Relationship Marketing Background and Theory
Introduction The world of business has altered a great deal in the last few decades or so, globalization and information technology has produced a young breed of well-informed customers. And so the marketing theory has also undergone changes. Service based industry is now at the forefront in the economic evolution. Therefore, to sustain a loyal […]
Corporate Social Responsibility or Profits: The Debate
In recent years, CSR or Corporate Social Responsibility has become the latest buzzword among the companies. This refers to the practice of the corporates in “giving back” to society in the form of programs that benefit the less privileged members of society. They can take the form of outreach programs that adopt schools; communities etc […]
Brand Health Survey
A brand is a perception in its consumers’ minds. A strong brand can command a premium price. This power of a brand is measured using a technique of marketing research – Brand Health Survey. Figure: Current health status of some popular brands While checking a brand’s health certain vital aspects are captured such as how […]
Why Indian Firms Must Strive for Strategic Autonomy in Their Geoeconomic Strategies
Geopolitics, Economics, and Geoeconomics In the evolving global trading and economic system, firms and corporates are impacted as much by the economic policies of nations as they are by the geopolitical and foreign policies. In other words, any global firm wishing to do business in the international sphere has to be cognizant of both the […]
Objectives and Importance of Advertising
Advertising is the best way to communicate to the customers. Advertising helps informs the customers about the brands available in the market and the variety of products useful to them. Advertising is for everybody including kids, young and old. It is done using various media types, with different techniques and methods most suited. Let us […]
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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