#WednesdayOneThing is a weekly opportunity for Clearbanc employees to share their knowledge of exciting trends in the retail and e-commerce space. Tune in to Facebook every Wednesday at 8:45AM EST to watch LIVE.
A common conversation we have with founders and entrepreneurs seeking funding from Clearbanc is how the money will assist in addressing their capital needs, and determining what marketing initiatives need to be prioritized. When I ask companies how they want to use their funds, time and time again, the goal of growing customer acquisition is the first thing to come out of their mouths.
Achieving and quantifying customer acquisition is considerably different depending on the type of business model. Brick-and-mortar businesses versus direct-to-consumer (DTC) brands participate in different markets with unique needs and challenges. Understanding the differences between these two business models is the key to developing the most successful marketing strategy.
Customer experience is key to any customer acquisition strategy
When it comes to customer acquisition, the main differences between brick and mortar and DTC business models have to do with foot traffic and accessibility. A brick and mortar business relies on customers to physically travel to their stores whereas DTC brands are easily accessed by new users every day online.
In 2018, the United States had close to 275 million internet users. This figure is projected to grow to 310.1 million internet users in 2022. Expansion of the market is great news for direct-to-consumer brands looking to increase their online acquisition of new customers. Keeping this in mind, business owners have more direction on how to use their capital, identify the best mix of marketing tactics, and measure success.
An important objective for brick and mortar businesses is increasing the number of people visiting their physical retail space. When competing against the much lower barriers to entry experienced by direct-to-consumer brands, brick-and-mortar businesses face greater difficulty in maintaining their customer base, let alone trying to increase customer acquisition.
Shifting consumer behaviors now force brick-and-mortar businesses to react quickly and become more creative, targeted, and efficient in marketing themselves. They now have to compete aggressively with convenience and price. The marketplace is in a constant battle with pricing, and in many cases, customers will opt to go with the cheaper and more convenient option, especially if it’s the same or comparable product or service.
Regardless of whether your a brick and mortar or DTC brand, delivering top-notch customer experiences and service is key to competing for customers. It is the best way for businesses to make themselves memorable and develop meaningful relationships with customers that will turn them into loyal followers rather than be guided by the cheapest price.
Digital ads create a cohesive customer experience
If your end goal is customer acquisition, capital should be spent against the channels where the greatest strengths and opportunities lie.
Digital ads have the power to create a personalized and cohesive customer journey. Both brick and mortar and DTC businesses are turning to digital ads to drive customer acquisition. However, this means the online market is more and more saturated. As a result, it’s harder for these brands to reach and stand out among the right customers.
For both business models, the best strategy to compete within the retail market is to focus on customer experience and brand awareness. This means developing a brand that resonates with customers and provides an enjoyable experience with super-targeted, personalized digital ads.
Discovery started on someone’s feed but is quickly becoming more data-driven, personalized, and competitive as brands invest dollars on Facebook and Instagram.
The best ways for e-commerce brands to invest capital for customer acquisition
The best way to invest capital, especially if you don’t have unlimited funds, is to invest in repeatable aspects of your business. For an e-commerce business, this typically means funding customer acquisition through paid advertising on channels like Facebook. Research shows that consumers are increasingly finding brands through digital channels over traditional channels—specifically organic online search and paid advertisements.
For a long time, Google and Facebook had an oligopoly on advertisements. However, we are quickly seeing other channels such as Amazon and podcasts establish themselves as viable options. Currently, the U.S. spends $130 billion on digital advertising but by 2023, over $200 billion. Based on conversations with Clearbanc founders, the main channels are Facebook, Instagram, and Google.
As the addressable market continues to grow, e-commerce brands will continue to be established and scale, especially with the low barrier to entry. It’s only a matter of time until we reach market saturation.
Basic economics would dictate that a low barrier to entry paired with a high return on investment makes a slow-burning recipe for market saturation. The rising cost of acquiring customers (CAC) is a signal that we’re nearing saturation, and many brands will be faced with the reality that digital strategies alone no longer pay off.
In the short-term, if you have limited capital, these 3 channels are the best place to invest. However, it’s also important to ask yourself what these channels will look like in the future and how that affects your ability to reach the total addressable market.
The future of digital advertising for online brands
Basic economics dictates that a low barrier to entry paired with a high return on investment makes for a slow-burning recipe for market saturation. The rising cost of acquiring customers (CAC) is a signal that we’re nearing saturation, and many brands will soon be faced with the reality that digital strategies alone no longer pay off.
According to Mary Meeker, Publisher of the famous Internet Trends Report, there are some emerging areas to focus on when it comes to digital advertising. E-commerce brands should start experimenting with new and emerging channels to build their brand equity and keep their CAC low.
- Mobile ads: There is a $7 billion mobile ad opportunity through emerging platforms
- Voice: The industry recently crested 95% accuracy and sales of Google Home and Amazon Echo have skyrocketed, which is a perfect storm for online retailers (imagine being able to purchase something without ever leaving your house or opening your laptop!)
- Amazon: Fun fact: More people start product searches on Amazon than search engines now.
- TikTok and Snapchat: Now is a great time to consider under-priced media outlets to get more bang for your buck.
While the answer to the question, “How should capital be spent?” isn’t cut and dry, the key is to understand where your consumers are and how to best reach them. Consider which channels resonate with them most, and what they are looking for. That way, you are there when they are looking for a solution to their problem. Using this approach will help you grow your customer acquisition in the short-term and long-term, and determine what makes the most sense in how you allocate your capital.
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