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.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.