ROI Case File No.312 | 'KAYOU's Endless Acquisition'

Chapter 1: The Drug of Acquisition—Monthly Ad Spend of 2 Million Yen Disappears

The week after NeoFab's OODA case was resolved, a consultation arrived from Kanagawa regarding customer retention at a retail EC company. Case File 312 of Volume 26, "The Pursuit of Reproducibility," tells the story of escaping the trap of new customer acquisition and maximizing customer lifetime value.

"Detective, we invest 2 million yen monthly in advertising. We can acquire new customers. However, only 18% make a second purchase. The monthly cancellation rate for subscriptions is also 10%. It's like pouring water into a bucket with holes."

Megumi Sato, Marketing Manager of KAYOU Digital Commerce Co., born in Yokohama, visited 221B Baker Street unable to hide her confusion. In her hands were advertising performance reports and, in stark contrast, customer analysis materials marked "reason for cancellation unknown."

"We operate EC for health foods and cosmetics in Kanagawa. We have 5 physical stores, but 70% of sales come from EC. We acquire new customers through SNS advertising and guide them to subscriptions... That's our model. However, they don't continue."

KAYOU's EC Operation Stagnation: - Established: 2015 (health foods and cosmetics EC) - Annual Revenue: 1.2 billion yen (EC: 840 million yen) - Monthly New Customers: Average 850 people - Monthly Advertising Cost: 2 million yen - First Purchase → Second Purchase Rate: 18% - Subscription Cancellation Rate: 10% monthly - Customer Referral Rate: 3% (nearly zero) - Problem: Dependent on new customer acquisition, retention and referral not functioning

Sato's voice carried deep anxiety.

"The problem is that customers 'buy and leave.' After the first purchase, we send follow-up emails. But the open rate is 8%. Even when we propose subscriptions, there's no response. And they cancel. When we ask why, they only say 'No particular reason.'"

Typical Customer Behavior Pattern:

Customer A (38-year-old female):

Day 1 (First purchase via SNS ad): - Instagram ad: "Skin care starting from your 30s" - Click → Landing Page - First-time 50% OFF: 3,980 yen → 1,990 yen - Purchase complete

Day 3 (Product arrival): - Open product - Start using

Day 7 (Follow-up email): - Email from KAYOU: "Are you satisfied with the product?" - Customer A: Deletes email without opening

Day 14 (Subscription proposal email): - "10% OFF with subscription" - Customer A: Deletes email without opening

Day 30 (Reminder email): - "About time for the product to run out?" - Customer A: "I've already switched to another brand"

Result: No second purchase, LTV (Lifetime Customer Value): 1,990 yen

"Even if we acquire 850 people through advertising, only 153 (18%) continue. The remaining 697 are one-time customers. With this, no matter how much we spend on advertising, we can't generate profit."

Chapter 2: The Illusion of Selling and Ending—Growth Begins with Retention

"Sato-san, what metrics are currently used to evaluate marketing initiatives?"

To my question, Sato answered.

"Basically 'new customer acquisition numbers.' We target 850 per month. And 'sales.' We measure retention rate and referral rate, but we didn't emphasize them. The policy was 'acquire new customers at all costs.'"

Current Approach (Acquisition-First Type): - KPI: New customer acquisition numbers - Initiative: Expanding advertising investment - Problem: Low retention and referral rates, LTV doesn't grow

I explained the importance of maximizing customer lifetime value.

"New customer acquisition is the entrance. But growth lies beyond that. AARRR—Acquisition, Activation, Retention, Referral, Revenue. If you design the customer journey in these 5 stages, a bucket with holes transforms into a full reservoir."

⬜️ ChatGPT | Catalyst of Conception

"Don't drown in acquisition. Design customer dwell time with AARRR."

🟧 Claude | Alchemist of Narrative

"Repeat isn't a mechanism. It's the stratification of trust. Choose a ten-year relationship over a one-time sale."

🟦 Gemini | Compass of Reason

"AARRR is the map of growth. Maximize customer value through the 5 stages of acquisition, activation, retention, referral, and revenue."

