The effective acquisition cost Essay
The effective acquisition cost
5) What is the effective acquisition cost and life time value of customers acquired through the online channel? BBVA acquired its customers through its branches, website, telephone and direct mail. About 80% of the new checking accounts had been set up through BBVA’s branches, 15% through telephone and direct mail and 5% came from the on-line channel. BBVA’s goal was to keep the customer acquisition cost below $200 per new account. The bank considered acquisition cost between $100 and $150 to be good and below $100 to be great. The online channel had the least acquisition costs of all – on average, the effective cost of these promotions was about $100 for each new online checking customer.
In the banking industry, the average lifetime value of a new checking account, with expected life of five years, is approximately $800. However, the net annual income generated by online customers is slightly higher than returns from clients using the local branch (online customers have lower balances and therefore pay higher fees).
6) What is the role of display and search advertising in acquiring new checking account customers? Is the 2010 ad budget allocation between display and search appropriate? Paid search advertising entailed purchasing keywords on Google, Yahoo!, and Bing, the three major search engines. The largest portion of BBVA’s paid search budget was allocated for Google, as it had the biggest share of search queries. Words purchased included generic keywords, such as “consumer checking,” “checking account,” and “free checking account” as well as branded keywords, including “BBVA Compass” and “BBVA brand.” Buys for these keywords were analyzed and tracked through the bid management tool, which evaluated competitive prices, search volume and share of voice for each keyword. Media Contacts also sent weekly performance reports with analysis and recommendations for campaign optimization.
Display advertising involved purchasing advertising space on websites that BBVA’s potential customers were expected to visit. BBVA Compass worked with advertising networks and directly with publishers and portals (AOL, Yahoo!) to place their ads in high-reach placements with relevant content areas in the targeted geography. The networks used the algorithms (based on the provided budget, target customer profile and their own data) to identify the appropriate sites.
The 2010 budget allocated 55% ($677,000) of its resources to display advertising and 45% ($545,000) to search advertising. While display ads delivered a much higher number of impressions, they generated fewer clicks and were more expensive than the search ads- cost per application for display ads was $88 compared with $73 for search ads. Given a higher budget, they also resulted in a similar number of completed applications as the search ads, thus proving less effective. BBVA Compass would make a better use of its money if a higher portion of its online marketing budget had been allocated to search ads, which appears to be a more focused, affordable and effective approach.