Relationship Marketing and CRM
Relationship Marketing is being spoken of as one key Business Philosophies of the progressive Organizations who are Customer Oriented or Customer Centric. Companies have realized that to be successful on the long term trajectory of successful business, they need to be closer to the market, get under he skin of the Customer, anticipate his needs […]
The Global Village: Media in the 21st Century
The legendary media theorist, Marshall McLuhan, coined the term “The Global Village” to indicate the mass production and the mass consumption of media images and content across the world. The term denotes the coming together of the countries of the world in one gigantic web of media landscapes. To take an example, the popular US […]
Classification of Advertising
Advertising is the promotion of a company’s products and services though different mediums to increase the sales of the product and services. It works by making the customer aware of the product and by focusing on customer’s need to buy the product. Globally, advertising has become an essential part of the corporate world. Therefore, companies […]
The Media and Ethics
The previous article in this series looked at how the media is an important pillar of democracy and how unless there is a free and fair media, democracies cannot be well functioning ones. This article looks at the other side and that is the practice of ethics by the media itself. In a way, this […]
What is Brand Equity and How to Measure it
Brand Equity is the value and strength of the Brand that decides its worth. It can also be defined as the differential impact of brand knowledge on consumers response to the Brand Marketing. Brand Equity exists as a function of consumer choice in the market place. The concept of Brand Equity comes into existence when […]
Customer acquisition cost is the cost which suppliers invest to acquire a new customer. This cost should be always less than the overall value of customer in the entire customer life-cycle.
For example, if the cost incurred to acquire a customer is $10, but the contribution of the customer to the profit is only $9 till the life of relationship with that customer, then there is an obvious business loss.
Customer acquisition cost depends on way the customers are acquired. Lower the acquisition cost higher is the chance to increase return on investment (ROI). For accomplishing this, the following tasks should be followed:
The best approach to predict the customer acquisition cost is to calculate the overall investment on a product. For example, an organization sells a product for $100 which includes the manufacturing cost of the product (say $85) and the profit earned ($15 accordingly).
Now, the organization also spends $50 for that product in campaigns and advertisements. Hence to capitalize this $50, at least one customer must be acquired at $50. This will be the maximum customer acquisition cost for the organization.
However, the profits may further increase if the organization can acquire customers for less than $50, or when they sell the product at some higher prize. Although the above example is the simplest way to calculate the customer acquisition cost, there are following other important factors that affect customer cost:
For example, the car manufacturers know that their business does not come to an end only by selling a car to customer; extra accessories, enhanced warranties, lifetime financial relationship are also source of revenue for them.
If the customer is totally satisfied then chances of buying another car or replacing it with enhanced segment car is also commonly noticed. Paying off for high quality service and deems relationship with manufacturer, the customers act as brand ambassadors and refer other customers to buy.
The process of retaining customers like this will help the organization to gain more profit. Due to enhanced profit the capital could be shared with acquisition cost of customers by utilizing it more on advertising and campaigning events to attract more new customers.
If the selling cost of a product is $100, the manufacturing cost is $98 and customer acquisition cost is $100, then the organization is having an overall profit of just $2, which is substantially very less. If the organization manages to increase the profit margin, then they have chances to increase the acquisition cost and also profit.
The above two examples could have a substantial impact on acquisition cost of customers. Managing the acquisition cost of customers is the primary aspect to enhance the business and maintain relations with customers. Hence it is one of the most important factors that an organization should focus on.
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