Thinks 545

Art Carden asks which economists should have gotten a Nobel Prize before they died. (Nobels are not given posthumously.) In the list: Mises, Frank Knight, Tullock, Alchian, William Baumol and Julian Simon, among others. On a related note, here is an essay by Donald Boudreaux on Buchanan and the political economy of debt funding. The key point: “we spend other people’s money more profligately than we spend our own.”

A textbook chapter on Cryptonomics by Tyler Cowen and Alex Tabarrok in their “Marginal Revolution.” They write in their summary: “In all of these crypto and blockchain areas, there are at least two kinds of uncertainty. The first is how effectively crypto and blockchain innovators will be able to capture additional gains from trade.The second question is how the authorities will regulate these markets.”

Sudipto Mundle: “Three broad groups of states are identifiable, each with a distinct development model. First, there are the least developed states represented here by Bihar and its development model. This group includes Uttar Pradesh, Jharkhand, Odisha, Assam and all the north-eastern states, among others. Many of these states are growing at rates comparable to the national average, but the high growth rates are misleading because of their low base. These states have very low per capita incomes, low levels of human or social development and also of infrastructure development….At the other end of the spectrum, we have the Gujarat model. A fast-growing state, Gujarat also has a high per capita income, nearly 6 times that of Bihar. A large share of its workforce is still dependent on agriculture, yet Gujarat is one of India’s most industrialized states, with the industry share of GSDP way above the national average at 44%…The odd thing is that in social development, such as education and health outcomes, the state has lagged well behind the country’s leading states. This deficit is a major handicap in the 21st century, when the quality of human resources determines competitiveness…A third and most interesting development model is that of Tamil Nadu. A prosperous state with high per capita income, it is also one of India’s most industrialized states like Gujarat, with industry accounting for over 34% of GSDP. But unlike Gujarat, Tamil Nadu has brought down the share of its workforce in agriculture to 30% and the state also scores high on social development…All this has been achieved despite Tamil Nadu’s modest size of government at 13.5% of GSDP, which is well below the national average. The state’s dependence on central transfers is also quite low, in fact lower than Gujarat’s. The Tamil Nadu model of development is thus the most successful model under Indian conditions.”

Thinks 544

Marc Andreessen: “There are three sort of big-use cases of cryptocurrency on top of Bitcoin that are really starting to become real and are starting to see a lot of activity. So, just quite quickly, one of those is so called DeFi, Distributed Finance. And, some of those capabilities are starting to get quite large. Second is there’s this whole wave of what are called NFTs or Non-Fungible Tokens. Unique digital assets. And, that wave also has gotten quite large and there’s quite a lot going on. And, then there’s a third category, which is gaming. The entire video game industry looks like it’s going to get upended by this new model. And, then by extension, more and more of the media industry. And, we’re very active in these sectors. A very large percentage of the very smart people working on games–virtual worlds, metaverse, all these new areas of entertainment and experience–they’re using this technology as a foundation.”

Atanu Dey, in his series on Democracy: “James Buchanan distinguished between the constitutional stage in which the choice is between sets of rules (which is what a constitution is), and the in-period rules made by those people chosen by the chosen constitutional rules. We have to keep that distinction in mind, and understand what it logically implies: that in the stage that we are choosing between rules — A, B, C, D, E in the above example — we have to necessarily have unanimous consent. That is, all of us have to agree to the procedure for arriving at the in-period rules of the game. We can only be morally obliged to follow some rule only if we have all consented freely to be bound by that rule. It is morally impermissible to impose rules on people that they have not freely chosen to abide by. Once we have freely chosen the rule that would determine which restaurant we’d all go to, only then we are morally obliged to abide by the decision arrived at by that rule. If I never agreed to the rule, for example, that the majority decision is a good rule for us to decide on the restaurant, then I cannot be morally bound to go to the restaurant that the majority voted on. But if I had consented to the rule that “majority decides”, then when the majority decides, I am obligated to obey because I freely consented to obey the majority decision.”

Read: With a Mind to Kill, by Anthony Horowitz. (A James Bond thriller set in the 1960s.)

Profit-centric Marketing: Start with Email 2.0 and Loyalty 2.0 (Part 4)

Getting Started

The starting point is with a revamp of the email program. In case a brand does not have email IDs, it should run a program to collect email IDs and link them to mobile numbers. The email ID is perhaps the most valuable asset that a brand can have. In emerging markets like India, the focus tends to be on the mobile number. What brands must remember is that a mobile number only enables them to communicate with an eighth of their user base: 30-day app retention is about 25%, and half of those who keep the app installed have push notifications switched off. While brands can choose to send SMS and WhatsApp messages, the costs can be 10-50 times higher than that of an email.

