Eoin Cambay, Founder & CEO, Swan
Jun 29, 2023
How AI can deal with soaring customer acquisition costs
Brands are losing a record average of $29 for every customer they acquire, Shopify reports. That’s a rise of 222% increase in the most recent eight years. The reasons? Well, increasingly steep customer acquisition costs is one reason, and the high levels of returns is another: shoppers return 20–30% of online purchases, compared to only 8–10% of in-store purchases. Shopify cited research by another organisation, SimplicityDX, which didn’t hold back in its analysis by suggesting that such rises call into question the very profitability (or otherwise) of e-commerce operations.
At its simplest, the cost of acquisition is simply the investment you make in acquiring customers divided by the number of customers that you successfully acquire. When the investment you need to make goes up, but the number of customers successfully acquired doesn’t increase at the same rate, your acquisition cost rises.
And customer acquisition costs have increased by as much as 60% in the last five years according to industry estimates, compounded by factors such as the introduction of iOS 14.5, the demise of third-party cookies and increased consumer privacy legislation. In such circumstances, perhaps you can’t do much about the costs of driving traffic to your site; successfully marketing through digital channels is no longer the bargain it once was. But there are two sides to the calculation: the number of customers you successfully acquire for the investment. And there is something that you can do about that.
Clothes shoppers who use AI fitting rooms convert at a far higher rate than shoppers who don’t. Shopify reported this uplift at up to 250% according to McKinsey. Hypothetically, then, if all visitors driven to your site used the AI fitting room and, thus, converted at this higher rate, your average cost of acquisition would have actually decreased compared to eight years ago – a 222% increase in investment in driving traffic, yes, but more than offset by a 250% increase in conversions. Or, alternatively: you could consider reducing your investment in traffic-driving marketing because a higher proportion of visitors convert.
It's also worth remembering the well-known fact that customer retention is far cheaper than customer acquisition – Bain estimates that a 5% increase in retention correlates with at least a 25% increase in profit.
Your Swan AI fitting room will also score well here, thanks to the improved customer experience it provides. First, people appreciate the availability of a fitting room. And using a virtual fitting room makes it much less likely that they will need to return their purchase – which, however simple you make that process, isn’t why they bought it. Providing a successful shopping experience is part of the winning the battle for repeat customers, once you’ve acquired them.
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