how do we judge the relative merit and effectiveness of different types of advertising? By finding a common parameter that can be used to compare “apples to apples.” We argue that cost of customer acquisition is a great candidate for such a parameter.
For example, if television advertising cost $50 million to produce and air, and 1,000 people came to the acquisition website, and 10 people applied for and received credit cards then the CCA — cost of customer acquisition would be $5 million ($50 million / 10 people who got the credit card). Of course television advertisers would claim that the “impressions” from TV would have “branded” millions more people and they would eventually get a credit card from the company. That’s possible. But for the purposes of this exercise, if there is no absolute end-to-end tracking, we don’t count it. Because, for example, many other possible scenarios can also occur, like the person saw this ad for a credit card but ended up getting a card from a different bank, they saw and remembered the ad but they already had several credit cards from the company, etc.
With “online” we can easily see lift in search activity around the time that brand/awareness advertising is in-flight. This is one of the best indicators of interest — the person saw the TV ad, and was inspired enough to go online to do more research to inform their own purchase decision. Modern consumers will typically search and then click through. In rare instances, they will type the URL, but it is usually the domain name, not the special URL — domain_name.com/special_url — just because of pure laziness or simply because they forgot the /special_url portion.
Now let’s look at a print example: a print ad cost $5 million to produce and traffic in targeted magazines. About 1,000 people came to the website and 10 people ended up purchasing the advertised product. So the CCA is $500,000 per customer acquired. There may be more people who saw the ad and eventually came in to buy a product. But again, there is a problem of attribution.
Now a final example from “online” marketing. Search ads were run using Google Adwords and a $1 CPC (cost per click) was paid. Of those people who clicked through 1 in 20 purchased a product. So it took 20 clicks at $1 each to achieve 1 sale – so the cost of customer acquisition is $20.
OK, so what about prodycts not sold online? We can use a proxy which has a known conversion to sales. For example, once a coupon is printed from the website, from historic data the advertiser knows that 30% end up using the coupon – i.e. redeeming with a purchase. So, again, if we used a $1 CPC and 1 in 20 ended up printing the coupon and 30% of those “converted” to an offline sale, the CCA would be $66.67 ($20/0.30).
So to recap
Television – $5 million CCA
Print – $500,000 CCA
Paid Search – $20 CCA
Paid Search + Offline Sale – $67 CCA