Bidding on Long Term Value
Online bidding for position on Google or Bing’s advertising platforms is very close to the economic theory of a perfect market. There are low barriers to entry, there are a large number of buyers and sellers, there are great sources of information, and there are no economies of scale within the bidding structure. But there are still winners and losers.
So how do you tip the balance in your favour?
1. Know your data so you can bid based on Long Term Value
Knowing the true profitability of each sale means you know the maximum that you can spend on any online acquisition. If your competitors know their data better than you, then they can outbid you with more confidence in every auction.
A good example of this was a company we were looking at doing an AdWords campaign for. They sold widgets that were on the face of it, very high margin. They bought them for £2 and sold them for £25. The market place was very competitive, with lots of companies cottoning onto the same idea that there was money to be made.
We did some research on a potential campaign and realised that even with the high margin, the conversion rates were going to need to be astronomically high in order to cost in.
Companies were bidding on keywords, and were factoring in the long term value of a potential client. They were not looking to make a profit until they had made their 4th or 5th repeat sale.
Our recommendation is to always understanding the true value of a sale and know your data.
2. Maximise Long Term Value
Once companies are bidding for advertising with the Long Term Value of a client in mind, the key to beating the competition is to ensure that customers become repeat customers. Again and again and again.
If you can sell to the same customer five times, vs. your competitor only selling them once, then your cost of acquisition is 20% of your competitors.
So how do you ensure repeat business? Offering a great product, a lot of value and a smooth customer experience are key.
These can be enhanced by well-structured and intelligent email campaigns, a responsive and informative social media presence and consistent messaging within the content your teams produce.
3. Sell to your strengths
In a mature market, margins naturally erode. This means things like a marginally higher conversion rate can make the difference between a financially viable product and one that fails.
Knowing your market positioning is vital to determining your marketing strategy. For well established brands, conversion rates are likely to be higher as customers know and trust the company.
For companies entering a new market or lack the brand of the market leader, it is hugely important to focus their efforts on where they can be most competitive and deliver the maximum value to ensure you can compete effectively.
If you have come to a fork in the road and just want to take it, or if you need help in understanding and then increasing your sales long term value, talk to one of our team today.
You can even drop us a line if you just love a good Yogi Berraism!
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