Published November 5, 2022
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Budget Shift
The next big idea in marketing is not about technology, but how a redirection of spending from Big Adtech to customers can deliver superior returns. By paying their own customers for the transaction upstream (attention and data) and downstream (influence and voice), marketers will be able to build what they have long lacked: a two-way engagement hotline which can drive more revenues from existing customers enabling them to reduce wasteful new customer acquisition spending which in turn can propel profitable growth. Just as the first-generation of loyalty programs helped drive repeat purchases, the second-generation can solve the problems of attention recession and data poverty to foster conversation and fast-track conversion. Therefore the new mantra for customers needs to be: “Pay customers, not Big Adtech.”
Over the past decade or so, the allure of easy pay-per-click performance advertising has sucked away increasingly large chunks of marketing budgets. Today, in most companies, as much as 90% is being spent on Big Adtech platforms like Google and Meta on new customer acquisition. With CAC (customer acquisition cost) rising 40-50% annually, the compounding effect is hurting profitability. As long as easy money was available, it didn’t matter that half of the spend was being wasted on reacquisition and wrong acquisition. But with investor capital and patience becoming scarce, brands need to quickly look at alternatives to sustain growth. Optimising ROAS (return on ad spend) is one approach, but this is solving the wrong problem.
The focus for marketers needs to be on their existing customers and how to build better relationships so they can come back for more and bring their friends. This is what brand loyalty is about: retention, repetition and referrals. Yet, marketers pay very little attention to this half of marketing because while they can deploy the tech platforms, they are unable to solve the crux of the problem: building hotlines to their customers. Most of the messages they send are ignored by customers dealing with overloaded inboxes. And without the attention of customers, marketers have no other easy and cost-effective way to bring them back to their properties (app and website). Hence, there is an extreme focus on new customers to plug the gap caused by existing customers becoming inactive and churning away – attracted by a competitive offer from another brand. We are all customers of brands and have experienced this in our own interactions with brands.
An innovation promises to usher in a change: marketers can offer incentives in interactive emails for desired actions to get more attention and data, leading to more engagement, which in turn can increase conversion. AMPlets can remove the friction of a clickthrough and Atomic Rewards can gamify emails (and other push messages). With each of these ideas capable of delivering a 3-5X increase in “conversion actions”, marketers can get 10X improvement in engagement with existing customers. This combination of Email 2.0 and Loyalty 2.0 to construct hotlines is what will power the next era of marketing, marking a $200 billion shift from adtech (new customers) to martech (existing customers). To win in this era of profit-centric marketing, marketers will need to reward existing customers, rather than becoming revenue generators for Big Adtech.
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Brand Story
Let us look at the marketing story from the lens of a digital brand with a million customers. To sustain 25% growth each year, the brand needs to acquire 250,000 customers. (For now, we will disregard the churn – let’s just assume these customers simply become dormant. It is not that we as customers actually signal to a brand that we have churned except in the case of subscription businesses.) Let’s assume each new acquisition costs $5. This means a new acquisition spend of $1.25 million in a year.
How much would the brand spend on existing customers? There are two types of spends: on communications (push messages) and on martech platforms. A reasonable estimate would be about $12,000 a month split across both, coming to $144,000 annually.
Thus, the total digital marketing spend would be about $1.4 million with 90% on acquisition and 10% on retention and growth of existing customers.
The important point to note here is that half of the acquisition budget is being wasted. This AdWaste comes to $625,000 over a year. Marketers don’t discuss this – because they don’t think they know which half is being wasted. But now, in a digital world, it is possible to know – customers who are reacquired and the newly acquired ones who barely last days or weeks and never come back to the website or uninstall the app. Admitting the AdWaste could lead to a budget reduction – and therefore clout. Hence most marketers are loath to discuss this. But that doesn’t change the reality.
Now, consider the alternative. Imagine if this AdWaste budget could be transformed into Atomic Rewards to incentivise existing customers. Email 2.0 can be the carrier for distributing these rewards (in the form of Mu, a pan-brand currency from MuCo). This would not be like a conventional loyalty program rewarding transactions and spending. The Loyalty 2.0 platform is focused on time and data. More time spent with brand messages will lead to more conversions. More data offered by customers will lead to greater personalisation and relevant offers. The goal is to end the “delete” mindset when it comes to brand messaging and switch it to “delight.” Email 2.0’s footer innovations can enable instant redemption of Mu, thus increasing the interest and incentive in earning additional Mu. Who doesn’t like gamification?!
The $625,000 spent on existing customers can deliver multipliers in revenues and referrals, reducing the need for bidding in increasingly expensive auctions on the Big Adtech platforms. It seems such an obvious budget shift, so why has it not happened? And what is the trigger which will make it happen now?
