CAC: Customer Acquisition Chaos & Engagement Hierarchy: Core Actions

CAC: Customer Acquisition Chaos & Engagement Hierarchy: Core Actions

In the vast landscape of commerce, customer acquisition has always been a crucial aspect. From the earliest recorded forms of trade, such as cattle exchange, to the modern $26 trillion global market, businesses have relied on acquiring customers to sustain growth and success.

Today, the world of commerce is largely driven by search-driven and discovery-driven shopping. Search-driven shopping, dominated by Amazon, accounts for 74% of online shopping searches in the U.S. This search-driven approach has allowed Amazon to build a massive advertising business, becoming a top-5 global player in advertising revenues.

On the other hand, discovery-driven shopping, akin to wandering around a mall, is all about serendipity. In the U.S., social commerce hasn't taken off to the same extent as in China, but social platforms like Instagram, Pinterest, and Facebook Marketplace have integrated commerce into their existing frameworks.

When it comes to advertising, there are two types worth mentioning: direct response and brand advertising. Direct response advertising aims to drive immediate transactions, while brand advertising focuses on building brand equity. Direct response advertising constitutes about 80% of all digital ad spending, while brand advertising takes a longer-term approach, like the classic example of Coca-Cola.

However, when customer acquisition costs (CACs) become too high, direct-to-consumer (DTC) brands often turn to brick-and-mortar locations to diversify revenue streams. This approach has been successful for brands like Warby Parker and Jessica Alba's Honest Company, which now generate 50% or more of their revenue from physical retail locations.

Influencer marketing has also gained popularity, with the industry growing from $1.7 billion in 2016 to $16.4 billion in 2022. Influencers play a significant role in discovery-driven commerce. However, the current influencer marketing model is flawed, relying on upfront lump-sum payments and discount codes for attribution. ROI is often poor, and measurement is challenging, hindering scalability.

To overcome these challenges, brands need to explore new channels. One potential avenue lies in leveraging creators. Brands prioritize three key factors: acquiring new customers profitably, controlling the promotion of their brand, and measuring the effectiveness of their efforts. By partnering with creators, brands can align their goals with those of the creators, paying only when they acquire a new customer and maintaining control over brand promotion.