How to Leverage Social Media to Increase Customer Base & LTVfor your E-commerce Venture?

2nd May 2012
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E-Commerce has been the buzz word in India for the past three years or so with at least one e-commerce site launching every month. After the dot-com bubble burst, the Indian e-commerce space remained nearly dormant till about 2007. With the phenomenal success of Flipkart, Snapdeal and a few others, there has been an onslaught of e-commerce sites offering customers a huge range of products that can be bought electronically at greatly discounted rates compared to physical stores. Today, it is hardly uncommon to shop for everything online from a niche or general e-commerce site, products ranging from Travel (IRCTC, Makemytrip, Redbus), Home needs (Zopnow, BabyOye, HealthKart), Apparels & Accessories (Myntra, Yebhi, Caratlane), Electronics, Books, etc.Indiahas more than 100 million internet users currently. With a young population, cheaper internet access and increased mobile penetration, the number of internet users is expected to grow significantly over the next few years. However, low trust factor, poor technology infrastructure (slow internet speeds, payment gateway failures, etc.), low credit/debit card penetration, and poor delivery infrastructure are cited to be the reasons preventing e-commerce from fully harnessing its potential. Operating under these constraints, several e-commerce companies have tried to address these issues by coming out with innovative solutions like building their own delivery network, Cash on Delivery, etc. and have been successful in building their brand and also the necessary infrastructure to provide good customer service.


kamalesh

Armed with VC funding and with the hope of creating the Amazon / eBay / Groupon / Expedia of India, these e-commerce sites have been marketing themselves aggressively to capture the mind space and wallet share of the Indian online spender. A few of these companies have also relied heavily on expensive TVCs (Flipkart, Myntra) to bring more customers to shop online. Since the pool of ‘e-commerce ready’ online customer base inIndiais still small, all these new generation e-commerce companies have been essentially chasing the same audience. This has led to manifold increase in the CPC rate on Adwords and poor conversion from online display ads. Some back of envelope calculations state that these companies could take roughly three years to recover their cost of acquisition itself.

With increased competition and the launch of Amazon inIndia, the situation could just worsen from here. Some companies that have not been able to sustain have been either acquired or have shut shop. The game of survival today is for the ones with deep pockets and those who can afford to burn cash.

Hence, in our opinion the key challenges for e-commerce companies (apart from the challenges thrown in by the external business environment mentioned earlier) would be:

a.      Increase number of qualified leads to lower the cost of acquisition:

Qualified leads are the ones which have a higher % chance of conversion into a sale, with a higher ticket size and a higher chance of repeat purchase. To address this issue, the size of the audience entering the marketing funnel needs to be increased by building awareness of the brand, products and offers among the target customer base. Marketers can leverage Social media as a tool to build brand awareness by discovering relevant peer-to-peer conversations, participate in such conversations with brand messages and track/measure effectiveness. These real-time contextual targeted messages would yield better qualified leads and also potentially amplify the brand reach on earned media.

b.      Increase customer loyalty:

Low customer loyalty to the brand lengthens the break-even point and hence yields lower ROI on the marketing spend. By better understanding customers’ behavior and persona on social media, brands would be able to customize their brand messages and provide real-time information, offers, etc. Marketers need to understand customers’ requirements in real time, address queries in real-time and participate in such social media conversations with relevant brand messages. Understanding user personas would help marketers customize future offers in order to increase customer loyalty and re-purchase.


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Social media provides yet another opportunity for marketers to understand customer interests and behavior. By leveraging the power of real-time engagement on social media, ecommerce companies can build brand awareness and loyalty, thereby increasing the LTV (life time value) of a customer.

Kamalesh BC has about 10 years’ experience in digital media, marketing and analytics and currently heads India Operations at Salorix. The Salorix Social Marketing Platform enables brands to identify and engage its potential audience on social media. 

Customer acquisition costs for e-com companies (Estimated):
Avg. Cost per clickRs. 15
Click to conversion rate1% – 1.5%
Cost of acquisitionRs. 1000 – Rs. 1500
Avg. Ticket sizeRs. 1000
Gross margin @ 10%Rs. 100
# of purchases required to recover cost of acquisition10-15
Assuming one sale per customer per quarter the break-even point could be 3 years or more.
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