“Marketing exists because it is paid to bring in a lot of new customers, which may not be the same objective as bringing in the best customer.”
Phil Mui (former Stanford professor of informatics, former Google Analytics Group Product Manager, now at Axciom) opened his talk at a recent GAUGE conference with this statement about the purpose of marketing. He then walked the audience through a line of thinking to answer this question: “Who is the best customer?”
Online-Behavior posted the video of Phil’s talk on how to find the best customer.
This article summarizes Phil’s talk.
Here we go.
Conversions ignore profits and ROI
Most online marketers are not asking the question “Who is the best customer?” They primarily focus on conversions. In fact, Mui asks, how many “only look at conversion?”
The problem with maximizing for conversions is that it’s like you’re “trying to maximize the number of one night stands for your brand.” It ignores profitability. You could give everyone a 75% off coupon and improve your conversion rate. You just wouldn’t make any profit.
“What is the right metric then, if conversion is not the right metric that you should be optimizing for, for a marketing campaign?”
“If I select a campaign to maximize my ROI, that perhaps is a much better approach than maximizing against conversion or conversion rate. Is this what the world should look like for such marketers?”
What else is missing if we want to find the best customer?
ROI ignores repeat purchases (Customer Value)
We want something more than profitable one-night-stands, we want customers to come back over and over.
“What we need to try to figure out is how do we look at a customer and understand that customer and the future of that customer, and then use that as input into our marketing and reaching out to people through these different mechanisms that we have today. There’s email, SEO, SEM, all of these other channels.”
If you are the business owner, “you don’t want to optimize any particular chain.” “All of a sudden, the picture gets significantly more complex.”
“The point is to optimize your channels holistically.”
If we go back to our original question, how to find the best customers, we start to see that “Today, most campaigns run online are based on broken metrics.”
If Campaign A and Campaign cost the same and Campaign brings in 100 people and Campaign B brings in 50 people, Campaign A will get more budget next year. But what if the people that Campaign B brings in are more profitable? Or make more repeat purchases? Conversion metrics alone don’t tell the whole story.
Customer Value ignores segmentation
We need to become “experts on segmenting out the most valuable customers over the long term.”
“What the bottom line of all of this interaction here is that when we are talking about customer value, this generally is not all these things that we in the digital world are enamored with, maximizing CTR, CPA, maximizing visits, maximizing page views, maximizing conversion rate.”
“What should you do with your search campaign in this case? You should increase it, because you would like to get more valuable customers. What should you do with your affiliate campaign? You should probably decrease it, because among your most valuable customers, there are fewer of them that came through affiliates. This is a glimpse into how to think about budget allocation in a different way than what almost everybody in SES or Attack or Emetrix has been saying.”
“What we are painting here is really a framework, how to move the industry forward.”
Here Phil closes with hints that the product calendar for Google Analytics will focus on features that help with behavioral segmentation, optimizing all customer touch points, and understanding customer value. “Underneath here, because we’re all Googlers here, is also a message that potentially this could be a direction where a lot of the products that are coming out from Google Analytics and Google Optimizer could be going through in the next year.”
Phil’s talk and his examples were mostly aimed at consumer marketing, but B2B marketers can relate to his message. To find the best customer:
- Measuring conversions alone is not enough.
- Expansion to measure profitability is not enough.
- Adding customer value (repeated purchases) is not enough.
- You must look at the segments of customer value across all channels to find the best customer.