True Cost Of New Sales

Consider the two major “marketing promotions” by the US Government:

  1. The Cash For Clunker program helped sell new cars and spur customer spending during the time when customer confidence is down and people are tightening their belts.
  2. The new Home Buyer tax credit of $8000 helped sell  houses at a time when foreclosures were increasing and sales were slowing.

These are not that much different from marketing campaigns or promotions run by any business. The Government did it to increase economic activity and businesses do it to increase sales or fill its pipeline.

One mistake that is common in both cases is in attributing all the sales during the promotional period to the campaign. Marketers need to correctly identify the truly incremental sales (those above and beyond what would have happened without the campaign). This will tell the true cost of incremental sales and whether or not the campaign delivers profitable sales.

Take the Home Buyer tax credit program. it is $8000 tax credit per buyer. But according to Ted Gayer of Brookings Institution, if you considered only the truly incremental sales, the cost to the Government is $43,000 per buyer. If a campaign is not targeted and selective, it is going to cost a lot more for each new customer acquired.

Do you know your customer segments and how to target them? Do have the analytics in place to know your campaign effectiveness and cost of new sales?