“YOLO” Consumers & Holiday Cheer

WSJ: Consumers “Can’t Stop Spending”

In September 2023, American Consumer spending rose 6% overall and 9% on recreation alone vs last year. (WSJ) This means that going into the Holiday Season, the pressure will be on for brands to capture as much of that increased spending activity as possible in order to hit revenue growth goals.

Why? Among favorable employment conditions, locking in covid-era mortgage rates, and increased savings, what really jumps out to me is the consumer mindset shift away from delayed gratification (e.g saving for the future) and towards immediate gratification, e.g. spending on X product/service/experience “right now while I can still afford it”… I think that this is the “YOLO” Consumer.

So this leads many operators within Retail & CPG to think about…

Efficiency vs Scale:

• To what extent do we need to be efficient with our paid media in order to have a Profitable CAC?

• How might different efficiency levels impact our ability to hit different points of scale?

In order to answer these questions, it can be helpful to dive deep into your own Unit Economics:

_{Unit Economics: Today, how profitable am I?}

If you’re in e-comm, here are a few inputs to consider:

1. What is my Net AoV? (AoV post Discounts, Taxes, and Return Rates )

2. What is my “Profit per Sale”?

   -How much $$ am I making per sale after accounting for COGS ?

   -Example: Let’s say you sell $120 shoes, but your COGS are $75. Your profit per sale might net out to around $45.

3. LTV (Lifetime Value): How many of my customers that buy once will come back? How often will they come back?

If you have other metrics that matter such as specific LTVs for different customer segments (which can happen for businesses that offer a tiered subscription model, or brands that have high repeat purchase rate for products at different price points), make sure you account for this when you think about answering this question.

Ultimately, what you want to arrive at is how profitable you are for every sale you generate so that you can understand how to use paid media channels to amplify your scale & efficiency.

If you aren’t profitable, it’s worth taking time to think about which of these inputs would have the most impact on making you profitable and focusing your energy on improving that input, before investing in paid media. E.g. if your AoV isn’t high enough, how can you go about improving that? Maybe you should bundle your products or sell in larger quantities?

Paid Media: Driving the “Metrics that Matter”:

When running Media to acquire customers, it’s important to optimize towards the metrics that align with your business objectives. There are lots of different goals you can have, however at the end of the day, most brands have goals grouped under 1) Revenue / Scale - based objectives and/or 2) Efficiency based goals.

Once you have done the work to uncover how profitable you are, you can use that data to inform your Revenue & Efficiency goals for paid media.

Here are some ways you can think about weighing these against each other.

• Revenue vs Efficiency: When I increase investment in Paid Media, How much more revenue do I see per $ invested? Where might I see diminishing returns?

• Short vs Long term value of new customers: Is there a difference in the LTV for customers I acquire at $X CAC vs $Y CAC? If so, (assuming higher CAC correlates with higher LTV), it may make sense to give yourself some flexibility with your CAC generated by paid media so you can acquire these higher LTV customers.

• Seasonality Shifts: How flexible can I be with my efficiency goals to ensure I have the ability to acquire customers during seasonally significant periods? (e.g. if you’re a business that sells christmas decorations, you should probably try to be much more aggressive & flexible with your CAC during October-December than you are in other parts of the year).

Putting it all Together: What this means…

If you’re a brand operator, should you capture today’s “YOLO consumer”? Given that we seem to perpetually find ourselves in an evolving economic environment, there’s something to be said for making the most of the current opportunity and leaning more towards scale vs efficiency.

In my opinion, the best option may lie somewhere in the middle; i.e. don’t sacrifice tomorrow’s farm for today’s harvest.