Back in the ‘70s, a research team at Stanford offered 56 preschoolers a simple choice: Would you like one marshmallow now or two marshmallows later? In the years since this sugary dilemma was posed to those kids, the enduring lessons it teaches us about the value of long-term thinking over short-term rewards continue to be widely applicable.
It’s wisdom that growth marketing teams ignore at their peril.
Beware of Growth Marketing’s Sugar Rush
When the research team at Stanford followed up with those same kids years later, they found that those who had waited patiently for a second marshmallow had led much more successful adult lives.
Unsurprisingly, we see this same pattern amongst growth marketing campaigns. Delayed gratification tends to yield far better results over—and even beyond—the lifetime of a campaign.
Marketing challenges are admittedly a bit more subtle than the marshmallowy temptation faced by those preschoolers, but the same general predicament applies: Would you like to focus on short-term customer acquisition cost (CAC) cutting, or focus on longer-term growth factors, like return on ad spend (ROAS) or Payback Period?
You Get What You Measure
Leaders focusing on longer-term ROAS and/or Payback Period related metrics develop plans that typically outperform those playing CAC reduction whack-a-mole. Why? Because having CAC as your primary metric causes leaders to tacitly prioritize quick wins over sustainable long-term growth.
The rush that comes from opening up a new channel and cutting your CAC by half may be sweet—until 6 months later, when the channel’s efficiency has dropped because you’ve been chasing your next acquisition.
Delay Your Gratification to Win Big
Of course, customer acquisition cost isn’t totally arbitrary, but we challenge the leaders we work with to develop the kinds of strategies that prioritize post-acquisition value creation for customers. Focusing on ROAS is great, but we’re finding that a focus on payback period is almost always better.
The results can be quite dramatic. We helped a non-profit client successfully transition from a cost-per-donor acquisition model to one that focused instead on becoming cash-positive on donors within 12 months. This shift helped them grow from 7,000 donors to 70,000.
For this company, delayed gratification meant shifting from an advertising and page view-based conversion strategy to a holistic, cross-channel experimentation strategy that could enable our team to perform a customer retention analysis. This enabled us to identify exactly which acquisition channels required immediate donation conversion to hit their payback target (e.g. affiliate sites) and what acquisition channels allowed for long-term donor relationships that created greater lasting value over time (e.g. Meta). A CAC-focused program would have poured all this client’s resources into affiliate advertising, making them money today, but limiting their growth potential over time.
Once we had the donor retention variables quantified, we were able to identify optimization targets that would deliver verifiable returns and make all their delayed gratification worth it.
Operationalize a Better Perspective
The shift that we’re describing is fundamentally simple, but habits can be tough to break. Instead of letting the devil stay hidden in the details, here are our step-by-step recommendations for weaning off of short-term thinking and putting your strategy in a position to pass the marshmallow test:
- Conduct a Comprehensive Customer Retention Analysis: The first step in shifting to a long-term growth mindset is conducting a thorough customer retention analysis. By identifying which channels foster immediate conversions and which nurture longer-term relationships, you can better allocate resources and tailor your strategies accordingly. This step is also critical for establishing not just buy-in, but a sense of real urgency amongst organizational decision-makers. Even some rough estimates of the potential ROI associated with longer-term value creation opportunities (along with opportunity costs associated with failing to pursue them) can buy you a lot of stakeholder momentum for steps 2-5.
- Shift Focus to Long-Term Growth Metrics: Transition your focus from short-lived wins to metrics that matter in the long run. This means prioritizing Return on Ad Spend (ROAS) and Payback Period over immediate Customer Acquisition Costs (CAC). Shifting focus encourages the development of strategies that not only work well in the present, but also promise sustainable growth and profitability in the future. We’ve actually seen this transition become the real inflection point for many marketing teams looking to grow their strategic relevance within their organizations. You’ll still need to deliver results, but many of our clients have told us that the adoption of these new metrics proved to be the moment that organizational stakeholders started seeing them as more than just transactionally-focused lead chasers, and instead, real strategic partners focused on seriously growing the business.
- Develop Post-Acquisition Value Strategies: Developing strategies focused on post-acquisition value is crucial. This involves creating experiences and offers that keep your customers engaged, loyal, and more likely to make repeat purchases. It’s about building a lasting relationship with your customers that goes beyond the initial sale.
- Incorporate Lean Testing Programs: To further enhance long-term growth, it’s vital to incorporate lean testing programs in your strategy. Avoid methods that yield only short-term benefits, like multi-arm bandits in ad campaigns or 10/10/80 email subject line testing. While these may provide incremental gains, they often fall short in contributing to significant long-term growth or learning. Focus instead on tests and experiments that offer deeper insights and more substantial impacts on your long-term strategy.
- Optimize for Long-Term Engagement and Retention: Finally, optimize your marketing initiatives for long-term engagement and retention. This means fine-tuning your marketing messages, channels, and tactics to resonate with your audience over a longer period. It’s about creating sustainable strategies that keep your customers coming back, increasing their lifetime value and your brand’s overall success.
Consider Bringing in a Strategic Partner
If you find yourself struggling with any of these steps, it might be wise to consider the assistance of a strategic partner. Cro Metrics provides expertise in assessing the customer journey and helps you fine-tune your strategies for better alignment with long-term growth objectives.
Fresh perspectives, advanced analytics capabilities, and strategic acumen can significantly enhance the effectiveness of your growth marketing plans. If you’re interested in breaking the sugary short-term habit of CAC over-reliance in favor of sustainable ROI and strategic relevance, we’ve got you.