Customer Acquisition: Full Price or Promotion?
Let's pretend you are the marketing executive at an online retailer.
You have $100,000 to spend acquiring new customers. You can acquire them via normal methods, or you can offer prospects a 20% off your order of $100 or more promotion.
The projected short-term, and long-term results, are included in the following table. Which strategy would you employ, and why?
Profit and Loss Statement | ||
Acquire With | 20% Off Order | |
No Discount | of $100+ | |
Customers Acquired | 3,400 | 5,263 |
Average Order Size | $110.00 | $135.00 |
Total Demand | $374,000 | $710,526 |
Profit Factor | 27.0% | 27.0% |
Contribution | $100,980 | $191,842 |
Marketing Expense | $100,000 | $100,000 |
Discount Expense (70% Utilization) | $0 | $99,474 |
Net Profit | $980 | ($7,632) |
Profit per New Customer | $0.29 | ($1.45) |
Long-Term Value/Profit | $20.00 | $18.00 |
Total Short + Long-Term Profit | $68,980 | $87,105 |
Labels: Customer Acquisition, Full Price, online, promotion
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