High LTV vs High AOV

Howdy Readers 🥰 

In this newsletter, you’ll find:

🚀 2024’s Winning Models: High LTV vs. High AOV

🌟 Cutting-Edge Ad Solutions Debut at Cannes Lions: Amazon and Yahoo Innovate

💸 Tackling Ad Budget Waste: The Hidden Cost of Close Variants

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BUSINESS STRATEGY MODEL

🚀 2024’s Winning Models: High LTV vs. High AOV 
^{Insights from Nativ Yanko}

As ad costs rise, only two business models are proving sustainable. Here are two brands that exemplify these models:

☕ Spacegoods Mushroom Coffee - Low AOV, High LTV

• Affordable Entry Point: Priced at £39 with high margins.
  

• Subscription-Based: Each pack offers 30 servings, encouraging repeat purchases.
  

• Incentives: Uses low-cost “free gifts” to drive subscriptions.
  

• Simplicity: One SKU accounts for 95% of revenue, reducing complexity.
  

• Investment-Backed: With external funding, they can sustain high ad spend.
  

• Quick ROI: Customer acquisition cost (CAC) doesn’t need to be extremely low as they recoup spending within a few months.

❄️ Lumi Ice Baths - High AOV and First-Order Profitability

• Range of Offers: Products priced from £115 to £995.
  

• Payment Flexibility: Uses Klarna to make high-ticket items more accessible.
  

• Trendy Niche: Capitalizes on the growing trend for wellness and cold therapy.
  

• High Break-Even CAC: Can afford higher CAC while remaining profitable on the first order.
  

• Incentives: Offers low-cost “free gifts” to enhance value.
  

• Upselling: Uses accessory upsells to increase average order value (AOV).

📈 Key Takeaways

• Spacegoods: Leverages a subscription model to maximize lifetime value (LTV) despite a lower AOV. Simplicity and external investment fuel their growth.
  

• Lumi: Achieves first-order profitability with high AOV products. Flexible payment options and upsells boost overall revenue.

🌟 The Ideal Business Model

The ultimate strategy is to have both high AOV and high LTV. Brands with mid-AOV and low LTV are struggling as rising CPMs limit their scalability.

Ad costs will continue to climb, making it crucial for brands to optimize their business models to survive and thrive.

AMAZON AND YAHOO ADS

🌟 Cutting-Edge Ad Solutions Debut at Cannes Lions: Amazon and Yahoo Innovate

What’s Up? At Cannes Lions 2024, Amazon and Yahoo have introduced innovative ad technologies aimed at enhancing targeting precision and creative execution, boosting business outcomes and audience engagement.

The Breakdown:

Amazon’s AI-Powered Ad Targeting:

Amazon unveiled Ad Relevance, an advanced AI tool that eliminates the need for cookies. By leveraging first-party data from user activities like browsing, purchasing, and streaming, Ad Relevance offers improved addressability and reduces CPMs by up to 34%. 

This tool, tested on Amazon’s Audiences and Performance+ products, has successfully increased addressability for 65% of previously anonymous impressions and reduced costs-per-click by 8.8%.

Yahoo’s New Creative Platform:

Yahoo introduced Yahoo Creative, a dynamic, data-driven platform developed with Innervate. Compatible with Yahoo DSP and other platforms, it generates multiple ad versions dynamically to enhance campaign performance. Early user Princess Cruises noted significant gains in performance and brand visibility. 

The platform uses AI to streamline the creative process, enabling efficient adaptation and expansion of ad visuals, though human input remains essential for complex imagery.

These new ad technologies, mark a significant advancement in digital advertising, offering sophisticated targeting and creative tools to elevate engagement and effectiveness.

AD BUDGET OPTIMIZATION

💸 Tackling Ad Budget Waste: The Hidden Cost of Close Variants

What’s Up? An extensive study on millions of clicks uncovered the hidden costs of unmanaged close variants. Here’s the impact and how to handle them efficiently.

The Breakdown:

True Match vs. Close Variants Explained:

True Match: Keywords that precisely match user searches, including exact, phrase, and broad match types.

Close Variant (CV): Loosely matched terms that can be relevant but often lead to higher expenses and lower conversion rates.

Performance Insights:

Both Google and Microsoft Ads show that CVs perform worse than true matches. Google Ads had nearly double the CPA for CVs, while Microsoft Ads managed lower CPCs but still saw reduced conversion rates for CVs. Both platforms showed about half the ROAS for CVs compared to true matches.

Strategies to Manage CVs:

• Identify the Problem: Use analytical tools or spreadsheets to assess CV performance.
  

• Streamline Campaigns: Organize ad groups by match types for better control.
  

• Ongoing Optimization: Regularly add effective CVs as keywords and mark poor CVs as negatives.

Close variants consume a significant portion of ad budgets but perform poorly compared to true matches. Effective management of CVs is essential for maximizing ROI and enhancing ad performance.

QUICK HITS

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ℹ️ Gen Z is shifting from traditional search engines to social media for product research. They find search engines unreliable, with 61% citing issues with information accuracy, 44% struggling to find relevant results, and 41% needing to consult multiple sources. 

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