The return to Customer Acquisition Costs

11. May 2020
by Teun van der Zijden

Online consumers - now at record-low prices!

I came across this piece by IGD with a couple of examples of how businesses along the Consumer value chain are responding to the current D2C opportunity. But more importantly, it poses the fundamental question of how much of this will stick, and frames this in the context of the artificially low Customer Acquisition Cost at present.

Under the current circumstances, established online propositions hardly need to spend any money on advertising. Consumers are on the look-out themselves, and don't need flashy banners or SEA to lure them to a webshop. Tellingly, Google and Facebook reported reduced net advertising rates in the last quarter (while usage of Youtube, Instagram etc actually rose).

Manufacturers, wholesalers and foodservice operators are benefiting from this effect as well. All the online propositions which they have so rapidly brought to life in the past months, need only modest advertising. But what will happen when the situation begins to return to normal?

Even if we move to a 'new normal' - whatever that means, precisely - the CAC is sure to increase again. Competition from store-based retail will return, incumbent D2C propositions will have dealt with the Covid-19 disruption etc. For all these new online propositions to survive in the longer term, they will need to devise a means to win in more competitive online circumstances as well.

There's no single answer that holds true for all. The strongest of brands may be able to carve out a sustainable spot in the market by themselves. Some will likely to turn to marketplaces, opting for guaranteed organic traffic at the cost of lower margins. And still others may want to introduce a separate brand for their online operations altogether. But whatever strategy you pick, be warned: consumers won't be as affordable as they are nowadays!

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms

In the short-term, we’ll see more direct-to-consumer operations launching, responding to poor product and home delivery slot availability. [...] Longer-term as product availability returns to normal and retailers increase their online order capacity, many of these operations fail to fulfil shoppers’ needs. Some will invest to try and retain their new shoppers, others will accept lower volumes, and some will cease operations.