Becoming Chief Profitability Officer (Part 3)

Velvet Rope Marketing is about identifying and marketing to the Best Customers of a business. (For some businesses, it could be adapted to doing the same to incoming leads.) Let’s begin with the process of identifying Best Customers:

The first step is to collect data at every touchpoint. In the online world, this is easier since access is via a website or an app. In both cases, all customer actions can be captured. If a customer is logged in, then it becomes possible to link to a unique personal identifier (email ID or mobile number). If not, then it has to be tied to a cookie (on a browser) or a device ID (on the mobile). In the offline world, this is a much harder problem to address since a customer may not be identified until the point-of-sale. In the future, face recognition systems may allow tracking of customers from entry to exit, thus providing better insights into the customer’s interests. In the near-term, stores could use smart cards or mobile apps to identify repeat customers at entry to create an assisted or personalised experience.

The second step is to store all the data in a customer data platform (CDP). A CDP thus becomes the repository of all of the customer’s demographic data (name, gender, location), behavioural data (app and web interactions) and transactions. It thus becomes possible to create a unique profile for every customer.

The third step is to calculate customer lifetime value based on the transaction data. My earlier post on CLV explains this process. It is important to note that the CLV described here is a forward-looking, predictive measurement.

The fourth step is to segment the customers based on their CLV. A possible approach can be to consider three segments: Best (top 20%), Rest (middle 30%) and Test (bottom 50%). This 20-30-50 split may vary based on actual numbers for different companies but is quite indicative of the 60-20-20 revenue contribution.  If companies measure profitability, they will find that the biggest contribution comes from their Best Customers, followed by some from the Rest Customers.

The Test Customers are likely to result in losses if one factors in the cost of acquisition and servicing. (I call them Test Customers because they are ‘testing’ the brand and are not likely to do repeat transactions. They came in once, ‘tested’ the brand and then went away. We will discuss more about them in the section on Long Tail Marketing.)

The next two steps involve calculating the Customer Genome and from there decoding the Best Customer Genome (BCG), followed by the final step of using AI-ML to create a continuously evolving and learning process for analysing customer data.

Tomorrow: Becoming Chief Profitability Officer (Part 4)

Becoming Chief Profitability Officer (Part 2)

The path to profits runs through marketing. For most companies, marketing is the largest cost after wages and salaries. Hence, the pressure to cut marketing budgets is going to be intense. It is in this context that marketing needs to be re-imagined for the post-Covid future for the increasingly digital customer.

There are three themes around which the new marketing can be re-organised to drive profits based on the customer segments:

  • Velvet Rope Marketing for the top 20% (Best Customers)
  • Median Customer Marketing for the middle 30% (Rest Customers)
  • Long Tail Marketing for the bottom 50% (Test Customers)

Velvet Rope Marketing (VRM) is the most important because the contribution of Best Customers to revenues is much higher than the other categories. My earlier series and webinar on VRM discuss the ideas in greater detail. In this context, the four most important jobs for a Chief Profitability Officer are:

  • Identify Best Customers
  • Give them the Velvet Rope Experience
  • Acquire more like them
  • Help them become Best Customers faster

In this series, we will also dig deeper into how to implement VRM using the ideas of CDP (Customer Data Platform), CLV (Customer Lifetime Value) and BCG (Best Customer Genome). We will also expand on ideas for marketing to the Rest and Test Customers via Median Customer Marketing and Long Tail Marketing, respectively. While their relative contributions to revenue and profits are likely to be lower, they can serve as a fertile ground for identifying future Best Customers.

Tomorrow: Becoming Chief Profitability Officer (Part 3)

Becoming Chief Profitability Officer (Part 1)

“There are decades where nothing happens; and there are weeks where decades happen.” – Lenin

In the US, e-commerce penetration as a percentage of retail sales grew from 5% to 16% in the ten years from 2009 to 2019. And then came coronavirus. In 8 weeks, the 16% rose to 27%. A decade of change repeated in 8 weeks.

We are living through extraordinary times. In India, we have seen four successive shocks in the past two months. First came the pandemic. Then, the lockdown. This led to a complete demand collapse for many industries and businesses. And finally, the government actions (or lack of them) which have compounded the problems.

Now, two months after the lockdown, there is no sign of “flattening the curve” as cases keep rising across many parts of India. Much of economic activity remains shut down even as efforts are finally being made to open up the economy. (For the record, I had written about the urgent need to Unlock India early in April.) Migrants who had come to cities in search of a better life have been making their way back to their villages. Layoffs are now starting to happen. Work from home has become the new normal for many employees. Even as medical challenges overwhelm cities like Mumbai, the full horror of the coming crisis is slowly becoming apparent.