The three members began their analysis. Gemini unfolded the "AARRR Framework" on the whiteboard.

AARRR's 5 Stages: 1. Acquisition: Gather customers 2. Activation: Optimize first experience 3. Retention: Have them purchase repeatedly 4. Referral: Customers bring new customers 5. Revenue: Maximize LTV

"Sato-san, let's redesign KAYOU's EC operations with AARRR."

Chapter 3: The Five Stages—Designing the Customer Journey

Phase 1: Current State Analysis - Visualizing Numbers at Each Stage (2 weeks)

First, we analyzed at which stage KAYOU's customers were dropping off.

Tracking 850 Monthly New Customers (6-month average):

【Acquisition】
- Via SNS ads: 850 people/month
- CPA (Customer Acquisition Cost): 2,353 yen (2 million yen ÷ 850 people)

↓

【Activation】
- First purchase complete: 850 people (100%)
- Product opening rate: Estimated 95% (807 people)
- Product usage rate: Estimated 80% (680 people)
※Opening/usage are estimates (were not measured)

↓

【Retention】
- Second purchase: 153 people (18%)
- Third purchase: 76 people (9%)
- Subscription transition: 42 people (5%)

↓

【Referral】
- Friend referral program usage: 25 people/month (3%)
- SNS posts: Estimated 12 posts/month

↓

【Revenue】
- Average LTV: 3,680 yen
- Subscription customers' average LTV: 28,400 yen

Findings: - 15% drop off at Activation (don't use the product) - 82% drop off at Retention (don't make second purchase) - Referral barely functions (3%)

Sato was astonished.

"So we were focused only on 'making them buy,' and neglected 'making them use,' 'making them continue,' and 'making them refer'..."

Phase 2: Activation - Optimizing First Experience (1 month)

First, we created a mechanism to ensure customers who purchased products would "definitely use them."

Initiative 1: Including Usage Guide - Include "7-Day Challenge" guide upon product arrival - Day 1: Use after washing face - Day 2: Use twice, morning and evening - ... Day 7: Feel the change - QR code for accessing usage videos

Initiative 2: Automatic Follow-up Email After 3 Days - Subject line: "[Name]-san, it's day 3 of use" - Content: "How's the 7-Day Challenge going? Many people feel skin changes on day 3" - Open rate: 8% → 38% (personalization effect)

Initiative 3: Feedback Request After 7 Days - Simple survey (3 questions, 1-minute response) - "Did you feel a change?" "Satisfaction level?" "Want to continue?" - 500 yen coupon for next purchase for respondents - Response rate: 42%

Results After 1 Month: - Product usage rate: 80% → 92% - 7-day continuation rate: Estimated 70% → 85%

Phase 3: Retention - Systematizing Repeat Purchases (2 months)

Next, we created mechanisms to encourage second and third purchases.

Initiative 1: Timing Optimization - Analyzed product usage pace: Average 25 days to finish - Day 20 email: "About time to run out?" - Day 25 reminder: "Before stock runs out"

Initiative 2: Reducing Psychological Hurdles for Subscriptions - Clearly state "Cancel anytime" - First subscription 15% OFF (better than usual 10% OFF) - Free to change delivery dates from second time onward

Initiative 3: Continued Support via LINE Official Account - "Beauty Care Tips" delivered weekly to LINE registrants - Product usage methods, beauty knowledge, customer voices, etc. - Registration rate: 35% - Second purchase rate via LINE: 48% (2.7 times the 18% via email)

Results After 2 Months: - Second purchase rate: 18% → 42% (+133%) - Third purchase rate: 9% → 28% (+211%) - Subscription transition rate: 5% → 18% (+260%)

Phase 4: Referral - Customers Bring Customers (2 months)

Next, we created mechanisms where satisfied customers would naturally want to refer.

