Customer Value: Narrowcasting vs. Broadcasting

The traditional model for customer acquisition has essentially been a broadcast approach, reaching a large audience generally descriptive of the customer base. Contrast this with what is sometimes described as “narrowcasting.”

Virtually every brand we’ve met with in the last few months is hungry for new customers: The war for the customer is on. For more on growing your customer base, consider reading “Bigger is Better: How to Scale Up Customer Acquisition Smarter,” which is an article we published recently about how to grow your customer base.

Many organizations are hooked on customer acquisition. That is, in order to hit sales plans for the organization, new customers will be required in large numbers. It’s about as easy to kick the “acquisition addiction” as it is to kick any other for most brands. Try going without coffee suddenly, and see how your head feels. It’s not very different from reducing a business’s dependence on customer acquisition as a means to achieving revenue and profit targets.

Organizations that need ever larger numbers of new customers to achieve growth goals eventually will find the cost of acquiring incremental net new customers can become prohibitive.

Broadcast vs. Narrowcast
The traditional model for advertising and customer acquisition has essentially been a broadcast approach, reaching a large audience that is generally descriptive of the customer who a brand believes to be a fit. Contrast this with what is sometimes described as a “narrowcasting” strategy. Narrowcasting uses customer intelligence to understand a great number of discrete dimensions that a consumer possesses and can leverage statistical methods to validate the accuracy and predictiveness of targeting customers through these methods.

The chart below, depicting the value of customers acquired through traditional broadcast capabilities upfront and over time helps illustrate why “broadcast” strategies for customer acquisition alone aren’t enough.

Research for Mike Ferranti blog

Broadcast Acquisition Strategies Lack Focus on Customer Value
Large numbers of customers have been acquired in a trailing 13-month window – lots of them. The challenge is this cohort of customers has been acquired without adequate consideration of the right target.

Consider the fact that the target customer value of average or better customers is around $500. In the example above, the marketer has acquired a large number of customers who are lagging in their economic contribution to the business. While the customer acquisition metrics may look good, this was a large campaign and produced several hundreds of thousands of customers over its duration – the average value of those customers is quite low indeed.

Low Customer Value Manifests Itself, Even if Acquisition Volume Is High
When sales targets are rising, it becomes harder to justify the high cost of customer acquisition if the customers previously acquired are underperforming. This leads to a very common bind marketers are placed in. The only way to “make the number” is to acquire more and more.

The most competitive and high quality businesses steadily acquire and have a robust customer base whose economic contribution is materially higher. Consequently, profits are higher, and we have a fundamentally better business.

Oftentimes, “broadcast” advertising approaches define the target with a single criteria like age, income or geography. This can be effective, especially when the media is bought at a good value. However, “effective” is almost always defined as “number of customers acquired.” This of course is a reasonable way to judge the performance of the marketing – at least by traditional standards.

There is another way to measure the success of the campaign that is only just beginning to be understood by many traditional “broadcast” marketers: customer value. The chart above shows that this cohort of acquired customers had relatively low economic value.

Root Causes of Low Customer Value
What are the causes of low value? It would be fair to start with the ongoing marketing and relationship with the customer. Bad service could keep customers from returning. Poor quality could lead to excessive returns. Over-promotion could drive down value. Getting the message and frequency wrong could lead to underperformance of the cohort. These are all viable reasons for lower value that need to be rationally and methodically ruled out prior to looking elsewhere.

Therefore, if operational issues are not clear – either through organizational KPI tracking, or simply by monitoring Twitter — then a marketing professional needs to start looking at three things.

  1. The Target (and Media)
  2. The Offer (and Message)
  3. The Creative

Given the target is historically responsible for up to 70 percent of the success of advertising, this is the first place a professional data-driven marketer would look.

Target Definition Defines the Customer You Acquire, and It Drives Customer Value.
A fact that is often overlooked is that target definition means not just focusing efforts and advertising spent on consumers who are most likely to convert and become customers, but it also defines what kind of customers they have the potential to become.

In conversations with CMOs, we often discuss “the target customer” or the “ideal customer” they wish to introduce their brand to. The descriptions of course vary by the brand and the product. Those target definitions are often more qualitative in nature. In fact, only about 30 percent of CMO’s we engage with regularly are focused on using hard data to define their customer base. While these are helpful and create a vocabulary for discussing and defining who the customer is, those primarily qualitative descriptors are often sculpted to align with media descriptors that make targeting “big and simple.”

