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.

While customer acquisition is crucial, growth without users completing the core action of a product is akin to empty calories. The core action is the foundation and essence of a product. For Pinterest, it's pinning; for Twitter, it's tweeting; for YouTube, it's uploading videos. These core actions are what make the product meaningful and valuable to users.

It's not enough to focus solely on increasing the total number of users. If users aren't actively engaging with the core action, the product's momentum will eventually fade away. To sustain growth and drive meaningful engagement, businesses must optimize for users completing the core action.

In conclusion, customer acquisition and engagement go hand in hand in the world of commerce. While search-driven and discovery-driven shopping dominate the market, it's important for businesses to understand the value of both types of shopping experiences. Additionally, brands must navigate the complexities of advertising, considering the balance between direct response and brand advertising.

To overcome the challenges of high CACs and ineffective influencer marketing, brands should explore new channels and consider partnerships with creators. By aligning goals and paying for customer acquisition only when it's profitable, brands can regain control and measure the effectiveness of their efforts.

Lastly, businesses must prioritize the core action of their product. Growing the user base without focusing on core action completion is unsustainable. To drive meaningful engagement and long-term success, businesses should optimize for users actively participating in the core action.

Actionable Advice:

• 1. Diversify your customer acquisition channels. Explore new avenues beyond traditional advertising and influencer marketing to increase profitability and control over brand promotion.

• 2. Prioritize the completion of the core action. Ensure that your product provides a seamless user experience and encourages users to actively engage with the core action.

• 3. Continuously measure and analyze the effectiveness of your customer acquisition strategies. Identify what works and what doesn't, allowing you to double down on successful approaches and make informed decisions.

By combining the concepts of customer acquisition chaos and the engagement hierarchy of core actions, businesses can build a solid foundation for sustainable growth and success in the ever-evolving world of commerce.