AppLift Thought Series: The Economics of Retargeting

Welcome to the AppLift Thought Series where our readers will get to read perspectives from key people within AppLift on all things mobile. Up first is AppLift’s COO Stefan Benndorf, who writes on how a well-defined retargeting strategy changes the economics of mobile performance marketing. An edited version of this article was also published on Mobile Marketer.

A well-defined organic and paid user acquisition strategy is key to successfully launch an app and grow a quality user base. But with increasing global smartphone penetration, higher adoption and usage of mCommerce, apps reaching their “natural” market shares, especially in more developed markets, and increasing competition for global inventory, the acquisition of new users is only one lever to drive value to a mobile app. In general, maximizing the value of the existing customer base can be significantly value-adding in addition to new customer acquisition. Amy Gallo provided a very nice summary of these patterns in a Harvard Business Review article. Marketers who want to be successful need to extend beyond growing the customer base and take a holistic end-to-end view on customer acquisition and management. Mobile retargeting is an increasingly important field to enable customer value maximization.

A well-defined retargeting strategy changes the economics of mobile performance marketing.

First, through follow-ups on newly acquired users with highly targeted ads, user acquisition efforts are profitable for longer, even with diminishing returns for new users.

Second, the return for the whole user base increases as all KPIs of monetization, retention and virality can be positively affected. Third, at some point the incremental investment into retargeting an existing user is lower than the incremental investment into acquiring a new user and the economics change in favor of retargeting. In this phase, retargeting does not only improve the economics of the user acquisition efforts but unlocks significant on-top potential.

Understanding and measuring Lifetime Value (LTV) is the first critical step in this process.

LTV is driven by three simple metrics

  1. Monetization: How much a user is spending in an app per month (ARPU)
  2. Retention: How many users are continuously using the app
  3. Virality: How actively does the user share content through the app, thereby driving additional organic traffic to the app (which again can be measured according to Monetization and Retention KPIs

The return or net LTV of a user is then essentially the LTV minus the cost to acquire the user. This is often measured on a cost-per-install or a cost-per-action basis. With increasing efforts and success to acquire new users at the same quality KPIs, advertisers, especially larger ones, observe that it becomes incrementally expensive to acquire new users. This is only natural as the app would have reached a fair market share and the new-install rates will fall, considering the saturation of the growth in smartphone adoption. As a consequence, the net LTV falls down with an increase in existing users (i.e. those who have already installed the app) assuming everything else remains the same.

To ensure steady or even increasing return, advertisers need to focus on working with the user base and unlocking customer value. These measures can address all of the LTV dimensions as described above. ARPU can be increased by offering the existing user base better deals, discounts, offering customized specials to only name a few potential measures. On the retention side, users can be targeted with Emails or push notifications to increase their activity and conversion likelihood. Besides these must-do organic measures, a proper retargeting strategy can add immediate value, even in the high-growth phase of the user base.

Key ingredients for successful retargeting are a good understanding of the current audience, their past behavior in the app, and a strategy how to approach them and bring them back into the app. Someone who is very active, even creates shopping baskets but never purchases requires a different addressing than someone who used the app only a couple of times and then stopped.

To summarize, retargeting can be a very powerful instrument to complement any customer acquisition activities and to increase return of investment. With decreasing marginal growth in the new customer base, retargeting can be a key channel to ensure steadily high returns for performance marketing efforts.