ADOTAS – Each year, it seems the holiday “shopping season” grows by a few weeks, pushed back earlier into autumn by enthusiastic retailers hoping to expand their sales. And while I’d like to say I take advantage of these opportunities, once again it’s December and I’m online searching for presents for friends and family. And once again (for at least a few folks on my list) I’m flummoxed trying to find the perfect gift.
It’s not just the shoppers that have a lot to think about. Retailers are finding themselves stumped year after year on where to spend their advertising dollars to get the biggest bang for their buck. And to boot, consumer spending is down thanks to a stagnant economy.
With everyone competing for a smaller piece of the pie, it’s even more important for retailers to spend advertising dollars in the right places. Online, they should make sure their investments are not just going towards acquiring leads, but acquiring high-quality paying customers.
In the early days of the Internet, advertising was about eyeballs — and advertisers were imitating the mass-market tactics used by their broadcast and print forebears. But breakthroughs in analytics have shed light on the quality of online traffic, changing the focus from lead quantity to lead quality. After all, what good are impressions if they’re seen by the wrong people?
Google built its AdWords model to address this very notion; keywords are priced based on their demand in the marketplace. In addition to testing different price points, advertisers can test different words, effectively targeting different users to see which ones produce the best conversions.
This is a useful model because advertisers are paying closer to what a customer is actually worth, but it’s still a crapshoot: virtually every customer has a different lifetime value, and hence advertisers find themselves paying based on averages. An online seller of tennis balls might find that some of its customers are worth $3 and some are worth $300, even though each customer was searching for the same keyword — “tennis balls” — on Google.
Having advertisers pay based on the number of eyeballs, clicks or acquisitions (preceding terms ordered by increasing measurability) is still suboptimal, as there is no real measure of “quality” built in. With standard cost per acquisition (CPA), cost per mille (CPM), and cost per click (CPC) models, advertisers pay the same price for every broadly identified lead/impression/click, regardless of the lifetime value of the customer.
What if advertisers only paid for ads that brought paying customers? And what if advertisers were able to pay more for the good customers and less for the bad ones?
It’s that very question that makes Google successful despite tough economic times. With this knowledge, let’s look at how retailers can capitalize this holiday season and ensure they get a great return on their marketing investment.
The best gift that online marketers can give their companies this year is a steady stream of high-value paying customers. They should demand that their traffic sources deliver actual paying customers… not a “ton of impressions” or even a “pound of leads.”
Smart marketers will replace CPM buys with “pay per quality” (PPQ) buys – eschewing flat rates per lead in favor of flat rates per transaction. Instead of trying to figure out what the effective cost per transaction is from different traffic networks, go directly to the source and set the rate you want to pay per transaction. This takes the risk out of a marketer’s job and promises more efficient use of advertising funds. It also provides better predictability of future sales.
Using this new PPQ model, advertisers pay the right price for every lead based on each customer’s total lifetime value. It’s similar to the way marketers can predict an average lifetime value of customers that are acquired through keywords. Working with the right partner who can draw upon an even bigger pool of information automates most of this task.
Last year, total holiday sales logged their worst performance in nearly four decades as the global financial crisis struck consumer wallets. Online sales rose only 5%, breaking a multiyear streak of double-digit gains, according to Forrester.
This holiday season, smart retailers can reverse the trend by taking their financial destiny into their own hands. They will pay only for high-quality, paying customers. And they will make sure that every customer is profitable by setting their own acquisition price –- no longer at the mercy of the CPM & CPC conversion roulette. Instead, smart retailers are paying for quality and boosting revenues this holiday season and New Year.