“Acquiring a new customer is five times more expensive than retaining an old one!”
Source: Every customer loyalty / UX / martech presentation in the last 20 years.
It’s a marketing trope that has certainly done the rounds over the years, and one that’s been debunked on several occasions. Critics point to the now well out-of-date research on which the finding originates, along with methodological issues that fail to acknowledge customer-lifetime-value. This has resulted in an oft-used stick used to unfairly beat acquisition-based marketing with.
If you’re a CMO trying to battle for boardroom buy-in to a marketing strategy focused on growing the customer base, then the positioning of acquisition as being more “expensive” than retention is not particularly helpful. Especially when the rather “expensive” alternative to failing to find any new customers is to go bust.
That said, there is a matter of semantics at play here. If we are to get very literal about the definition of “expensive” and think about it purely in terms of an immediate cost-per-acquisition (CPA) metric – i.e. the campaign spend (broadly media and creative costs) required to acquire a conversion, then new data from JICMAIL (the Joint Industry Currency for Mail) shows that the old trope largely holds up. In fact, data from our inaugural Response Rate Tracker tells us that CPA’s from cold direct mail campaigns tasked with shifting the dial on sales among non-customers are typically eight times higher than warm direct mailings targeting existing customers.
In addition, the Response Rate Tracker (which is based on performance data from over one thousand anonymised campaigns submitted to JICMAIL by six key industry players) tells us that the average response rate for a warm mailing is 10.9% vs 1% for a cold mailing. ROI figures come in at 13.5 and 4.4 respectively.
The intention behind publishing these benchmarks is not to knock acquisition-based marketing, but rather to provide advertisers with credible campaign-centric normative data from which campaign KPIs can be set and performance measurement can be contextualised. These benchmarks are designed as a starting point when setting campaign targets – a baseline which should be iterated upon using a myriad of unique campaign, brand, audience and market information.
In a world in which marketers should become increasingly comfortable with a “both-ism” approach (as Mark Ritson calls it) to marketing strategy, the Response Rate tracker is designed to bring greater rigour to both acquisition and retention-based strategies when planning ad mail campaigns, demonstrating the full-funnel effects of the channel. The fact that warm direct mail response rates are eleven times higher than cold mailings, points to the importance of using first party data as effectively as possible when third-party-cookie targeting techniques are on their way out. A cold response rate of 1% on the other hand is a broadly favourably figure when compared to response rate benchmarks in the digital space which are often sub 1%.
There is a profound short-termism affecting the marketing industry (as covered in the joint JICMAIL and DMA Mind the Measurement Gap whitepaper), and one which CMOs are increasingly feeling the brunt of. Chasing short-term returns often means optimising to the highest response rates and ROIs. However, the logical conclusion of such an approach will result in brands only targeting their existing customers rather than acquiring new ones. Marketing strategy should be given time to breathe, and these benchmarks provide the context for planning against the appropriate campaign KPIs.
This first wave of Response Rate Tracker data is heavily retail-sector focused – something that JICMAIL is hoping to address in the future with a broader pool of contributors providing data across other sectors and mail types (for example Door Drops and Partially Addressed Mail). If you’re an advertiser who would like to join our current pool of contributors (Join The Dots, Epsilon Abacus, Sagacity, DBS Data, The Letterbox Consultancy and Ginger Black Analytics) then get in touch with JICMAIL.