The role of brand building in reducing customer acquisition cost

Customer acquisition cost (CAC) is something which brands can’t loosely play around with and forms a very critical component of their spends. Managing CAC is like being in a vicious circle and brands are ever ready to lose money to acquire customers. While CAC is great to garner growth, it can spiral out of control quickly and have a negative impact on the business in the long run. 

For the record, CAC is the total cost of sales and marketing efforts, as well as property or equipment, required to convince a customer to buy a product or service.

Therefore, on the second day of ad:tech, forming an important session of the day: What is good CAC, Priti Murthy, President, GroupM Services India got in a free-wheeling chat with Mukesh Ghuraiya, Chief Marketing Officer, Modi Naturals, Rajat Khullar, Chief Business Officer, IDAM House of Brands’ Bella-Vita Organic and Kushal Sanghvi, Head- India and SEA, CitrusAd, to talk about some of the strategies that can help marketers manage CAC well. 

As per Khullar, it’s important to keep in consideration what people are expecting from a brand and what it’s offering to them in terms of creative communication. “One needs to make an assessment of whether an X or Y creative is working.”

He went on to say that brands must do a lot of A/B testing, which can be on creatives, web pages, retention marketing, performance marketing and multiple areas. “By doing this, a brand’s conversion rate will improve and enhance sales.”

A/B test is a marketing experiment wherein a brand splits its audience to test a number of variations of a campaign and determine which performs better.

Another important aspect of managing CAC is the role of retention marketing, said Khullar. “Brands must ensure how it is communicating to a user at a given point in time and making sense to them.”

Ghuraiya of Modi Naturals pointed out that for a typical FMCG company while only 20% of sales come from online channels, CAC is still very important for them. He said that it is very difficult to attribute the CAC in FMCG because the consumer purchase journey doesn’t follow a very linear graph. 

He further went on to say that while following the complexity of the consumer journey is very difficult, creativity has been missing its due importance in recent times. “We are so focused on CTRs and CPCs of the world that we underestimate the power of creativity. If you have good a creative, not only you can improve the performance metrics, but also the customer experience. Regular people do discuss ads. To get that word of mouth, a brand has to deliver a great creative.”

Ghuraiya also said that of late, several brands are focusing more on marketing and media metrics and focusing less on the product itself. Improving the product will improve the gross margins a lot. “If your product is not differentiated then your CAC will always have a rising trend and you will have to fight for your consumer every month,” he said. 

Sharing his point of view, Sanghvi said that everything has become very momentary in terms of branding and marketing. “If I ask anybody what is that one ad they remember in last 15 years, he/she will say Cadbury’s ‘Real taste of life’. In today’s world, people tend to forget even a one-month-old ad.”

He further said that because there is so much average communication coming out from brands that the CAC is increasing. “Today, I cannot relate that creative cost to par excellence creative. This also means, an average creative drawing average media and transactionally getting to a certain cost,” he commented.   

Moving ahead in the session, GroupM’s Murthy asked the panellists if marketers are too pressurised to focus on CAC. 

Ghuraiya answered first saying that brands must not succumb to such pressure. “Both performance-oriented and traditional marketing can co-exist. If we give up on the pressure, then we’ll be doing an injustice to the marketing strategy. For an FMCG player, typical brand-building and creative communication strategy is equally important.”

With a new brand launching every day, Khullar emphasised the relevance of customer retention in the marketing mix and how looking at the LTV (lifetime value) to CAC ratio is important. “If you are acquiring an X customer in Y month, then you must map in what timeline the customer is returning. We look at the product and channel-driven cohort as well. For example, Facebook is a medium where I am acquiring customers at an expensive cost. But on top of it, my CRM and marketing automation come into the picture, wherein I am trying to increase the LTV.”

Ghuraiya added that the focus on retention is more than acquisition when it comes to brands with bigger brand value, but if a brand is new then the focus is largely shifted to the acquisition of customers than retention. 

For everyone’s food for thought and keeping the discussion light, Sanghvi said that while CAC is the buzzword, can the marketing fraternity make new jargon like VCAC (Venture capital acquisition cost) and BAC (Brand acquisition cost)? “Because all these digital-first brands are spending venture capitalists’ money to acquire customers and we have forgotten to build brands. Why are we stuck in the conversations around funnels, CPRs, CTRs and such terms?”

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