Email 2.0 must become the cornerstone of the revamped program. Email 2.0 makes emails 2-way, a daily utility in people’s lives, interactive, informative and gamified. It is something customers will welcome in their daily lives – “invited advertising” or invertising!

There are two ways to implement an Email 2.0 program: marketers can do it internally or partner with a Progency (product-led agency). A Progency does to martech what the digital agencies did to adtech – offer a one-stop solution with payment linked to performance. This leaves the marketer free to think about the bigger picture and strategy rather than getting too caught up with the day-to-day grunt work of running campaigns. (In fact, the ideal marketing department of tomorrow will probably be a single person supported by a progency which in turn combines an AI-first martech platform and people.)

The gamechanger for building the hotline and thus capturing attention and data are the Loyalty 2.0 tokens. These tokens take marketing into the Web3 world. They disintermediate the Big Tech platforms, foster a direct relationship between brands and customers. What marketers need to remember is: To get customers to pay attention, pay for attention (else they will pay Google and Facebook 100 times more.) The budget for Email 2.0, Progency and Atomic Rewards comes from cutting the adwaste which accounts for half the marketing spend. Savings from this will flow to the bottom line, as will the increased revenues from customers converting more because they are listening more to what the brand is saying.

Email 2.0 and Loyalty 2.0 are thus the first steps towards profit-centric marketing. They will later need to be augmented by Martech 2.0 and Adtech 2.0. This new framework will transform business bottom lines and create loyal customers. Without profits and without customers who return and get their friends, no business can survive for long. These new marketing ideas – Email 2.0, Loyalty 2.0, Martech 2.0, Adtech 2.0 – are disruptive innovations, and can serve as the anchors for success and the creation of exponential forever profitable growth and eventual “profipolies”.

Additional Reading:

Thinks 543

HBR on Web3: “In Web3, instead of platforms having full control of the underlying data, users typically own whatever content they have created (such as posts or videos), as well as digital objects they have purchased. Moreover, these digital assets are typically created according to interoperable standards on public blockchains, instead of being privately hosted on a company’s servers. This makes the assets “portable,” in the sense that a user can, in principle, leave any given platform whenever they want by unplugging from that app and moving — along with their data — to another one. This is a major shift, which could fundamentally change how digital companies operate: Users’ ability to take their data from one platform to another introduces new sources of competitive pressure, and likely requires firms to update their business strategies. If a platform isn’t creating enough value for its users, they might simply leave.”

FT: “The Penguin Book Of Indian Poets, an anthology of poems exclusively written in English, is vast in scope and ambition. The book’s editor [is] Jeet Thayil, an acclaimed novelist and poet himself…For his latest project, Thayil has selected the work of 95 poets (49 women, 45 men) from across the country and the Indian diaspora, and he is steely in his determination to claim each of these writers as truly Indian. “Three quarters of a century separate the oldest poet, born in 1924, from the youngest, born in 2001. The dates service as bookends in a movement’s unlikely coming of age,” Thayil writes in the introduction. He argues persuasively that by the 21st century, a new generation of Indian poets had ushered in “a flowering, an uprising” of creativity, which complemented the work of 20th-century modernist poets in the west. In the hands of the poets Thayil highlights here, English ceases to be the language of India’s former colonisers; rather it has the force of a rushing young river that has joined up with the ocean of older Indian languages.”

FT: “In corporate strategy, [Richard] Rumelt says, it is important to identify “the most critical part of the challenge you can actually expect to solve. Don’t pick a challenge you cannot yet deal with — attack the crux of the situation, build momentum, and then re-examine your position and its possibilities…The logical consequence of this attitude is that as business challenges alter, so strategists must correct their course. Strategy, Rumelt writes, is “a journey through, over, and around a sequence of challenges”. As for the objection that a short-term focus turns strategy into tactics, he points out that, in military planning, the distinction between strategy and tactics merely “denotes the difference between the general’s action plan and the top sergeant’s action plan”.”

Profit-centric Marketing: Start with Email 2.0 and Loyalty 2.0 (Part 3)

The How

To summarise the narrative so far:

  • While brands can buy growth with adtech spending, that comes at the cost of profitability
  • Good growth and profits needs repeat business and referrals from existing customers
  • The challenges marketers face in dealing with existing customers are attention recession and data poverty
  • A shift in focus from adtech to martech means a shift from acquisition and discounts to solving for attention and data

The path to exponential forever profitable growth comes down to something as basic as solving the problems of attention and data. In a world of digital and direct relationships, these are the two things that matter most. If a brand’s customers are not listening and if a brand does not have adequate data, it becomes hard to build a hotline to customers. Without the hotline, it becomes difficult to bring customers back to the properties for transactions.

