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The Antidote to Rising CACs is Right Under Your Nose

When 4 out of 10 marketing leaders think it's "positive" to send irrelevant messages to customers, a paradigm shift may be needed, but it's obviously not here just yet. What is, though? All the data, tools, and signals you need to shift focus toward retention. Mckinsey even drew out an exec playbook for how to go about it

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The term “paradigm shift” was introduced by the American philosopher of science Thomas Kuhn. In his 1962 book, “The Structure of Scientific Revolutions,” Kuhn argued that there are two kinds of scientific change: incremental developments and scientific revolutions. According to Kuhn, revolutions happen when a new theory in a particular field is proved and established, forcing all the people who subscribed to the old theory to change their perspective.

It’s too early to say that the marketing world is going through a paradigm shift, but there are signs that it is. More and more marketers realize that the most sustainable and least expensive growth is generated through existing customers – as opposed to spending a fortune on online advertising just to acquire new ones.

According to “The State of Fashion Technology,” a new report by McKinsey & Company and The Business of Fashion, the global average CPM on Facebook has increased by almost 17% a year since 2018. The report states what many marketing leaders have been saying for years: acquisition marketing’s inherent math breaks, guaranteeing prices to spike, and new data privacy regulations are causing online advertising’s efficiency to decrease further.

Customer acquisition costs are like today’s real estate market: constantly on the rise yet far from guaranteeing solid returns. In truth, it was never sustainable for B2C brands to focus solely on the growth that comes from customer acquisition. Brands that aren’t focusing on maximizing the lifetime value of each existing customer are simply racing to acquire an ever-dwindling customer base at an ever-rising cost per customer.

What Does it Mean to Redefine Customer Experiences?

To maximize the lifetime value of existing customers, brands have to deliver hyper-personalized experiences across all touchpoints. “Consumers have had their personalization expectations redefined by the likes of Netflix, Spotify, and Amazon,” states the McKinsey report. “Shoppers expect brands to provide them with products and experiences that are tailored to their individual preferences. 71% of global consumers want companies to deliver personalized communications and products, and 76% are unhappy when this is not offered. “

These numbers coincide with the results of a market survey conducted recently by Optimove, which identified trends from the responses of 500 potential shoppers. 71% of respondents said the relevancy of the offer determines how receptive they are to promotional messages from brands, and 63% dislike receiving irrelevant messaging (e.g., information that doesn’t relate to their preferences or shopping history) from retailers.

Given the resentment that recipients have for irrelevant messages and their expectation of a personalized experience, you would assume that personalized communication is common practice among marketers. But according to new research we conducted, marketing leaders still have a way to go in this regard.

In February, we surveyed 323 marketing decision-makers from retail brands ranging from brick-and-mortar to purely digital; almost 40% considered it positive to send out irrelevant or even conflicting messages to customers. Yeah, we know.

The McKinsey report agrees that “there’s scope to go further” in personalization efforts and recommends two courses of action. The first is to work with what the authors called “tech enablers,” i.e., a CDP to provide a single, coherent and complete view of customers across channels, and AI to analyze complex data sets, make predictions, create one-to-one experiences, and maximize engagement.

The subsequent course of action is to execute an executive playbook, which includes the following points: investing in first-party data collection; connecting customer data with a unique ID; developing AI models; delivering solutions at scale; and establishing personalization as a core capability. This is basically saying – go out and get yourself an AI-led multichannel marketing hub (we know a guy).

Are You Also Lagging in Collecting First-Party Data?

That aforementioned survey of ours among marketing executives indicates that they are willing to execute most of the action items in McKinsey’s playbook. 64% of the respondents said they plan to increase their investment in scaling personalization compared to 2021, 60% intend to invest more in unifying customer data than last year, 58% in AI-based marketing automation, and 54% in multichannel orchestration.

However, when it comes to investing in first-party data collection, the picture is more complicated. While 66% of the marketing decision-makers we surveyed said they “have some strategies in place” to collect first-party data, only 34% of them have already executed at least one of these strategies – a surprisingly low share, as first-party data collection is needed to enable personalization across platforms and channels.

When asked what will drive the highest growth for their respective companies in the next 12 months, the top 3 answers reflected the increasing importance of retention marketing: 45.2% of the respondents answered “creating and delivering personalized customer experiences,” 42.4% said “shifting resources towards customer marketing retention,” and 39.9% chose “investing in/upgrading marketing technology/automation.

But in 4th place, with 39.6%, practically neck and neck with the top 3 answers, came “acquiring new customers.” And until the gap between retention and acquisition marketing widens, we can’t speak of a paradigm shift in the industry. Or, maybe, we’re just heading towards a blissful equilibrium.

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Avi Sorenson

Avi, a seasoned writer-editor joined Optimove in 2022 after more than 6 years with Apester, where he served as a senior content manager and consultant. Prior to this, Avi, a Political Science graduate from Tel Aviv University, held multiple senior editorial positions within mass media outlets. And, whatever you do, don't talk to him about NBA scores from last night.