Acquiring New Customers via Non-Branded Terms Using Lifetime Value to Calculate ROI

Search as a means of driving Retail sales has evolved in the past few years. As recently as three years ago, most retailers still viewed their “Internet” plan as a means of driving e-commerce. The Internet was a distribution and sales channel measured by its ability to drive online revenues from their website.

Then, as the Internet evolved into a broader media platform where consumers researched, watched videos and compared products/prices, and then often made their purchases in a physical store, many advanced retailers began to include offline sales as an additional factor in measuring their overall Search ROI.

In 2011, the most forward-thinking retailers have started looking at a new measurement to calculate the success of their online campaigns: new customer acquisition and the lifetime value of those new customers.

Think about your own search strategy: most likely you bid on as many of your brand terms as possible. And you should: here are customers that know you, who are raising their hands (via “queries”) and asking for information, then converting at a high ROI.

But what about “non-brand” terms: queries higher up the purchase funnel like “jeans”, “home appliances” or “women’s shoes”? These shoppers are still browsing and researching but they’re not converting at the same rate as those searching for your brand terms, so you may either not be buying non-brand terms them or buying very few. Why? – Most likely because you’re hooked on those brand ROIs. Why pay a higher CPC for a lower conversion rate? 

I’ll tell you why: because those non-brand terms drive a higher percentage of new customers to your site – and when you consider the lifetime value of those customers they will pay off! Here are people looking for products and services you offer, but did not think to type your brand into the search box. You are not (yet) part of their top consideration set. And look at the advertisers who are on that search results page: it’s your competition! You are not even putting yourself in the game.

So what do we recommend? Only you know your relative new customer acquisition costs and lifetime customer value payouts. Every retailer has different metrics, but here’s the general thinking: your brand terms ($.50 CPC) payout at an ROI of 10:1 while your non-brand terms ($1.00 CPC) payout at 5:1. But your non-brand terms bring in more new customers who will eventually payout. In year 2, they buy enough to amortize that initial ROI up to 8:1. Then in year 3 they’re loyal customers who are paying out at 10:1 (or higher). So that initial $1.00 CPC is now paying out – and that new customer you bought three years ago is now a lifetime customer (and you didn’t let the competition get them either).

 

So don’t relegate those non-brand terms to the “too high ROI” bin. Give them a chance. There is value in there beyond immediate ROI. All it takes is a little forward-thinking strategic discussion, some help from your quant team and the ability to see value beyond today’s sales report. Think about turning new customers into lifetime customers.


Posted by Dan Schock, The Google Retail Team