In the pre-digital world, what mattered was branding. Great copy and ads created the customer connect and brought them to physical world stores. While branding still matters, it takes time and is expensive to build. Only a few succeed. For all others, the opportunity for B2C/D2C businesses comes from the push messages to get their communication out to their customers. This has been forgotten by marketers eager to show growth at all costs.

The problems of attention and data can be solved. For this, the mindset of marketers needs to evolve. The world of customer engagement must begin with the push channels. Today, there is very little attention paid to these channels. The channel with the best RoI – email – sees a spend of $8 billion annually. This is just 2% of what is being spent on adtech platforms globally.

I believe that email can and must become a marketer’s new best friend. Email is not what it once was – 1-way broadcast and semi-spam. Email is now ready in its new avatar: Email 2.0. This email can be interactive, informative, gamified, fun and exciting. It is email like customers and marketers have not seen or imagined. Email 2.0 is a way to convert the delete mindset into delight. It can become a powerful channel for getting customers to volunteer data about themselves. For this, Email 2.0 needs to be combined with Loyalty 2.0. Tokens for attention and data with a new spam-free inbox which delivers surprises and rewards can bring brands and customers closer in a win-win relationship.

With attention and data, marketers can then deliver omnichannel personalisation on their properties and differentiated 360-degree experiences for their Best customers (Martech 2.0) and slash acquisition costs via referrals and targeted new customer acquisition (Adtech 2.0).

This is the new world of marketing, reinvented for a digital world. The basics do not change. Marketing is about bringing customers back for more and ensuring they get their friends. What is different is the ‘how’ to get started – a new-look email format (what I call “microns”) and atomic rewards in the form of tokens for attention and data to nudge behaviour. These are the ideas that hold the key to building the pipe (hotline) with existing customers, and therein lies the secret of profit-centric marketing.

Thinks 542

7 Essential Ingredients of a Metaverse: by a16z. Decentralisation, Property rights, Self-sovereign identity, Composability, Openness/open source, Community ownership, Social immersion. “Openness and decentralization are the pillars upon which the whole edifice rests. Property rights rely on decentralization — they must endure despite the influence of powerful adversaries. Community ownership prevents unilateral control of the system. The approach also bolsters open standards, which are helpful for decentralizing and composability, a closely related property downstream of interoperability.”

Atanu Dey on markets: “When trades are not allowed, both parties lose. Add up tens of millions of disallowed trades — which invariably governments d0 — and slowly but certainly the people become impoverished. This is true. The wealth that we enjoy could not have been possible without markets. How do? Because we have the possibility of exchanging what we produce, we are able to specialize in what we are good at producing. That allows division of labor, which in turn allows division of knowledge.”

Read: In the Blood by Jack Carr

Profit-centric Marketing: Start with Email 2.0 and Loyalty 2.0 (Part 2)

Two Problems

Marketers are pouring money into adtech for new customer acquisition. They are taking unsustainable shortcuts in pursuit of growth. CAC is rising rapidly and sucking away even more of the marketing budget. Marketers therefore face a doom loop of spending: rising CAC demands more adtech spending, which reduces funds available for existing customers, which impacts the relationship and experience, which in turn causes churn, which pushes marketers further down the adtech path. The solution lies not in trying to optimise adtech spending but to start with existing customers and focus on how to build a better relationship with them.

In this quest, marketers need to solve two problems: attention recession and data poverty. Existing customers can be brought back to the brand’s properties (website and app) via two mechanisms: great branding or push messages. Branding takes time and money to build, and is also an outcome of the experience delivered. On a daily basis, it is the push messages (sent on email, SMS, WhatsApp or as app notifications) that have to do the magic. The problem here is that customers are not paying attention to the promotional messages sent by marketers: open rates in email and SMS are very low and push notifications are blocked by many app users. In other words, customers are not listening to what brands are saying.

There is a second problem: lack of a unified customer view  to personalise the customer experience. While martech platforms help brands collect a lot of customer data, the first-generation point solutions do not provide an integrated view since data gets siloed and integration costs can be very high. For example, one of India’s leading banks does not recognise me as the same person who has a bank account and a credit card with them even as the mobile number is the same for both accounts!

