CACs are Increasing. The Answer? Build a More Sustainable and Authentic Marketing Strategy
When we raised funding for Rent the Runway, countless investors would ask us about our CAC (Cost of Customer Acquisition). For a long while, my Co-Founder, Jenn Hyman, and I would look at one another confused–this was perhaps one question for which we didn’t have an immediate answer. We had gone years without spending money on customer acquisition. We related to the end customer that we served and knew that a concept like renting, let alone over the internet, was a leap of faith. One that would come with many questions–‘what if the dress doesn’t arrive in time, what if I spill red wine on it, what if it doesn’t fit, what if I don’t like it, how do I return it? ’… The questions were endless and the stakes were high. We started off renting dresses for special occasions–weddings, proms, birthday parties–customers had to trust us on multiple fronts.
To build confidence in our business, we knew we would have to rely on a trusted source: a friend or existing customer. Further, we knew that the natural conversation-starter between women is usually, “I like your outfit, where is it from?”
If we could own that moment, be at the center of the conversation, and create a brand that consumers were truly proud to talk about—one that made them feel smart and cool—then they would continue to talk about their experience with Rent the Runway. Conversations between trusted friends would build comfort with the idea of outfit rental, our brand, and the customer base we were targeting. At a high level, our goal was to understand the natural customer behavior pattern and work backwards in order to find the best way to communicate with her.
Marketing to the Post-Covid Consumer
Today, most of every business I see relies on paid marketing, typically by way of digital advertisements. It has become a textbook answer to the question “how to grow a customer base,” and is a seemingly quantifiable formula for revenue growth, until it is not…
What brands increasingly find is a lack of control over this modality. Ad performance is subject to the algorithms of the primary ad partners (Google, Facebook, and other social platforms) that can change on a dime. The ecosystem of other brands bidding can impact the net result of your business’ ads, and the oversaturation of these ads makes them less engaging.
Recently, most brands have encountered an increase in CAC. Coronavirus made many traditional ad channels less effective and propelled the growth of digital commerce, making the market for digital ads more competitive and less predictable.
In a survey conducted by Arizent, more than two-thirds of marketing executives said their company experienced considerable challenges on the customer acquisition front during and after the pandemic. Digital ads were the quickest, easiest way to launch new products. They were measurable and placed in front of bored consumer eyeballs, stuck at home and ready to shop online. But, as consumers began getting out and about more this summer, patterns shifted and brands failed to adapt new methods of ad spend.
Changing consumer behaviors, combined with the launch of iOS 14 and browser privacy changes, have made these channels less cost effective and have executives looking towards other marketing tools as their main catalyst for growth.
It is in these moments that the appreciation of viral marketing via referral grows. Viral, word-of-mouth, marketing isn’t a new idea, but has become a powerful weapon in recent years with the rise of digital and mobile commerce.
Technology has multiplied the volume of our daily interactions on social media, which, in turn, enables consumers to more effectively market on behalf of a brand. As online communities increase in size and character, word-of-mouth has successfully cut through the traditional advertising noise. Word-of-mouth endorsement can prompt a consumer to consider a brand or product in a way that incremental advertising spending cannot. It allows consumers to stumble upon products in an authentic format that builds trust and most closely replicates the experience of getting a recommendation from a trusted friend.
The right messages resonate and explode within interested networks, changing brand perceptions, purchase rates, and market share. The rise of online communities and communication has dramatically increased the potential for significant and far-reaching momentum effects. But it’s not enough to simply have widespread consumer attention. Your claims must be backed up with a product that delivers what your marketing messaging promised.
Making your Brand Message Stick
There are numerous ways to engage your customers, starting with building an ambassador referral base. According to Nielsen, 92% of consumers trust recommendations from friends and family over all other forms of advertising, bringing more value to the idea of creating a community of trust around your brand.
We’ve seen this in practice with brands like Burst Oral Care, Beautycounter and Goli that rely on product experts and consumers as sales ambassadors who have blended measurable referrals with virality on social media. The micro-entrepreneurship borne from authentic belief in products has enabled these brands to feel close to customers, strengthen brand identity and made digital transactions less sterile.
