Published November 3, 2022
Marketing has historically been considered a cost centre. Its role is to build consumer awareness, drive interest and desire, and push towards action – captured in the AIDA model. With consumers becoming increasingly digital, marketing too has had to adapt. With precision targeting available through the likes of Google and Meta, marketing’s focus has shifted to new customer acquisition. With the rise of programmatic advertising and performance marketing, marketers can finely control their acquisition budgets.
There are two problems in this paradise: the lack of a hotline and AdWaste. For the most part, marketers have been unable to build relationships with existing customers. As a result, customers largely ignore the push messages sent by brands on email, SMS, push notifications and increasingly, WhatsApp. This results in a relationship which can be easily broken; customers become inactive or churn, attracted by other brands constantly targeting them. This pushes marketers to acquire even more new customers causing a spiraling increase in acquisition budgets.
To put it in numerical terms: a brand with 100 customers which sees 30% of its customers become inactive will need to acquire 55 new customers in the year to demonstrate 25% growth. (The churn will bring its total down to 70, with the target being 125 customers at the end of the year.)
AdWaste worsens the situation because half of the spending is being wasted by marketers ending up reacquiring churned customers and new customers churning within days of being acquired. The latter is especially true for app installs, with 30-day retention being just 25% for most brands.
The problem is compounded by rapidly rising customer acquisition cost (CAC). With brands competing aggressively to demonstrate growth, CAC has been increasing 40-50% annually. This leaves less money for building relationships with existing customers. Marketers deploy martech platforms to engagement and retention, but do not devote adequate resources to fully leverage their power. After all, 90% of their budgets and time is spent on new customers.
The crux of the problem is the inability of marketers to build relationships with existing customers. Without getting more revenue and referrals from existing customers, marketers are trapped in a vicious cycle of wasteful digital ad spends.
Marketers need a new paradigm – one which prioritises profits. Profits will only come when existing customers come back for more and bring their family and friends. While the product and digital experience are both important for repeat purchases and referrals, marketers also need to ensure that their messages are not ignored by customers. The hotline constructed via push messages which are opened and acted on is the only solution for marketers. So far, they have had very limited plays to make this happen. A series of innovations can empower marketers to build a better hotline and thus lay the foundation for crafting profits.
Push messages are a marketer’s best ally for bringing existing customers to the brand’s properties (website or app) for transactions (either in terms of money for ecommerce platforms or time for publishers). Without push messages, marketers have to rely on their branding efforts to ensure customers remember to come on their own. Push messages are thus very important – with the result that billions of such pushes happen each day. In India, about 500 million emails and over a billion SMSes are sent daily to a few hundred million consumers, along with zillions of push notifications. We have also started seeing WhatsApp emerge as an engagement channel for brands in the past few months.
Email and SMS have remained the same from a capabilities standpoint over the past decade. Most marketing emails now have an attractive image with the brand message and an invitation to clickthrough to a landing page. SMSes are still limited to text. Both are 1-way push, with consumers unable to reply or interact in any other way than a clickthrough. (Incidentally, a long time ago, brand SMSes were two-way before TRAI regulations forced brands to send SMSes with an alphanumeric code in an attempt to counter spam – killing off a very useful interactive channel.)
While SMS remains stuck in the past, WhatsApp has emerged as a useful alternative for brands wanting to engage with customers on their mobile. Until recently, WhatsApp did not allow brand messaging. That has now changed. While it is much more expensive than an SMS, there is much promise with the conversational capabilities that WhatsApp is bringing to its interactions.
The innovations which I believe will be the gamechangers for creating hotlines focus on email. Along with a mobile number, an email address is the other digital identity we all have. Email is the channel with the highest RoI, and new ideas can make it even better – AMP brings interactivity and Atomic Rewards adds micro-incentives. Taken together, they can help reinvent email – Email 2.0 as I have written in previous essays. The Email Footer can bring in gamification, Mu offers tokens for attention and data, Hooked Score brings in a new way to measure higher order engagement beyond just opens and clicks, Progency brings in pay-for-performance, Micronbox can do for brand communications what WhatsApp did for person-to-person messaging, and Email Ads could create a revenue source for brands potentially even making B2C emailing free.
