#16 Buying Power Index

Build a stronger, more loyal customer base and increase customer lifetime value by as much as 82%.

Author

Alexander Jost
November 21, 2024

The Buying Power Index (BPI) is a powerful indicator that is unfortunately used far too little in ecommerce. We are changing that today.

It's a measure that takes into account the buying income, retail sales, and population size of a market to arrive at a score that indicates how successful - or not - a new market might be. It estimates the ability of a region to buy goods and services.

The result is a map like this:

  • Greens & blues = Strong buying power

  • Yellows & reds = Weak buying power

Source: Proximity One

How it's used by retail

  • Forecast demand for new stores

  • Evaluate the performance of existing stores

  • Assess the potential success of investing in a company that operates in a given area

  • Determine the percentage of total national buying power in a particular area

How to apply it to ecommerce

There is a strong correlation between the Buying Power Index and the LTV of your customers.

By identifying the right cities to focus your marketing efforts on, you can build a stronger, more loyal customer base. From analyzing hundreds of consumer brands, I learned that customer lifetime value can increase by as much as 82%.

This means you can afford higher customer acquisition costs for customers from certain cities, knowing that these customers will generate much higher average revenue over their lifecycle. At the same time, you should reduce budgets for cities where only low-quality customers are waiting.

Identify Your Most Valuable Locations

And you don't need to buy expensive external market data for this. You have already collected the necessary data points. You only need 👉 RetentionX to be able to analyze them accordingly:

RetentionX: City Analysis

Optimize Customer Acquisition

A problem that all ad networks have is the stubborn optimization of the first purchase. The customers in regions with low BPI will also be the ones where new customers can be bought cheaply (due to lower CPM). However, the customer quality is very poor. Meta and other networks will use these pools, especially if you cap your bids.

After you know the value of your customers, use this insight to adjust the target CACs for the cities according to the LTV differences of the three groups This way, you can multiply the quality and revenue of your customers with the same advertising budget and know which audiences to scale first. You can also create VIP campaigns that are targeting just strong buying power customers.

I'll walk you through the process of adjusting bids and budgets on the following platforms:

  1. Meta

  2. Google

  3. TikTok

  4. Pinterest

Meta

  1. Log in to your Meta Ads Manager and select the campaign you want to adjust.

  2. Click on the Ad Set level and navigate to Audience > Locations.

  3. Here, you can choose to target specific countries, regions, cities, or even specific addresses. Group all locations for which you want to increase spending.

  4. Once you've selected your desired locations, click on the Edit button of the ad set.

  5. Adjust the Cost per result goal based on the average LTV of customers from those locations. You can increase or decrease the cost compared to the default amount.

  6. You can also set a bid cap to control how much you're willing to spend on these locations.

  7. Finally, click Save to apply the changes to your campaign.

  1. Sign in to your Google Ads account and select the campaign you want to modify.

  2. Navigate to the Settings tab and click on Locations.

  3. Choose the desired locations you want to target by searching for countries, regions, cities, or custom areas.

  4. Once you've added your locations, click on the Bid adj. column next to each location.

  5. Adjust the bid adjustment percentage based on the performance and value of each location. Increase or decrease the percentage to raise or lower the bid.

  6. You can also set a bid adjustment range if you want to control how much the bid can be adjusted automatically.

  7. After making the necessary changes, click Save to apply them to your campaign.

TikTok

  1. Log in to your TikTok Ads Manager account and select the campaign you want to edit.

  2. Click on the Ad Group level and navigate to Targeting > Demographics > Location.

  3. Choose the desired countries, regions, or cities you want to target by searching or selecting from the available options.

  4. Once you've added your locations, adjust your bid strategy for this ad group.

  5. After making the necessary changes, click Save to apply them to your campaign.

Pinterest

  1. Log in to your Pinterest Ads account and select the campaign you want to modify.

  2. In the campaign dashboard, click on the Ad Group level for the specific ad group you want to adjust.

  3. Scroll down to Demographics > Locations.

  4. Search for specific countries, regions, metros, or even zip codes.

  5. Once you've added your locations, adjust the Target CPM rate under Optimization and delivery.

  6. After making the necessary adjustments, click Save to apply the changes to your campaign

With 👉 RetentionX, you can not only analyze your LTV from every angle and systematically take action to to maximize your profit per customer.

RetentionX can be up and running in hours and will have a huge impact on your performance this holiday season:

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👟 Adidas collab takes iconic winter boot brand Moon Boot into sportswear.

Moon Boot has teamed up with adidas for their first ever apparel drop. The collection features both footwear and activewear pieces that combine Moon Boot's iconic style with Adidas' innovative technology.

That’s it for this edition!

Any questions or topics you'd like to see me cover in the future? Just shoot me a DM or an email!

Cheers,

Alex

P.S.: 👋 My calendar is open if you would like to discuss any of our weekly topics for your brand.