CAC: Customer Acquisition Chaos - How to Create a Sticky Product Like Facebook and Evernote

CAC: Customer Acquisition Chaos - How to Create a Sticky Product Like Facebook and Evernote

In the world of commerce, customer acquisition is a constant battle. From the early days of cattle trade to the modern digital marketplace, businesses have always sought out new customers to sustain and grow their operations. Today, the global market is worth a staggering $26 trillion, with e-commerce alone accounting for $10 trillion. With so much at stake, it's no wonder that businesses are constantly searching for effective strategies to acquire and retain customers.

There are two primary types of shopping that drive customer acquisition: search-driven shopping and discovery-driven shopping. Search-driven shopping is exemplified by the dominance of Amazon, where 74% of online shopping searches in the U.S. originate. Amazon's success in this area has allowed them to build a formidable advertising business, making them a top player in the global advertising market.

On the other hand, discovery-driven shopping is more akin to wandering around a mall, browsing and stumbling upon products that catch your eye. This form of shopping is driven by serendipity, and while it hasn't taken off to the same degree as in China, where social commerce is a major force, it still plays a significant role in the U.S. market through platforms like Instagram, Pinterest, and Facebook Marketplace.

When it comes to advertising, there are two types worth noting: direct response advertising and brand advertising. Direct response advertising aims to drive immediate transactions, while brand advertising focuses on building long-term brand equity. Direct response advertising dominates the digital ad space, accounting for approximately 80% of all digital ad spend. However, brands recognize the importance of brand advertising and its role in shaping consumer behavior over time.

But what happens when customer acquisition costs (CACs) become prohibitively high? Direct-to-consumer (DTC) brands have found success in going the old-fashioned route by opening brick-and-mortar stores. Brands like Warby Parker and Jessica Alba's Honest Company now generate 50% or more of their revenue from physical retail locations. This demonstrates that even in the age of e-commerce, there is still value in having a physical presence.

Influencer marketing has also emerged as a popular channel for customer acquisition. The industry has grown exponentially, from $1.7 billion in 2016 to a projected $16.4 billion in 2022. Influencers play a crucial role in driving discovery-driven commerce, but the current influencer marketing model is not without its flaws. Many campaigns rely on upfront lump-sum payments and use discount codes for attribution tracking, resulting in poor ROI and measurement challenges. Brands are in need of new channels that offer better control and measurement capabilities.

One such opportunity lies in partnering with creators. Brands are interested in three key things: acquiring new customers profitably, controlling their brand image, and measuring the effectiveness of their marketing efforts. By collaborating with creators, brands can achieve these goals more effectively. Creators provide a unique opportunity for brands to pay only when they acquire new customers, have more control over who promotes their brand, and gain better insight into what strategies are working.

To create a sticky product like Facebook and Evernote, businesses can leverage the concept of accruing benefits and mounting loss. Sticky products use the data generated by users to enhance their experience and make it increasingly difficult for them to leave. Accruing benefits refer to the idea that the more a user engages with a product, the better it becomes. By leveraging both explicit and implicit actions, businesses can create a cycle of increasing benefits for users.

Mounting loss occurs when a product becomes deeply ingrained in a user's life, part of their identity, or something they have invested in, such as a following. The fear of losing all that they have built keeps users tethered to the product. By creating a product that users feel they have a lot to lose by leaving, businesses can increase user loyalty and retention.

In conclusion, customer acquisition is a complex and ever-evolving challenge for businesses. From the dominance of search-driven shopping to the potential of discovery-driven commerce, there are various strategies to explore. Direct response and brand advertising each have their place in the marketing mix, and the rise of influencer marketing presents both opportunities and challenges. By partnering with creators and creating sticky products, businesses can navigate the chaos of customer acquisition more effectively.

Actionable Advice:

1. Embrace the power of search-driven shopping by optimizing your presence on platforms like Amazon. Leverage the data generated by users to enhance their experience and drive conversions.

2. Consider the potential of discovery-driven shopping and explore opportunities to blend social and commerce on existing platforms. Engage with influencers and creators to tap into their existing audiences and drive discovery-driven commerce.

3. Invest in building a brand that resonates with customers and focuses on long-term brand equity. While direct response advertising is important, don't overlook the value of creating a strong brand identity that drives customer loyalty and repeat purchases.