Email reinvented – Email 2.0 – is the key that can help brands on their path to profitability by bridging the chasm in their relationship with customers. This hotline can enable brands to reach customers and get heard. More actions and transactions from existing customers can reduce churn and drive higher revenues, and also reduce the need for increasingly expensive new customer acquisition. Email 2.0 can also power Loyalty 2.0 – tokens to solve the twin problems of attention recession and data poverty. By adding gamification and asset appreciation, Email 2.0’s innovations can also appeal to Gen-Z and millennials. In fact, like Starbucks has become the third place in our offline lives, Email 2.0 can become the third place in our online lives beyond the app and the website. Combining push, permission and payments, email apps can become the marketer’s new best friend.
A new world awaits pioneering and pragmatic marketers, a world that takes email’s purposeful past and connects it to a fantastic future. This roadmap to crafting profits entails six steps: cobwebs removal, conversion acceleration, catchment expansion, “CommAdWaste” reduction, consistent compounding, and CMO-CEO partnership.
The first step that marketers need to do is to get rid of the fuzzy motions that blur decision-making. There are three specific ‘cobwebs’ that need to be removed: marketing is all about new customers, and martech’s focus is engagement and retention, and email is yesterday’s medium.
While new acquisition is important, the essence of marketing is about building relationships, driving revenues, and ensuring referrals from existing customers. It is easy to acquire new customers: all one has to do is to win the Google and Meta auctions for the clicks. The question is: what happens after that? While much of the focus has to be on the products matching the customer needs, there is a lot that marketing can do once a customer has entered the portal or downloaded the app. This is hard work compared to the ease of pay-per-click for acquisition. Until marketers are tasked with driving profitable growth (as opposed to ‘growth at all costs’), the mindset shift towards building better relationships with existing customers will not happen.
In the event that marketers do turn their attention to existing customers, the approach is to install a martech solution and echo the buzzwords of engagement and retention. This is not good enough. Should all customers be retained? They are not the same; Best Customers are many times more valuable than Test Customers. Yet, lazy marketing becomes sending similar campaigns to everyone on the pretext of engagement. Martech companies do not take up responsibility for outcomes and are complicit in the communications that go out – their billing models are based on monthly active users (MAUs) and volumes of messages (emails and SMS) sent. And yet, there is much more to a relationship than just a journey or the next best action. Collecting more data by asking can help personalise better than just trying to decipher signals from clicks. Yet, very few marketers do it. Automation platforms help with segments and journeys, and that’s as far as most marketers go – because 90% of time, energy and money is on new customer acquisition.
The third cobweb that marketers need to remove is that email is dying or dead, and that today’s customer is all over social media. Email marketing is the lowest amongst priorities and excitement. Even those who join as email marketers aspire to be in the social or acquisition teams. The perception is that email is just about a graphic to be created and sent to various segments. A double digit open rate is seen as excellent – without the realisation that this probably means 9 of 10 recipients did not act on the email. Marketers are therefore not able to comprehend the newness that Email 2.0 can bring.
Once marketers open their eyes and decide that Email 2.0 can take them beyond the lip service of retention and engagement to conversion and maximising lifetime value, which in turn can reduce AdWaste and take them off the CAC treadmill, they will have a taken a big step towards creating a profits machine for their brand.
Once the cobwebs are removed, marketers can get down to the task at hand: how to make the most of the customers on hand rather than chasing new ones in the bush. Email 2.0 is the secret sauce that can accelerate conversions with its two innovations of AMP and Atomic Rewards. AMP is about making emails interactive; Atomic Rewards (AR) is about adding micro-incentives for the in-mail actions. For example, marketers can offer customers small rewards (in the form of Mu) for providing feedback or zero-party data. Together, they can dramatically increase “conversion actions.” The problems that AMP and AR solve are that actions in push messages are very low and most brands don’t have enough data on their customers to personalise the messages.
