CAC: Customer Acquisition Chaos and the Five Types of Virality

CAC: Customer Acquisition Chaos and the Five Types of Virality

In the world of commerce, customer acquisition has always been a challenge. From the earliest recorded forms of trade, such as cattle trade, to the modern global market valued at $26 trillion, businesses have constantly sought effective ways to acquire new customers and drive revenue. In today's digital age, where e-commerce alone accounts for $10 trillion, the landscape of customer acquisition has become even more complex.

There are two primary types of shopping that influence customer acquisition strategies: search-driven shopping and discovery-driven shopping. Search-driven shopping refers to the act of specifically searching for a product or service, often done on platforms like Amazon. In fact, Amazon dominates search-driven shopping, with 74% of online shopping searches in the U.S. originating on Amazon.com. This dominance has allowed Amazon to build a formidable advertising business, becoming a top-5 global business by advertising revenues.

On the other hand, discovery-driven shopping is about serendipity. It involves wandering around, browsing, and stumbling upon products or services that catch one's interest. While social commerce has not taken off to the same extent in the U.S. as it has in China, companies have found ways to blend social platforms like Instagram, Pinterest, and Facebook Marketplace with commerce, providing opportunities for discovery-driven shopping.

When it comes to advertising, there are two types worth knowing: direct response advertising and brand advertising. Direct response advertising aims to drive immediate transactions, while brand advertising focuses on building brand equity. Direct response advertising typically comprises about 80% of all digital ad dollars spent online. However, when customer acquisition costs (CACs) become too high, some direct-to-consumer (DTC) brands have opted for brick-and-mortar locations to diversify their revenue streams.

Influencer marketing has emerged as another option for customer acquisition. The industry has experienced significant growth, swelling from $1.7 billion in 2016 to $16.4 billion in 2022. Influencers play a crucial role in discovery-driven commerce, but the current influencer marketing landscape is broken. Many campaigns rely on upfront lump-sum payments and struggle with attribution and measurement. Brands need new channels to address these challenges.

One potential solution lies in creators. Brands are looking for three key things: acquiring new customers profitably, maintaining control over brand promotion, and effectively measuring results. Creators offer an opportunity to meet these needs. By partnering with creators, brands can pay for customer acquisition only when it is successful, maintain control over where and how their brand is promoted, and leverage creators' platforms to measure the effectiveness of their campaigns. This shift allows brands to focus on driving results and optimizing their customer acquisition efforts.

In a separate perspective on virality, Josh Elman discusses the five types of virality that can contribute to a product's success. Inception, or the act of inserting an idea into someone's head, is at the core of all viral efforts. The first type, word-of-mouth virality, occurs when a product is so good that people can't help but tell their friends about it. Making the product easy to find and describe further enhances its word-of-mouth potential.

Demonstration virality is another type that relies on the nature of the product itself. When using the product inherently shows it off, such as with Instagram's photo filters or Musical.ly's music videos, people naturally become advocates for the product. Infectious virality, on the other hand, occurs when a product is designed in a way that encourages people to invite others to use it. Platforms like Snapchat, Twitter, and Nextdoor rely on users inviting their friends to enhance the experience for everyone involved.

However, it is important to note that not all products are suited for infectious virality. It only works when inviting others into the product experience genuinely benefits both the inviter and the invitee. For products that focus on creating content or having experiences that are easy to show off, demonstration virality may be a more effective strategy.

At the end of the day, the success of any customer acquisition or viral strategy boils down to one metric: active usage. It's not enough for users to simply download or try a product; they need to actively use it. This metric is the true measure of a product's impact and its ability to drive customer acquisition.

In conclusion, navigating the world of customer acquisition and viral marketing can be chaotic. However, by understanding the different types of shopping, the importance of effective advertising, and the potential of creators and viral strategies, businesses can find opportunities to acquire customers more efficiently. Here are three actionable pieces of advice to consider:

1. Focus on the right type of shopping for your product: Whether it's search-driven or discovery-driven shopping, understanding where your target audience is more likely to engage can help optimize your customer acquisition efforts.

2. Experiment with different advertising strategies: Direct response advertising may dominate digital ad spending, but don't be afraid to explore brand advertising opportunities. Building brand equity can have long-term benefits for customer acquisition.

3. Embrace new channels and partnerships: Influencer marketing may be broken, but the rise of creators offers a fresh approach to customer acquisition. Explore collaborations with creators who align with your brand values and can help you achieve measurable results.

By combining these insights and taking action on them, businesses can navigate the chaos of customer acquisition and viral marketing, ultimately driving growth and success in the ever-evolving digital landscape.