For business leaders, there is no playbook which could have prepared them for these times. The post-Covid future is now revealing itself. Capital is going to be constrained, profits are coming under severe pressure, marketing budgets are being minimised and the customer is going digital in the wake of social distancing norms. A new normal is emerging – one which is here to stay.

For Chief Marketing Officers (and in fact all CxOs), it is time to think of the 5th P of Marketing. To Product, Price, Promotion and Place, they all need to think of Profit. Because without profits, there will be no business. In the post-Covid world, we all must become Chief Profitability Officers.

Tomorrow: Becoming Chief Profitability Officer (Part 2)

India’s Mission 10-20-30 (Part 11)

I am continuing by summarising the points that I gave in a talk at the Charcha 2020 event.

India faces many crises. We can continue on the suicidal path or use the pandemic to create a new India, a rebirth. We can choose our existing rulers or change the rules to ensure different outcomes. We can continue with kakistocracy (a government of the least qualified and the most corrupt) or create a genuine democracy where the voice of the people is heard. We can choose to stay on the road to serfdom or get on the path of freedom. We can live in poverty or make prosperity our new destination.

These are the choices we face. We can stay with the old or ring in the new. This is the Nayi Disha we need in India. It is time for an Indian Revolution – which does away with the old ways and creates a new system and future. The crisis that the pandemic has created, the Third World War we have been thrown into, the pain that we are presently enduring – it can lead to a happy ending if we are prepared to change direction.

This will require extraordinary vision and leadership at the highest levels in India’s government. It will also require people to come together and accept the change that we know can transform our future. We know there is no going back to the world that existed just a few months ago. We may not know the new world that lies ahead of us – but if we learn from the successes of other nations, we can start on a new journey.

We did not ask for the pandemic. It is here. We cannot question the why of the pandemic. The only questions we should ask as we contemplate the future are, “If not us, then who? If not now, when?”

The answers we give and the actions we take will determine the India that emerges from the Third World War. Mission 10-20-30 is the one big idea to take us to a future of freedom and prosperity.

Tomorrow: India’s Mission 10-20-30 (Part 12)

India’s Mission 10-20-30 (Part 10)

I am continuing by summarising the points that I gave in a talk at the Charcha 2020 event.

Mission 10-20-30 is about focusing on a single theme – job creation. It is about making transformational changes to ensure the creation of good jobs in the coming months and beyond. It is about freeing the people of India from the controls put on them by successive governments over the past 70+ years. This is the Sampoorna Swatantra (complete freedom) we need. Done right, Mission 10-20-30 is the Nayi Disha we need to lift hundreds of millions out of poverty in the coming years and put India on an irreversible path to prosperity.

“Even the smallest person can change the course of the future”, wrote JRR Tolkien in his book, “The Lord of the Rings.” For India to embark on Mission 10-20-30, even as we hope for our political leaders to make the right choices, we can use the power of India’s voters to put pressure on the politicians.

Of India’s 90 crore eligible voters, 30 crore are steadfast in their support for one of the existing political parties. But there are 60 crore who are not – there are 30 crore non-voters, and another 30 crore are non-aligned and make up their mind on whom to vote for just days prior to voting.

The impact of the pandemic will also force a change in the way campaigns are done – politics will also become digital. This can level the playing field for independent movements to take up established parties. Unity and pressure from these 60 crore voters can help make Mission 10-20-30 a reality.

Tomorrow: India’s Mission 10-20-30 (Part 11)

India’s Mission 10-20-30 (Part 9)

I am continuing by summarising the points that I gave in a talk at the Charcha 2020 event.

Wealth creation will be driven by entrepreneurs and private enterprise, and not the government. For too long, India’s government has put roadblocks for entrepreneurs. Every one of those bottlenecks must be removed – India’s entrepreneurs need freedom. The constraints need to be put on the government, not the entrepreneurs. The government does not create wealth; entrepreneurs do.

The starting point needs to be real reforms – land, labour, agriculture, education, and so on. There have been many reports and suggestions made on all the structural reforms India needs. This crisis is a great opportunity to dust off all those reports and start implementing the good ideas. A simple rule of thumb is that it must put limits on the government, and free the entrepreneurs. Voluntary exchange between individuals is what drives wealth creation and government officials have no business interfering in the process of wealth creation.

One critical reform needed is in the enforcement of contracts and the efficient resolution of disputes. If there is no respect for the rule of law, then investments will not happen. What India needs is 3-2-1 Justice – all pending cases must be cleared within 3 years, new cases must be resolved within 2 years, and appeals settled in 1 year. Only then will entrepreneurs have the confidence to do what they do best – solve problems and create wealth.

