Jun 182008

Customer Type Matchback Analysis & Lifetime Value

Looking at the orders and sales driven by each marketing channel gives you a quick look at how effective they are. Or does it? Are all orders created equal?

In general, many catalogers and retailers tend to place a higher value on orders recorded as new customer acquisitions. Traditionally, direct marketers have often been willing to lose money to acquire new customers up to a one-year value metric, while they expect to turn a profit on their existing customer base. How much you can afford to invest may depend on the lifetime value (LTV) calculations for each channel.

The first step in measuring the value of paid search orders against your other marketing initiatives is to perform detailed matchback analysis. Have your SEM agency provide a list of PPC order numbers taken over the last 90 days. From there, run an audit of those orders internally to determine if the customer placing the order was new to file or existing. You should now be able to send the list of orders back to your SEM agency for follow-up analysis. Reports can then be generated to show what percentage of customers are new to file in paid search, how that number differs across Brand and Non-Brand keywords, what types of keywords/categories drive more new customers, effects of seasonality/catalog drops/etc on new customer acquisitions – the list goes on and on.

Comparing these results to other marketing initiatives might shed some light on which channel may be most effective on the next dollar invested. It might be the case that catalog prospecting averages $20 per new customer acquisition, while non-brand paid search is hitting a $15 mark in aggregate. When deciding which channel should receive the next advertising dollar, it seems reasonable to pick the one with the lowest cost per acquisition. Ignoring averages and looking at the next dollar in, we may find that the incremental dollars given to catalog will produce one new customer acquisition for every $21 in spend and $25 in paid search. Look at each channel’s ability to capture new to file customers on the next dollar spent when deciding where to invest additional funds. Also, you’ll need to measure the one year value of non-brand PPC customers vs. those acquired from traditional marketing methods. Ultimately, it is these calculations that will determine what you can spend and, most importantly, what each channel's acquisition targets should be.

An interesting question can be raised about the value of an order resulting from a non-brand keyword search. For example, an existing customer searching for “desktop computers” is bombarded with competitors’ ads along with your own. Is there incremental value in existing customer orders resulting from non-brand keyword searches? We think so. Remember that many of your loyal customers are also loyal customers of your competitors; you need to consider share of wallet here. (More on that, in a previous post). The matchback analysis is not an initiative to discredit keywords, or the program at large, for existing customer orders. The intent is to look at the overall influence of paid search in conjunction with your new customer acquisition goals.

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