Brand ambassadors and influencer platforms are a unique combination of authentic, word-of-mouth marketing and brand partner referral with measurable digital metrics – a powerful combination that brands can control. There is still a “cost” in this acquisition method as referrals typically come with an affiliate fee to the ambassador as well as a discount for the end consumer, but those numbers can be controlled to fit a sustainable business model.
Perhaps most importantly, in a time where we have all craved forms of social interaction, the customer is craving the kind of social shopping experience that ambassador and influencer models afford. Platforms abound to aid in the execution of these ambassador programs–from Storr to Grin and Klear as well as many new upstarts like SuperGreat in the beauty sector -—there are plug-and-play ways to experiment with this channel of customer acquisition. There are also plenty of brands who have built these platforms in varying forms of complexity themselves or have innovated on their marketing strategy. Most recently, Airbnb cut its sales and marketing spend 28% year on year, primarily due to a shift away from performance marketing. CEO Brian Chesky said they have seen no drop in unpaid/direct traffic despite this shift because PR and word of mouth has defined their brand over the last 10 years. No matter the complexity, it all ties back the virality of word-of-mouth marketing–businesses have to trust their consumer base to serve as a growth lever for brands.
Viral Marketing in Practice
Although over 64% of marketing executives believe in viral advertising, only 6% think they have mastered it. Marketers understand that their biggest marketing asset is their existing customer base but struggle to unlock its potential.
There are a few key areas to focus on in thinking about this acquisition strategy that can shift a business from “collecting” customers to actually connecting with customers. Though it has shown to be successful, there are drawbacks. Some worry that it remains immature as a marketing discipline compared with the highly sophisticated management of marketing in media such as television and newspapers. Others are concerned that they can’t draw on extensive data or elaborate marketing tools that have been fine-tuned over decades.
For those unsure about actively managing word of mouth, consider this: the incremental gain from outperforming competitors with superior television ads, for example, is relatively small. That’s because all companies actively manage their traditional marketing activities and all have similar knowledge, garnered over years of successful traditional media campaigns. With so few companies actively managing word-of-mouth marketing —the most powerful form of marketing—the potential upside is exponentially greater. Viral marketing allows you to:
- Know your customer and stick to what feels authentic to them on the platforms they already engage with daily
- Understand the costs involved and what makes sense for your overall business model
- Pick ambassadors that already love your product and their passion will shine through
- Empower ambassadors with tools to learn and speak about products in an authentic way
- Give ambassadors easy visibility and ideally immediate payment that they can track to reward their efforts
- It’s not just about the dollars – just like a traditional job, acknowledgement and other perks matter in keeping ambassadors engaged and motivated.
Tapping into word-of-mouth marketing and your niche consumer base can start simple. Anecdotally, I met the founders of a new, flavored tequila brand recently whose lens of customer acquisition was tailored to the female audience. Women are inclined to discover and discuss drinks and food via conversation at a dinner party of event, verses a bar. Traditional industry advertising has been based on placement at bars whereas 21 seeds, targeting a female consumer, established a goal of being a natural part of dinner party conversation – which is in fact where I discovered this brand.
Finding the placement for natural product conversation is the path of least resistance that will lead to the most authentic, sticky, and cost-effective marketing – that often doesn’t even feel like marketing at all. As another example, I spoke with the team at Pair eyewear, a glasses company that enables interchangeable top frames to change up the style of your eye glasses. A huge portion of brand awareness comes from the authentic word-of-mouth dialogue that happens with this accessory that is front and center on your face. And now with fun, top frames that spark a conversation.
Ultimately, your customers natural behavior patterns can guide the right marketing strategy for your brand. Finding an array of channels, many of which are controllable and easy to flex, is a helpful strategy that empowers your business through macro shifts. Amidst it all, building your brand and creating an authentic community of supporters around it is the most powerful way to support lasting equity that will propel all marketing efforts. Focusing on building a loyal following of passionate fans over an unengaged audience base. Ensuring that we remember the importance organic marketing that hooks in with consumers’ natural behavior patterns and values is the foundation for long term business success.
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