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Ecommerce: The Lifetime Value Model is Broken

With AI and automated bidding on multiple platforms, you must fight for every sale at every part of the purchase path. The traditional concept of Customer Lifetime Value driven CPA targets is outdated in this environment.

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Ecommerce: The Lifetime Value Model is Broken

  1. 1. this is the unit.com Why The Lifetime Value Model is Broken for Ecommerce
  2. 2. this is the unit.com The Great Debate - Lifetime Value Vs Transactional
  3. 3. this is the unit.com The Level of Competition Matters Low HighCompetition Lifetime Value You front load your ad spend to acquire customers who can be retained mainly using email marketing. Some companies don’t budget for further ad spend to retain these customers. Transactional You have to fight for every sale. Competitors are aggressive and customers bounce from site to site for the best deal.
  4. 4. this is the unit.com The Level of Competition Matters Low HighCompetition Lifetime Value “When they buy once, they will keep coming back” Transactional “If you are not front of mind from consideration to purchase you lose the sale”
  5. 5. this is the unit.com The Machines Have Made it This Way
  6. 6. this is the unit.com Retargeting and Big Data Ad Tech Creates Competition for Each Interaction Along the Customer Journey. ... and you gotta pay for it!
  7. 7. this is the unit.com Search Social Programmatic Display Video Customer Acquisition and Customer Retention
  8. 8. this is the unit.com Consideration Research Value Comparison Purchase Multiple touch points are now opportunities for companies to gain control of the customer conversion path. Customer Purchase Journey
  9. 9. this is the unit.com Ok, so how do we know if we are doing a good job?
  10. 10. this is the unit.com As a Marketing Manager you can move from NPV (Discounted Cash Flows of future customer revenue) to Annualising Daily Advertising Returns.
  11. 11. this is the unit.com How To Appraise Performance Customer Lifetime Value CLV = Future Revenue - Future Retention Costs - Ad Spend See where this falls down? You can’t predict your future retention costs in a machine learning AI world! You simply don’t know what your competitors will do (or what you will do for that matter).
  12. 12. this is the unit.com How To Appraise Performance Transactional (Daily) So to get this to work practically and also to get board-level buy-in taking a daily approach is best. [(Daily Return + 1)365 -1] X 100 You Daily Return is: Sales - (Ad Spend + Fulfillment Costs + Expected Goods Returned)/ (Ad Spend + Fulfillment Costs + Expected Goods Returned)
  13. 13. this is the unit.com How To Appraise Performance Transactional (Daily) £1,000 Daily Return of 0.4% for a Year. ROI 329.34% £329,343 Start of Year End of Year
  14. 14. this is the unit.com A bit like the old rice on a chessboard story.
  15. 15. this is the unit.com Set your Annual Return on Investment for your advertising spend and use the Daily Return to monitor progress.
  16. 16. this is the unit.com Hire a Quant and Data Scientist if your CEO wants more granular attribution data. (it really is that complicated)
  17. 17. this is the unit.com Pros and Cons - Transactional Approach Pros ● No Guesswork - Predicting the Future ● Works well with Automated Bidding tools ● Is well suited to the move to micro conversions. ● Is flexible ● Is a true representation of how advertising works in the “always-connected” age. Cons ● Requires high volume sectors to drive profits. ● Correlation and causation are not fully understood. ● Short-term thinking. Future cross-sell and upsell not factored in.
  18. 18. this is the unit.com Pros and Cons Lifetime Value Approach Pros ● Long-term thinking - full value of a customer ● If you have cash reserves it can be used to push smaller competitors out of PPC auctions ● Factors in cross-sell and upsell Cons ● Dependant on CRM ● Can’t fully predict the level of competition or competitor actions in future ● Major Ad companies like Google and Facebook have Ad Tech that takes the battle for retention away from you and onto their bidding platforms ● Not suited to an always connected world ● Doesn’t fully factor in the costs to re-engage customers on third-party platforms.
  19. 19. this is the unit.com Is the transactional approach right for your business?
  20. 20. this is the unit.com “If you want to have a chat on how you can grow your ecommerce business through digital marketing just drop us a line. We can help from top-level planning and budgeting to day to day management of your digital advertising” Paddy Casey, Co-Founder, The Unit. Drop us a line

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