Taken together, attention and data are the two fundamental challenges that marketers need to solve. So far, they have taken the easy way out: discounts to get customers to pay attention (which means treating every existing customer as a new customer each time) or just retargeting them via the adtech platforms. Both are expensive propositions and hurt profits. But for marketers goaled on growth, profits are not their concern. But for a CEO or CFO, this short-sightedness has serious implications on the bottom line.

This is why I believe profit-centric marketing must become a founder/CEO/Board agenda. Unless the top leadership understands what’s hurting their business, they will not escape the spending trap. And without ending adwaste, there is no path to profitability, even though they may be able to demonstrate short-term growth. To make sustainable profitable growth a reality needs a rethink on all aspects of marketing: next-gen ideas for email, loyalty, martech and adtech.

Thinks 541

Tyler Cowen on the best question to ask a job applicant: “What are the open tabs in your browser right now?”. Tyler adds: “The question measures what a person does with his or her spare time as well as work time. If you leave a browser tab open, it probably has some importance to you and you expect to return to the page. It is one metric of what you are interested in and what your work flow looks like.”

Saneel Sreeni and Leo Zhang: “Commodities are basic raw materials that serve as the basis for the production of everyday goods and services. The history of commodities is a reflection of civilization itself. Humans waged wars against each other to seek control over the most important resources; from rice, to metals, to spices, to oil. As more aspects of the global economy and daily activities migrate to the cryptoeconomy, what will become the most sought-after commodity of the new era? Blockspace. All economic activities on public blockchains settle on blockspace. Consensus producers, such as miners and staking validators, supply blockspace, while every transaction demands blockspace. When on-chain activities increase, network fees increase, and when the value of the block subsidy and fees increase, more people are motivated to compete to append the next block to the blockchain. Since blockspace is a commodity, it can be used as a basis for financial instruments — either to hedge against production or enhance returns. Such financialization ultimately leads to a comprehensive capital market, akin to the way all important commodities have evolved throughout history.”

The Ownership Economy 2022: “Creators don’t own their content, developers can’t control their code, and consumers can’t influence the policies or decisions of the platforms they use. This scenario, which once went unquestioned, looks increasingly archaic.  This is starting to change via the ownership economy—often referred to as web3—with products and services that turn users into owners. What started with Bitcoin and Ethereum—both of which reward participants who secure the network with their native tokens—is becoming prevalent across all categories of software, from developer infrastructure and new financial markets in DeFi to consumer products, marketplaces and social.”

Profit-centric Marketing: Start with Email 2.0 and Loyalty 2.0 (Part 1)

The Shift

The past few years have seen consumer companies spend big on growth at all costs. Traditional and new-age companies have been splurging on new customer acquisition on the adtech platforms (primarily Google, Meta, Amazon). Some of the spending was justified as the pandemic accelerated the adoption of digital. Also, the printing of money by central banks made capital almost free and investors seeking growth found fast-growing B2C/D2C companies as a good hedge against low interest rates.

This ‘growth at all costs’ has led to a digital arms race where the only winners have been the adtech companies. Rising CAC (customer acquisition cost) has meant brands have had to invest increasingly higher money for new customers. This is unsustainable, and there are signs that the tide may be shifting back to more sustainable and profitable growth. As Fred Reichheld, the creator of the Net Promoter Score, said in a webinar recently: The only way to grow is to ensure customers come back for more and bring their friends.

For a business, more than top line growth, what matters is the growth in gross margin and profits (EBIDTA). Top line growth can be achieved by giving discounts to existing customers for transactions and spending big on new customers. This is not good growth. What a business needs is to grow the gross margin and then profits; between these two numbers is the cost of running a business – primarily, employee costs and marketing. Of these, marketing is the one which can vary dramatically depending on the choices made.

Thus, for a business to be profitable, there are two key requirements: grow top line in a healthy manner by increasing revenue from existing customers without discounting aggressively, and then keep marketing costs under control by calibrating the spend on new customer acquisition. This is at the heart of what can be termed as “profit-centric marketing.” For every business, profits are a must because otherwise there is a need for continuous capital inflows to fund the losses.

Profit-centric marketing actions can be further sharpened to the following:

  • Drive growth from Best customers. These 20% customers account for 60% revenues and more than 100% of profits since the cost of servicing and acquiring other customers dents profits.
  • Reduce “Adwaste”. Brands are wasting half of their marketing spends on reacquisition and wrong acquisition. (Globally, this is a $200 billion waste.) This means building direct and deep relationships with existing customers. It means ensuring customers come back for more and bring their friends.

Profit-centric marketing done right can deliver the right sustainable and organic growth for businesses. By leveraging the power of digital, this can be made exponential and forever, as Best customers spend more, stay longer and get their family and friends who become tomorrow’s Best customers.