One of the most powerful capabilities granted by digital advertising, beyond real-time measurement, is segmentation.
Segmentation lets us see which audiences and placements are performing best. It lets us put more money against the most efficient or important audiences. It lets us serve personalized creative to users, increasing conversion rates and media return on investment as a result.
But there is more value to be captured from segmentation. Advertisers must move beyond personalization of content to personalization of media strategies and media goals.
Many marketers use separate measurement goals and ROI expectations for acquisition vs. retention because it makes sense and it incentivizes the right behavior. Without separate ROI goals, a disproportionate amount of spend would flow to retention and not acquisition.
But marketers shouldn’t stop there. They are harming themselves just as much by having a single cost-per-action goal.
Not all customers are created equal
Take this scenario: You run a small e-commerce fashion business. You know your average customer lifetime value is $70. In order to maximize growth, you set your digital CPA goal at $70, knowing that you’ll break even on every user you acquire, making profit on word of mouth and becoming more efficient once you’ve scaled your business.
That’s a common approach to maximizing growth, but it’s overlooking one huge factor: Not all customers are created equal. Some are worth far more than others, and it’s inefficient to acquire all for the same cost.
In this fictional scenario, 18- to 29-year-olds have a LTV of $100 on average, while 35- to 44-year-olds have a LTV of $40 on average. If I’m acquiring users at $70, I’m losing $30 every time I acquire 35- to 44-year-olds. Conversely, I’m making $30 on the 18- to 29-year olds.
Maximizing scale and efficiency
The result of not having my CPA goals tailored to my segments is that I’m acquiring about one-half as many 18- to 29-year-olds as I should be. I also might be acquiring twice as many 35- to 44-year-olds as I should be, and losing money on each one.
Media goals are designed to incentivize the right behavior—the behavior that maximizes the growth and value of the business. By only having one goal, I am incentivized to acquire the wrong customer mix. I am drastically overinvesting in less valuable customers and drastically underinvesting in my most valuable cohort, 18- to 29-year-olds.
I’m building the wrong customer base—the one that’s less profitable and the one whose word of mouth ROI is less valuable.
Where to start
There is a simple action that every direct-response advertiser should take to raise their bottom line, maximize their growth and get their digital campaigns incentivized optimally: Start setting custom CPA goals by age. You can set them along other segments, as well—married/unmarried, ethnicity, device, income, politics—but age is likely the best place to start.
There are two criteria that should guide where and when to develop custom goals:
- Meaningful difference in LTV across the segments.
- Ability to deploy the segments across your digital campaigns without adding counterproductive complexity.
For those two reasons, creating three custom goals by age group is often the best strategy. But as always, the nature of your business and customers should come first.
Your customers are not all worth the same: Stop acquiring them all for the same price.
Image courtesy of GoMixer/iStock.