In with the new
In June 2013 an investment research website1 published a stunning revelation: The best performing Chinese IT stock in the past year wasn’t the behemoth web-services company Baidu, nor was it the online media firm Sina Corporation. No, it was E-Commerce China Dangdang Inc.—better known simply as Dangdang. This brand, once described as the Amazon of China, is the only pure eCommerce play to have gone public in China—and its stock price has increased almost 43% in the past year.
When I was the CMO of dangdang.com, the single most important KPIs I tasked after were the number of new customers acquired and their year-over-year growth. Peggy Yu Yu, Dangdang’s Executive Chairwoman, was a top financial expert on Wall Street before she cofounded Dangdang. Peggy was always hammering on me about new-customer acquisition. Under her direction, the marketing team continuously optimized the cost of new customers, and then sought to drive the growth of those consumers’ basket sizes in the years that followed.
New-customer acquisition was the driving force behind Dangdang’s top-line growth. We meticulously tracked and scrutinized these new shoppers and their buying behaviors, and it’s made all the difference so far. Here’s what you need to do if you’re aiming for the same results.
New customers: worth the cost
As reported in Dangdang’s third-quarter results in 2013, marketing expenses were $9.5 million, representing 3.8% of total net revenues, which led to the acquisition of about 2.9 million new customers. That averages out to about $3.2 per new customer, a relatively low number that reflects Dangdang’s herculean efforts in the arenas of cost control and optimization. Even so, it was a big outlay: The growth of media costs and other factors meant the brand was actually spending 4-5% of total net revenues. But Dangdang held its ground. Even as it was striving to break even after going public, the firm insisted on continuing to spend heavily on marketing to bring in new customers.
That paid off: The customer base not only grew, but Dangdang also reported that average revenues per active customer increased from about $37 per year to $53 between 2009 and 2012.2
Take care of the back end
One interesting factor that we noticed: New customers wanted more attention, care, and love. They tended to be pickier when they logged in for their first shopping encounter. When we surveyed those who didn’t return, we discovered that most of them felt disgruntled as a result of not being pampered or comforted enough when they asked questions about purchases or complained. In China, as with anywhere else, building a branded e-store’s reputation and connecting with new customers means making sure the post-sales process is smooth. Poor return policies can undermine your growth prospects. Fifty-nine percent of respondents in a recent Acquity study complained that it was too difficult to return goods to online stores.3
Cautious but predictable
Keeping these new visitors happy obviously makes all the difference. Not that any of this happens fast. In the third quarter Dangdang counted about 8.4 million active customers, approximately 2.9 million of which were new, representing 21% and 19% increases, respectively, from the corresponding period in 2012. Total orders for that quarter were $15.7 million, a 13% increase. You’ll note that the percentage of sales lagged behind the percentage of new customers. The lesson: It takes time to build both shopping frequency and order sizes.
What do we do about that? No one will argue about the power of deep-dive data to draw consumer insights. But we didn’t need any extensive analytics to divine the predictable behavior patterns of new customers. With basic statistics and modeling we could forecast the number of new arrivals who would turn into loyal active buyers, and how much they would spend. You’d be surprised how accurate these projections turned out to be. After making his first purchase, the new visitor would typically spend 15% to 20% more the next time, thanks in part to a nudge from our engagement triggers: a post-purchase survey, a coupon, another promotional message push-through, or a simple thank-you message. We observed similar patterns after the second purchase as well, and so on down the line.
You can see, then, how the steady investment in fresh business—nerve-wracking though it may be to reach that far into the company coffers—will pay off. New customers may not come cheap. But they are undoubtedly the fuel that drives the engine of Continuous Commerce.