Initiative 1: Redesigning Referral Campaign - Before: "500 yen coupon for friend referral" (no one uses it) - After: "You and your friend both get 50% OFF next purchase" (big benefit for both)

Initiative 2: Promoting Review Posts - "Tell us about your change" email 30 days after product arrival - 1,000 yen points for review posters - Photo reviews get additional +500 yen - Review posting rate: 5% → 28%

Initiative 3: Utilizing UGC (User-Generated Content) on Instagram - Hashtag campaign "#KAYOU Beauty Challenge" - Monthly prize of 1-year product supply for 10 selected posters - UGC posts: 12 posts/month → 180 posts/month

Results After 2 Months: - Friend referral usage: 3% → 22% (+633%) - New customers via referral: 25 people/month → 187 people/month (+648%) - CPA for referral customers: 2,353 yen → Essentially zero (no ad cost needed)

Phase 5: Revenue - LTV Maximization (Ongoing)

Finally, we implemented personalized proposals for top customer tiers.

Initiative 1: Customer Classification by RFM Analysis - VIP customers (LTV 50,000 yen+): 8% - Premium customers (LTV 20,000-50,000 yen): 15% - Regular customers: 77%

Initiative 2: Special Treatment for VIP Customers - Advance notice of new products - Provision of exclusive products - Birthday presents (product samples) - Personal beauty consultation (monthly, online)

Initiative 3: Upselling and Cross-selling - Propose health foods to cosmetics purchasers (and vice versa) - 20% OFF for set purchases

Results After 3 Months: - VIP customers' annual purchase amount: Average 52,000 yen → 86,000 yen (+65%) - Cross-sell rate: 12% → 34%

Chapter 4: The Loop of Growth—Numbers Creating Stories

Comprehensive Results After 12 Months:

Dramatic Improvement in Customer Metrics:

【Acquisition】
- Monthly new customers: 850 people → 1,037 people (+22%)
  ※Acquisition numbers increased with same ad spend due to referral increase

【Activation】
- Product usage rate: 80% → 92%

【Retention】
- Second purchase rate: 18% → 42%
- Subscription transition rate: 5% → 18%

【Referral】
- Referral usage rate: 3% → 22%
- New customers via referral: 25 people/month → 187 people/month

【Revenue】
- Average LTV: 3,680 yen → 12,400 yen (+237%)
- Subscription customer LTV: 28,400 yen → 42,800 yen (+51%)

Financial Results: - Monthly sales: 100 million yen → 156 million yen (+56%) - Advertising cost: 2 million yen/month (maintained) - CPA: 2,353 yen → Effectively 1,520 yen (referral influx increased) - Gross margin: 38% → 52% (due to LTV increase)

Organizational Change: - Marketing department: From "acquisition team" → reorganized to "customer experience design team" - KPI: From new acquisition numbers → conversion rates at each AARRR stage - Weekly AARRR dashboard review

Sato's Reflection:

"Previously, the policy was 'acquire new customers at all costs.' If we increase ad spend, sales go up. But profit didn't increase.

By designing the customer journey with AARRR, our perspective changed from 'making them buy' to 'making them use,' 'making them continue,' and 'making them refer.'

What particularly surprised me was the effect of Referral. Customers acquired via referral have 1.8 times higher LTV than those acquired via ads. Customers brought by satisfied customers trust us from the start.

Now, over 50% of new acquisitions come from referrals. Growth continues without increasing ad spend."

Chapter 5: The Detective's Diagnosis—Dwell Time as an Asset

That night, I contemplated the essence of AARRR.

KAYOU was drowning in the drug of new customer acquisition. They invested 2 million yen monthly in advertising to acquire 850 people. However, 82% left after just one purchase.

By breaking down the customer journey into 5 stages with AARRR, the truth became clear. The problem wasn't acquisition, but activation and retention. Make them use the product, satisfy them, make them continue. And have them refer.

"Growth begins not with a single sale, but with customer dwell time. AARRR transforms a one-time transaction into a ten-year relationship."

The next case will also depict the moment when AARRR creates the loop of growth.

"Don't drown in acquisition. Activation, retention, referral, revenue. These 4 stages transform a bucket with holes into a full reservoir"—From the Detective's Notes

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