however, how a brand builds their marketing and sales strategy is key.

Brands who are only focussing on driving more conversions tend to target customers from the lower end of the sales funnel. As a consequence, the messaging and creative is less warm, with more of a hard sales message.

This results in customers constantly seeing the same message, and feeling less able to resonate with the brand. So, while you may see an initial uptick in sales with this strategy, it’s usually short term. In the long term, you will not be able to reap the full lifetime value of your customers.

As Mike Ainsworth from Barbeques Galore suggests, an opportunity exists for brands to break the mould and shift how they measure customer lifetime value using engagement rather than hard sales.

How you can tackle retargeting fatigue

Retargeting allows you to reach the same person who visited your website and it’s a tactic designed to encourage them to complete their purchase.

The ability to retarget is fantastic. However, when it is used to excess with no frequency control and the message or creative is the same, the ‘fantastic-ness’ wanes. And not only does this create a negative experience for the customer, it also results in wasted impressions for brands.

It’s important to understand why some brand’s and vendors abuse retargeting strategies. The reality is that at times only a narrow view of a marketing campaign’s metrics are looked at. Concepts like CPA and last click conversion attribution are some of these and they are often valued too highly. This results in a significant amount of focus on the last click before a sale, giving rise to abused retargeting tactics.

One of the ways to mitigate retargeting fatigue is to focus on lifecycle marketing. This involves driving new customers, converting them, and growing their customer lifetime value with your brand. So, depending on where your customers are in their lifecycle journey, using the right creative and messaging strategies, you can build a relevant and seamless experience.

Knowing the value of where your customers are in the purchase journey can also help you understand each customer’s potential value. When you interact with customers at the right price in the right way, you are being more cost effective and as a result, you are growing CLV.

Three key marketing metrics to track when you focus on customer lifetime value

So you and your team have decided to focus on customer lifetime value. What marketing metrics should you track? Mal Chia from Ecom pointed out three key marketing metrics that are an indication of success.

1. Marketing efficiency ratio (MER)

Marketing efficiency ratio refers to advertising spend as a percentage of revenue. This gives you an idea, as you increase marketing spend, of whether you are getting any incremental gains.

Ideally, when you increase your marketing spend, you should get incremental revenue and more. However, this cannot be the only metric to look at because it is focused on the bottom of the funnel approach as you don’t see immediate returns.

2. Brand health

Start looking at whether customers are interested in your brand. If you are running a branded keyword campaign, examine how that is trending over time as there is a high correlation between brand interest and revenue.

3. Customer acquisition cost (CAC)

Customer acquisition cost refers to how much your brand is paying to acquire a new customer. It is calculated by total marketing cost divided by number of new customers acquired during the same period. If your CAC increases, you’re spending the same amount of marketing cost to acquire fewer new customers.

How can you shift your focus to lifecycle marketing?

As marketers, we want to be able to prove that our campaigns have helped to drive positive business outcomes, especially CLV.

This involves a change of mindset from showcasing an individual campaign’s performance, to doubling down on lifecycle marketing as a revenue channel for your business. Here are three tips from our speakers to help you achieve this.

1. “Look at your customer lifecycle journey and address the pain points” – Barbeques Galore GM Customer and Marketing Mike Ainsworth

Put yourself in the shoes of your customers. What do you want? Your customer journey starts from their research stage, and continues all the way through to purchase and repeat purchase. You want an experience that is seamless, so start understanding and mapping the pain points.

2. “Leverage your first party data” – Ecom Nation Director Mal Chia

Start with the data. Whichever eCommerce platform you are using, export the data and understand your customer behaviour.

There are many noticeable trends, such as how long each customer tends to stay for, how many purchases they make, comparing your sales vs non-sales period, adhoc versus members, and more. Once you have that sorted, it is much easier to figure out a solution for the blockage.

3. “Work with a partner who is transparent” – Crimtan Business Director ANZ Laura Kleiman

The right partner should feel like they are an extended arm of your marketing team. By asking questions such as their attribution methodology, reporting, transparency, campaign’s frequency cap and set up, you should have a better understanding of how they complement your overall marketing strategy. Ideally, start small with a tactical campaign, analyse and learn from the results before growing.

How Barbeques Galore used dynamic creative optimisation to drive lifecycle marketing

So how can you more to more of a lifecycle marketing approach, and reap the rewards with your CLV? Here are five steps that Barbeques Galore took to successfully leverage DCO to drive lifecycle marketing.

1. Conduct a listening campaign

With Crimtan’s pixel on Barbeques Galore’s site, Crimtan was able to group audiences based on which part of the site they have visited. For example, this could be just the homepage, or product category, a particular product, or added to basket/cart.

Interesting segments included targeting customers who have spent a particular amount, and serve creative based on that. For example, show premium priced items to customers who have shown such buying preferences.

2. Create a dynamic creative template that integrates into your brand’s product feed

Dynamic creative allows you to change your creative on the fly based on different data inputs. These could be based on weather, geo, time, language, product, behaviour and so on. With one template, you can easily update images, copy and call to action.

For Barbeques Galore, this template is also integrated with their product feed, which gives us a lot of information we can use in real time in terms of serving personalised messaging.

3. Determine which personalised message is delivered to different audience segments

With DCO, we want to serve the most relevant message based on where customers are at in your purchase funnel. So we sat down with the Barbeques Galore team to decide on an agreed set of rules on what message is delivered for different target segments.

For example, the message delivered to a potential customer who only visited the homepage should be different from another customer who viewed a specific product.

4. Update creatives based on trade calendar to drive new customers and re-engage with lapsed customers

Most omnichannel retailers struggle to keep up their online marketing efforts with their in-store strategies. DCO campaigns are one solution that can help you to minimise the discrepancy. For example, Barbeques Galore run different promotions throughout the year, some of which are one to two days, while others run for a couple of weeks.

As we have access to their product feed, and constant communication with their marketing team, we are able to proactively update the creatives. As a result, customers who visit both the store and view the creative message online receive one single message.

5. Constantly A/B test and optimise towards the best performing audiences

One of the key benefits of DCO is scalability. But we need to know which creative is performing better before doing so. With one single template, we are able to easily A/B test different images, copy, call to actions, etc. In the case of Barbeques Galore, which is an omnichannel retailer, we tested different call to actions that drive customers in store versus online sales.

As a result of relevant messaging, we saw positive returns with Barbeques Galore, achieving higher than average engagement rates, reduced bounce rates and longer session times. So it’s not surprising that Mike Ainsworth from Barbeques Galore remarked that DCO “should be a standard in any of your digital advertising mix.”

More benefits of DCO and examples

DCO brings about several benefits. If you’re keen to learn more about how another brand, Subway, leveraged DCO to grow in-store foot traffic, you can find out more in the video below: 

<iframe width=”560″ height=”315″ src=”https://www.youtube.com/embed/gvO2pDub5TU?si=5Ctsn1jIMDvt8nOy” title=”YouTube video player” frameborder=”0″ allow=”accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share” allowfullscreen></iframe>

Want to learn more about growing customer lifetime value from industry experts? Watch the full webinar here:

<iframe width=”560″ height=”315″ src=”https://www.youtube.com/embed/q4B0lwgvTYQ?si=wg0HjTJnOfL_kZ34″ title=”YouTube video player” frameborder=”0″ allow=”accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share” allowfullscreen></iframe>