When acquiring customers, remember this: averages lie
In our fourth installment of marketoons, we take a look at an important and frequently misunderstood tenet of online advertising: when it comes to customer acquisition, averages lie.
Any marketer knows that not all customers are created equal. Some are high value, and some are low value. For example, let’s say you have a higher value customer who delivers $6 in revenue to you over the next few years, and let’s say you have another lower value customer who delivers only $2 in revenue to you over the next few years.
Too many marketers end up making the mistake of averaging user values. In this case, they would determine that their average user value is $4 and would instruct their advertising partner to spend maybe $3 acquiring those customers.
What’s the result? Their advertising partner would deliver them large volumes of customers worth $2 at a cost of $3 per customer. The company would lose money on every customer.
The advertising partner would then fail to deliver many, if any, of the $6 value customers due to underbidding.
By averaging customer values, you overpay for lower value customers and fail to acquire the higher value customers. A better approach would be to segment user groups as granularly as possible and set appropriate price points for each cohort. To learn more about this topic, check out this useful and entertaining presentation.
As the cartoon states: on the court and in online advertising, averages lie.