I’ve been doing a fair amount of “boots on the ground” work with local brick and mortar businesses these past few weeks explaining location based services and apps and how “location based” can be added to their marketing channel mix.
That most brick and mortar small business folks haven’t heard of TriOut or Foursquare or Gowalla or Google Latitude or any of the other location based services and apps is not really that surprising. They have businesses to run and generally not enough time in the day to run them the way that they’d like to. What has surprised me though is that very, very few businesses are aware of what their Customer Acquisition Costs are. The same holds true when I ask them about the Pareto principle or the “vital few and trivial many”. Both of those are key factors for any business and both come into play with location based marketing and check ins.
If you aren’t familiar with Customer Acquisition Costs, they’re pretty simple and are just what you probably suspect they are. What it costs you as a business to acquire a customer. Those costs can be figured daily, weekly, monthly, quarterly, yearly and over the lifetime of the business. They can also be calculated per marketing and sales venue or channel (direct mail, email, web site, Google Ad Words, search, yellow pages, social media efforts, etc.) or, they can be calculated for all of those channels combined. The formulas to arrive at the results can differ somewhat from channel to channel and from one business to another but in essence they are sales and or marketing expenditures divided by the number of customers.
For instance, if we were figuring the costs as they relate to our web site, on a monthly basis, it would look something like this:
So, the formula would look like this:
[(development costs/lifetime) + promotional costs + maintenance) / customers]
[(5000/24) + 1000 + 400) / 100] = $16.08
For every customer our web site brings in, it costs us $16.08.
That may seem high to some of you. It may seem low to others. As a frame of reference, the research firm Piper Jaffray ran a study a few years ago to determine the average cost of customer acquisition for these channels:
Our $16.08 looks pretty good against all of those numbers except Search, doesn’t it? And of course, Yellow Page advertising is pretty much in the toilet. Search and the local services provided by Google and Yahoo doomed that in a hurry. And now, we have another player in that game, the location based check in.
TriOut, Foursquare, Gowalla and the rest provide a means for mobile smartphone users to check in to businesses in and around a city. If the business they’re visiting isn’t listed, they can add it right there on the spot. Businesses have the opportunity to reward those check ins with special offers and coupons. They can be offered the first time a customer checks in or at any other level of check in frequency. And it’s on those check ins and offers where location based marketing and customer acquisition costs get very interesting.
Let’s look at first time visitors now and then we’ll look at repeat visitors and the Pareto principle in the next installment.
Going back to our formula, where the cost equals the expense to get the customer, what is our cost so far? It’s anywhere from zero ($0) to whatever your marketing channel expenditure was to make that customer come to visit. And with location based apps and services, and the referral, recommendation and review processes built into the software and service, the likelihood that the customer is visiting due to your location being near someplace they just visited or due to a positive review or referral from another customer is great. So, that zero dollar figure might come into play more often than you might suspect.
Now that the customer is in your door for the first time, and your cost to acquire that customer is around zero, what are you going to do? Hopefully, you’re going to remember the old saying that “you never get a second chance to make a first impression” and you’re going to WOW! them with your first time check in special. The price of that special is, in effect, your cost to acquire the customer. Make it count! Make it so good that the customer wants to tweet about it and share it on their Facebook wall with all of their friends and followers. How many more customers do you think that might drive to your place of business?
I spent a lot of years in retail and I can remember the tendency to want to give away as little as possible. That was then. This is the ‘now’ of mobile computing and location based services. Give away as much as you can for that first time visit! Don’t just give away a dessert with the purchase of a meal. Give away the meal, or, give it away with the purchase of another one. Give that new customer as much ‘value’ as you possibly can on that first visit so that they want to sing your praises to their world. And come back and spend money with you and ring your register as often as they can. Think about the times you’ve gotten a great deal and had a WOW! experience. I’ll bet you might still be talking about it or telling a story about it. Use location based marketing and give your customers the chance to tell the same kinds of stories about you and your business.
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