I have a Gmail ID created many years ago which is not in use. But the email ID receives hundreds of brand marketing messages daily because the email ID has perhaps been mistakenly given on websites and forms. I decided to spend an afternoon going through my inbox. Tens of messages come daily. What struck me was that most messages look the same – there is one image which can be clicked through. It is almost as if the creative team took a print ad, sent it via email, and then added a click to a landing page. There is no thinking about varying the content – perhaps using some good copywriting to get the recipient interested. Subject lines are drab and unexciting. Even the transactional messages are templatised with little or no variations. It is almost as if someone created these messages a few years ago and they have been left untouched since then!
AMP and AR can transform the message by adding in-place actions and eliminating the clickthrough and need for a landing page. From form filling to gathering feedback, from searching to chatting, from showing the items in the shopping cart to the latest news – AMP can do it all. Think of it as a way to create mini-websites or apps right inside the email. Instead of asking people to come to the brand property, take a micro-catalog to them. The friction of the clickthrough is removed, which can lead to 3-5X increase in actions as we have seen in AMP campaigns done for brands. AR can add the incentives for the actions to create habits. It is about changing behaviour – from “delete” to “delight” in the inbox. Rewards can help this shift.
AMP and AR are the first steps in bringing in dynamism into the email, and thus accelerating the conversions that marketers want. They transform what we think of as an email. It is the creativity of the marketing department which will decide how much of an uplift brands get. A possible future idea to work on is to collect payments right inside the email – via UPI or cards. Imagine the opportunities for fast-tracking transactions!
Once the existing email engagers have been looked after, the next step is to look at those who are ignoring the emails. Two ideas can change the relationship with them: a rewards signal in the Subject to create curiosity, and the Email Footer which can create a few seconds of fun and thrill which reactivates the dormant relationship. Together, these ideas can multiply the active customer base without resorting to expensive new customer acquisition.
Every brand has lists of their customers. In most cases, at least a third (and in some cases as high as two-thirds) of the database is probably not being communicated to. This is because email inbox providers like Gmail and Yahoo impose a reputation penalty for emails sent and not opened. This results in less emails making their way into the inbox, which reduces open rates. As a result, most brands tend to stick to what they call 60- or 90-day actives – emailing only those who have opened or acted on an email in the past two or three months. In recent times, the “open” signal has also become weak because Apple and Gmail have started proxying images.
So, what can a brand do to expand the email database? The answer lies in reactivating the dormant customers. These are customers who, for various reasons, are not reacting to the emails being sent and yet have not unsubscribed. Thus, there is a channel still open to them. Here again, the combination of AMP and Atomic Rewards (AR) can help. We previously discussed how to use AMP and AR in the email Body for conversion acceleration; for catchment expansion, we will use the email Subject and Footer.
The change in the email needs to start with a signal in the Subject which shows that this is an email with rewards. Prefixing µ.<MuCount> can help tell the recipient that this is a genuine rewards email. The Email Footer can combine a brand footer (collecting feedback and data to earn Mu) with another “MuCo” footer which enables the redemption of Mu. AMPlets which offer 6-second games and content can bring emails to life. Because of these elements in the footer of the email, the customer needs to scan through the Body – hopefully triggering some interest. Also, by offering incentives for data, future emails could be personalised to increase the prospects for viewing of the content.
These ideas can thus increase open rates from 10% to perhaps 30-40%. Combined with the in-mail transformation of the email body with AMP and AR, brands can improve response rates by 10X or higher. With attention and data, transactions will follow. Also, the inactive base reduction is almost like adding new customers – with a fraction of the spending.
The budget for the new set of marketing activities is hiding in plain sight – the wasteful spending on excessive new customer acquisition and the incessant messaging which is being ignored. By redirecting these spends to engaging better with existing customers (interactivity and incentives), the RoI on marketing spends can be dramatically altered.
Brands spend a lot of money on acquiring new customers but very little on existing customers. In fact, put differently, after spending money on new customer acquisition, they have very little left for deepening relationships with existing customers. So, marketers will do the right things in the name of engagement and retention – collect as much data as possible, install martech platforms, do the campaigns, and so on. It is more like a ‘checkbox’ – rather than something done to drive better outcomes and increased profitability. (Most marketers do not consider increasing profits as a KPI.)
