The big question is: where will the money for implementing all these new ideas come from? The answer: rebalancing the marketing budget.
Marketing budgets have been heavily skewed towards acquisition rather than retention. In India, 90% of the spends (Rs 25,000+ crore) goes to new acquisitions (80% of that going to Google and Facebook), and only a tenth of that is spent on customer retention and growth. With VC and PE inflows at $100 million a day into startups and *tech (star-tech) companies, the cost of new customer acquisition is increasing rapidly, especially since the overall pool of profitable customers in India is limited. To make matters worse, of the spends on acquisition, I believe that a third gets spent on reacquisition. So, the current spends look like this: New Acquisition 60%, Reacquisition 30%, Retention 10%. Few marketers are questioned for this lopsidedness because investors everywhere only care about growth. With easy money available in dollops, CMOs are happy funnelling incoming funds to Google and Facebook to deliver on the most important metric that everyone wants to know: growth.
This will change; it is inevitable. As liquidity dries up in the months (or years) to come, markets will demand profits. Not every CEO is Jeff Bezos, and not every company can be an Amazon – even though that may be the hope of every investor. CEOs will, very soon, be tasked with delivering profitable growth. If brands need to achieve the Holy Grail of exponential forever profitable growth, the only path to getting there is going to customer retention and growth.
This will require rebudgeting:
- New acquisition spends will need to be halved to 30% of the overall spend, and even this should be optimised to focus on acquiring more profitable customers
- Customer retention will need to come to the fore, with more talent and greater investments in technology. Retention must become an equal partner to new acquisition. The budget needs to go up from 10% to 30%.
- Of the remainder, half (20%) must be spent on atomic rewards to address the problem of attention recession. To get customers to pay attention, pay for attention. Push messages are the perfect places to begin rewarding customers since they are the only way to bring them back to the brand’s properties (website and app). These micro-incentives will help marketers drive the right behaviour among the right customers, as game developers have learnt through the years.
And the balance 20%? That is the surplus – the profits! It is what powers the future, laying the foundation of an enduring, great company rather than a company being built to sell. This is the sure shot to building a profits monopoly (“profipoly”).