“While simplifying is good business, when simplicity masks underlying business model challenges, a deeper look will ultimately be required, if not forced on the organization.”

While we would not refute a place for those descriptors of a valued consumer, they do fall short of true target definition. Ideally, the process of defining the customer who a brand wishes to pursue must begin with a thorough inventory of the customers it already has, and a substantial enhancement of those customer records which provides vibrant metrics on affluence, age, ethnographic, urbanicity, purchasing behaviors, credit history, geo- and demo-graphics, net worth, income, online purchasing, offline purchasing and potentially a great deal more.

Influencing Consumer Decisions at the “Last Meter”

Forget about the last mile, it’s all about the last meter. Where the rubber meets the road. The final chance to whisper “choose me.” As marketers, you’re pros at top-of-funnel techniques like building brand awareness and generating interest and desire, which (fingers crossed) will convert into sales. But the one place where you have the least control is at the moment of decision, where consumers decide what to buy and what to bypass.

Forget about the last mile, it’s all about the last meter. Where the rubber meets the road. The final chance to whisper “choose me.” As marketers, you’re pros at top-of-funnel techniques like building brand awareness and generating interest and desire, which (fingers crossed) will convert into sales. But the one place where you have the least control is at the moment of decision, where consumers decide what to buy and what to bypass.

Are location-based apps the answer?
The latest entries to the last meter game are location-based applications. Every company, from the corner dry cleaner to the nationwide chain, has been jumping on the bandwagon. This is the godsend you’ve been hoping for — or is it?

Forrester Research provided a reality check earlier this year when it concluded that only 4 percent of U.S. online adults have used location-based apps, and only 1 percent use them regularly. Expectedly, the believers countered with stats about the unstoppable momentum of smartphone adoption and argued that the current state is not an accurate indicator of future potential. We do know who’s embracing these apps today — men ranging from 19 to 34 years old. But even if that is your target audience, there are no guarantees. And if it’s not, the road to adoption may be even longer.

What’s the ROI for your customers?
To start, you have to consider your customers’ return on investment. This universal formula applies to anything that requires a shift in behavior, and location-based apps are no exception. Let’s start with the “I.” What are you asking them to invest? In the case of apps, it’s the effort of seeking out, downloading and using the application, hopefully over and over again.

And in return, what’s the “R” that they’re getting back for their investment of time? That is, what exactly is it that you’re making better, cheaper and faster to justify the additional effort? Until recently, the sole focus had been on the gaming aspect, where virtual rewards such as mayorships and badges are earned for check-ins. But there’s a collective realization that it will take more for these apps to break out beyond being a mere novelty.

Services like Shopkick, Foursquare and Loopt are offering deals and savings, or other real-world rewards. But will their appeal extend beyond those hardcore deal seekers who will do whatever it takes to get a bargain? For most consumers, all this stuff feels like work. For them, the discounts or whatever rewards you’re doling out need to justify the effort. And if you’re not willing to give the farm away and bump up the “R” of consumer return, are there other ways to reduce the required “I” of investment?

What else should marketers be thinking about?
 Beyond apps, the conversation should embrace other innovations that are already hitting stores near you. One excellent example is Stop & Shop/Giant Food’s hand-held Scan It! device. It lets customers scan items as they’re placed into their shopping carts for faster checkout, while also proactively sending alerts of special savings throughout the store. Purchases made using Scan It! account for 13 percent of the grocer’s sales.

A bit further out are other innovations, such as radio frequency identification (RFID). Unfortunately, RFID has been battered and bruised by privacy concerns and sky-high implementation costs, but it’s still standing. Wal-Mart, one of the early adopters of RFID-tagged pallets for logistics purposes, recently announced it will implement RFID tags for individual products. Further out yet, but already in trial, are intelligent digital displays like those from NEC Corp. that use facial recognition to recommend products based on your estimated gender and age.

Maybe these won’t be the ultimate solutions. One thing they have in common is they require little to no investment on the consumer’s part; they work with the way consumers shop today and at the same time deliver additional value.

There are a lot of options out there to bridge the last meter. Just don’t forget the two critical questions: One, how hard are you making your customers work? And two, what’s in it for them?