Marketing: Disrupted and Simplified (Part 18)

Money on the Table

Let’s dig deeper into the impact of the power law of marketing.

We can segment customers into Best (top 20%) and Rest (remaining 80%). Another way is to think of them as High, Medium and Low value customers – H, M, L. The following calculations are very simplistic but they will make the point that marketers are leaving a lot of money on the table by not getting  customers to pay attention to their marketing messages.

  • Top 20% customers [H] = 60% revenue; average for each 1% = 3%
  • Next 30% customers [M] = 20% revenue; average = 0.67%
  • Bottom 50% customers [L] = 20% revenue; average = 0.4%

Now, let’s assume that with better marketing, revenues from H and M customers can be increased.

  • Revenue from H customers increased by 10% = 60 à 66 units
  • Revenue from M customers increased by 20% = 20 à 24 units

This will lead to a total revenue increases by 10%. The marginal costs will not increase substantially and much of the extra gross margin will flow straight to the bottom line resulting in an increase in profits by at least 25-30%.

If marketers can play the attention game right, the impact can be even greater. This is the money marketers are leaving behind. Therefore, it is critical for marketers to get customers, especially H and M, to pay attention to their messages.

But as we all have experienced, this does not happen. Here is the reality of attention:

  • Emails: open rates 5-15%
  • SMS: open rates 10%
  • PNs: blocked / undelivered to ~50% of base

The net result is that a very large majority of customers are ignoring incoming messages. What if most of these are H and M customers? Have marketers done a correlation between CLV and engagement? If a brand’s valuable customers can be persuaded to open more messages, can that lead to more transactions? These are the questions that marketers should be asking – rather than figuring our whether they should be spending more on Google or Facebook!

To ensure “No Money Left Behind”, marketers need to work on the following:

  • Get H and M customers to pay attention
    • Else they are leaving a lot of money on the table (for competition)
  • Change customer mindset from delete to delight
    • How to train customers to never ignore messages?
    • How will they buy if they don’t know what is on offer?
  • Convert 1-off engagement into continuous relationship
    • Make opening and acting on messages a habit
  • Segment customers based on value
    • H (Best) more valuable than M who are more valuable than L
    • Selectively incentivise customers for specific actions
  • Do all this without any new budgetary allocation

This is marketing’s greatest challenge – and opportunity. And the simple truth that marketers have missed is: “To get customers to pay attention, pay for attention.” In fact, marketers know this very well – they are just paying the wrong entities for attention. It is time they stopped fattening the profits of Google and Facebook, and instead consider a rewards program to incentivise their existing customers for attention and action, the upstream of transactions. This is the secret to ensuring there is no money left on the table – for competition. The next question: what do marketers have to do differently to win their customers’ attention?

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.