What most marketers are unable to see is the waste in the ad spending and messages being sent. AdWaste happens because of reacquisition and wrong acquisition; my estimate is that half of adtech spends end up in these two buckets. CommWaste is about the wasteful spending in sending messages to customers who are ignoring them. Email and SMS open rates are in single digits; while the majority of customers now tend to turn off push notifications. As a result, the hotline is not there between brands and customers.
This spending needs to be re-channelised into more productive approaches. This is where the idea of using incentives for attention and data comes in. Akin to loyalty programs which offer points for transactions, Email 2.0 brings in the idea of using Atomic Rewards for existing customers. (The same idea of rewards can also be offered on other channels.) The focus is on non-monetary transactions – linked with time rather than money.
Instead of spending 100 units on a new customer acquisition, brands can spend 1 unit a month to build and sustain the hotline with an existing customer – thus reducing the possibility of churn, and in fact, with the upside of additional transactions. To attract Gen-Z and millennials to email, the incentives could be linked to games – with every interaction adding to the pool of customer data that brands aggregate for personalising the offers. The reduction of the waste will thus go a long way in improving business profitability.
For this, as I had written earlier, marketers will need to change some basic assumptions and think differently. Email 2.0 promises to be very different from the email which we have all seen for the past 10-15 years in our boxes. A pan-brand rewards program linked to attention and data is a first-of-its-kind innovation. These offer a solution to the rising CAC problem faced by marketers. It will require boldness and an entrepreneurial mindset on the part of marketers to think differently and adopt these new ideas.
Marketers need to learn what smart stock market investors know: the power of compounding. A 10% return annually doubles money in 7 years; while a 25% return can double it in just three years. By ensuring that each of the activities amplifies outcomes, marketers can aim for a 10X improvement on their activities with their existing customers. What marketers need to do is to shift focus from trying to optimise their ad spending and instead turn their attention to building hotlines with existing customers. New innovations are now opening up the possibility of building better and deeper relationships which were not possible earlier.
Marketers need to realise that they have underinvested in existing customers – and with rising CAC, the situation has worsened in recent years. Email 2.0 offers an opportunity to drive a transformation in digital marketing because of the interactivity that the channel brings. (WhatsApp is perhaps the only other alternative which comes close, but it is a ‘closed’ channel in the sense that control is exercised by a single large player – Meta – who can change the rules of the game. Something similar could be said about AMP also given its Gmail roots, but email as a channel has no controller.)
Marketers need to come up with a plan where their hotline program can become better daily. They need to run experiments to see what works, and build on the learnings. The RoI from such an initiative will be far greater than what they can get by trying to reduce CAC. The twin combination of AMP and Atomic Rewards (AR) offers marketers a vast playground for testing out new ideas. Which AMPlets work better for which segment of customers? What should be the quantum of rewards? Should there be differential rewards for different customers? And so on. Email 2.0 thus becomes a laboratory for marketers to listen and learn.
Done right, the multiplier effect from Email 2.0 can be substantial. Besides helping increase ratings and reviews, Atomic Rewards can boost referrals. Think of referrals as new customers with a CAC of zero. Referral programs today have had limited success; this can change with Email 2.0 and Atomic Rewards. Also: the more the zero-party data collected, the better the understanding that marketers will have of their customers. This in turn can help improve the quality of new customer acquisition.
Small improvements in the 5 Rs – retention, repetition, reactivation, referrals and replenishment – can all compound and deliver superior returns over time. What is needed is that marketers create a playbook and process for this – drive it in a Kaizen-like discipline of continuous daily improvement. Doing things 1% better each day leads to a 37X improvement in a year.
None of the steps we have discussed here is possible without a complete buy-in from the CEO. What is needed is a ‘jugalbandi’ (partnership) where the CMO also takes up ownerships for driving exponential forever profitable growth, rather than just asking for a spending budget each year. The CEO needs to shift focus away from measuring new customer additions and instead look at how existing customers can deliver more value.