Taxes need to be reduced to ensure more money stays in the hands of people and corporations. India’s taxes are too high. They must be lowered such that no tax (income, corporation or GST) exceeds 10%. Among other benefits will be the reduction in the size of government, which will limit the damage that it can do.

India’s cities need to be freed from the clutches of the Central and State governments. Cities are where wealth creation happens. Cities are where poor people want to migrate in search of opportunities. Over the next 15 to 20 years, 40 crore Indians will leave their villages and move to cities in search of a better future. Swantantra Cities will have directly elected and empowered mayors as the starting point for urban governance reforms.

Finally, there is a need to have clear titles to all property in India. This will allow the poor to unlock the value of their property and also ensure that commerce can flourish without someone laying claim to a property based on some questionable document.

This is the plumbing India needs to put in place for Mission 10-20-30 to succeed.

Tomorrow: India’s Mission 10-20-30 (Part 10)

India’s Mission 10-20-30 (Part 8)

I am continuing by summarising the points that I gave in a talk at the Charcha 2020 event.

India needs to borrow $2 trillion from global financial markets which are flush with funds. There is about $15-20 trillion earning zero or negative interest globally. All India needs to do is to guarantee a positive rate of return and give global investors the confidence that it will meet its obligations in the years and decades to come. The world needs India, and India needs the world.

The question then comes: how will India pay back the money it borrows? The two obvious answers are non-starters – printing money and increasing taxes. Both will have serious consequences and will push India further down the hole. As has been said, today’s fiscal deficits are tomorrow’s taxes. Besides, the borrowings are in dollars.

In effect, we are solving for our credit constraint by borrowing from the world. We are also releasing the credit constraint for the poor when we give them the money. By borrowing now, we can grow the economy, and the poor can grow their wealth. With the increased wealth, we can repay the loans.

What India needs to do is to monetise its surplus public assets – minerals, land and PSUs. This is the key that unlocks the process of wealth creation.

India’s surplus public wealth is estimated at $20 trillion. This comes to 15 lakh crore – 1,50,00,00,00,00,00,000. That is 15 followed by 14 zeros. This is wealth that belongs to the people of India – Rs 50+ lakh for every Indian family.

The repayment of the $2 trillion raised can be guaranteed by the $20 trillion of India’s surplus public wealth.

An example is the public wealth locked up in the 1000+ ‘palaces’ that are occupied by India’s ruling class (politicians and bureaucrats) in Lutyens’ Delhi. The market value of these British-era bungalows is about Rs 5 lakh crore, or about Rs 20,000 for every Indian family. Creating a Prime Minister’s Lutyens’ Delhi Liquidation Relief Yojana would be an excellent first step!

We have discussed jobs and money. What’s also needed is the plumbing that entrepreneurship and wealth creation needs. This is the plumbing that opens the tap of prosperity.

Tomorrow: India’s Mission 10-20-30 (Part 9)

India’s Mission 10-20-30 (Part 7)

I am continuing by summarising the points that I gave in a talk at the Charcha 2020 event.

Mission 10-20-30 is the one big idea to make Indians free and rich. It envisions 10 crore new jobs in the next 20 months with a monthly income of Rs 30,000+.

The idea is centred around jobs because jobs are going to be our biggest challenge going around. A nation cannot survive on government handouts. Without jobs, there is no production. Without production, there are no incomes. Without incomes, there is no demand. Without demand, there is no production. Without production, there is no growth. The cycle of transformation begins with jobs.

There are two big ideas to get the job creation process underway:

  • Return $1 trillion of the people’s wealth to the people. This is the idea of “Dhan Vapasi”. It entails returning Rs 1 lakh to every Indian family (26+ crore) for the next three years. This is not Universal Basic Income – this is Universal Wealth Return. It is not funded by taxes, but my monetising public assets (which we will discuss shortly). Money in the hands of people will undo the demand shock that we are facing. When people spend on their needs, it creates a “demand pull”. This will kickstart the creation of new jobs across the value chain.
  • Invest $1 trillion in infrastructure and facilitate the creation of special economic zones. India needs hard infrastructure – roads, high-speed rail, airports, ports. It also needs the soft infrastructure to ensure rule of law – police, courts and judges, contract enforcement, property rights. All of this will create good jobs that will pay well. In addition, India needs to attract global manufacturing to shift to India. One way is to replicate what China did in the 1980s – create special economic zones with new rules. This is the time when we can replace 10 crore Chinese workers with Indian markers – and thus do to China what China did to the world in the 1980s and 1990s.

By focusing on jobs as the central theme, Mission 10-20-30 is what India needs to create its Deng moment.

The obvious question is where does India get this $2 trillion to launch Mission 10-20-30?

Tomorrow: India’s Mission 10-20-30 (Part 8)