In the digital stampede and with easy money available over the past few years, the focus for most consumer-facing brands has been to do a land grab. The ease of digital advertising and getting clicks has made new acquisition a numbers game. There has been little regard to the quality or longevity. From CEOs to investors, everyone wants to see new numbers being stacked up. CMOs have been only keen to oblige. Channeling money to Big Tech for showing big numbers is like buying IBM in the early days of computing – no questions are asked.
There has been little focus on how to make the most from customers after acquisition because this is hard work. It means gathering data about customers, understanding and anticipating their interests, figuring out the effectiveness of channels, creating personalised content, and crafting customer journeys that work. Much of this has to be done internally because there are not any martech agencies to outsource work to – unlike ad campaigns.
To make the shift towards profitable growth from existing customers, CEOs will need to instruct CMOs appropriately. They will need to work in tandem to ensure that marketing leads the way. While there are many other departments that need to work together for eventual success, marketing’s role is crucial in B2C and D2C companies because they are the ones who are driving the customer engagement and experience.
For their part, CMOs need to think like Chief Profitability Officers. They need to make the hard call to switch budgets from adtech to martech, from new customers to existing customers, from acquisition to customer lifetime value maximisation. Aiding CMOs are innovations like AMP and Atomic Rewards. CMOs will need to revisit their assumptions about email as a channel and think of the power of Email 2.0 and how to create a hotline such that customers listen when marketers speak.
If CEOs and CMOs can work together, a better future is possible for brands – one which puts profitable growth above everything else. In a way, it’s about taking marketing back to what it should always have been about: ensuring existing customers come back for more and they bring in their family and friends.
We have discussed the six steps brands need to do for crafting profits: cobwebs removal, conversion acceleration, catchment expansion, “CommAdWaste” reduction, consistent compounding, and CMO-CEO partnership. How do brands get started on this journey? Here are the four actionable initiatives that marketers need to do to get started on this new path.
First, CMOs should get a buy-in from the CEO. The ideas described here entail a major shift in business strategy. With everyone else touting new customer additions, brands which choose the profits first approach will need to get off the beaten track. A looming slowdown is a good time to make the shift. Every recession creates a discontinuity and offers marketers the opportunity to try new things. With customers becoming more discerning in their purchases, with inflation upending buying decisions, with investors becoming wary of cash burn, marketers can now come up with new ideas to create a better business model – based not on external capital infusion, but on internally generated profits. This is where the ideas of Martech 2.0 come in.
Second, marketers should adopt Email 2.0 to construct the hotline. Every email sent should be AMP-ified and have rewards. The aim should be to ensure no email is ever ignored by a customer. The mix of ideas discussed – Mu in the Subject, AMP in the Body, and AMPlets in the footer – can together transform email open and response rates. Once existing customers start interacting with the messaging sent by marketers, half the battle is won.
Third, marketers should differentiate between their customers. At the extremes are the Best and Test Customers, with the Rest Customers making up the middle. Best Customers – the 20% will typically account for 60% of revenue and 200% of profits – need a separate business unit to interact with them. This is where Velvet Rope Marketing comes in.
Fourth, marketers should rethink their loyalty programs. Existing programs have serious limitations – the possibility of debasement, the difficulty of redemption, the worry about points expiry, and the lack of tradeability. This is where marketers need to think Loyalty 2.0 – go beyond transactions to attention and data, go beyond a single-brand program to participating in a pan-brand initiative, and go from points to tokens which have the added allure of asset appreciation.
The most important realisation for marketers needs to be that customers are not just numbers and metrics. They have needs for which they are willing to pay with their time and money. In fact, the non-monetary assets that customers have – attention, data, network and voice – can turn out to be as valuable as their ability to spend money. In the past, marketers could not do anything with these assets. Innovations like Email 2.0 enable the creation of hotlines which can now help marketers and customers build a win-win relationship and exchange, and thus build a profits pipeline. A new era of marketing awaits us – one that can deliver exponential forever profitable growth for brands.