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Why Now
The idea of rewarding existing customers seems a no-brainer. After all, loyalty programs linked to monetary transactions have existed for a long time. What is different about the ideas of Email 2.0 (AMP) and Loyalty 2.0 (Atomic Rewards)? Why will marketers adopt these ideas? And why will they do it with a sense of urgency?
First, it is only now with the rise of digital customers that marketers can reach customers uniquely in a cost-effective manner. Even though loyalty cards have existed for a long time and brands have collected point-of-sale data, processing that data and creating individualised messaging to be sent via physical mail is an expensive process. Credit card companies have done some of this with the card statements that used to be sent in paper format (but even these are now digital). Now, each digital customer has an addressable identity which is either an email address or a mobile number, making push-based communication possible in the form of email, SMS, push notifications or WhatsApp.
Second, until recently, all the push messaging channels were all one-way channels in the sense that engagement meant clicking on a link in the message and arriving at a landing page on the brand’s website or app. Just look at the promotional emails – they all look almost the same. There is a graphic with a call-to-action click. Most brands do not have enough data about their customers to personalise the offers; the result is that the only non-broadcast messages are the “abandoned cart” triggers. AMP promises to change this by bringing emails to life and eliminating the friction of the clickthrough.
Third, most CEOs do not question CMOs on the efficacy of their acquisition budgets – perhaps on the belief that all their competitors are also doing it and there is no alternative. CMOs too like the increased power which comes with rising budgets. Google and Meta have become today’s equivalent of IBM – no one gets fired for handing over money to them! What’s changing now is that CEOs are coming under pressure for profitability in market conditions that have altered – consumers are becoming more constrained by higher prices in their spending, investors are more reluctant to fund growth at all costs, and CAC continues to rise rapidly. CMOs can become Chief Profitability Officers – but only if they shift focus to existing customers. CEOs need to nudge CMOs to make this switch.
Fourth, there needs to be an entity which makes payments to existing customers as simple as the adtech companies did with programmatic and performance advertising. This is where MuCo comes in. With its points-and-tokens ‘currency’ Mu, it can offer micro-incentives which existing loyalty programs will not be able to do. Such a token needs to be pan-brand since no single brand can deliver enough value and customers will not be excited with dozens of attention-based micro-loyalty programs. The Web3 element of Mu adds the future potential of asset appreciation to gamification, and also does away with the traditional limitations of loyalty programs (centralized control, fear of debasement, redemption difficulty, expiry of points, and lack of tradability).
Finally, the blowback about privacy is reducing the efficiency of targeting – and thus further raising the cost of digital advertising. Google plans to do away with cookies, and Apple has introduced many anti-tracking measures on its devices.
All this is creating a perfect storm for brands. Marketers need an alternative to Big Adtech. This is where Mu comes in – a token enabling an exchange between brands and customers, a currency for the ‘Attention Economy’. Marketers can finally build hotlines to their existing customers, taking marketing back to its roots.
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The Opportunity
$200 billion, growing at 30% annually. That is the size of the opportunity for Email 2.0 and Loyalty 2.0 solutions. Today’s AdWaste can become tomorrow’s Atomic Rewards. Both brands and customers stand to win. Brands will have more revenues and higher profits thanks to their two-way hotlines to their customers. They will have happier customers. They will need to spend less on Big AdTech. They will be able to do better omnichannel personalization with the zero-party data they collect. Customers will have greater control of their own data. They will be rewarded for their time, data, network and voice. They will also receive better offers and recos from brands. Imagine the multiplier power of tens of billions of dollars in the hands of customers and enhanced brand profitability. This is perhaps the fiscal stimulus that can propel future growth globally. The only losers? Big AdTech.
Brand profits will also drive innovation. After all, brands only make money when they solve customer problems and address their needs. There is no compulsion on any customer to do business with any brand. Brands have been impacted because Big Adtech is sucking out the oxygen of their profits in the digital race. Aided by CEOs desperate to show continuous growth and CMOs only too willing to oblige with new customers through the acquisition route, Big Adtech has amassed huge power and profits. Their business models have worked brilliantly so far, delivering trillions in value to their shareholders.
But the tide is shifting.
Consumers are getting a sense that the free services come at a heavy cost of their privacy as their every action gets tracked and recorded forever; nothing is anonymous anymore. As the song from “The Police” goes:
Every breath you take
And every move you make
Every bond you break
Every step you take
I’ll be watching you
Every single day
And every word you say
Every game you play
Every night you stay
I’ll be watching you
Brands need a path to sustained profitable growth. Employees and marketing costs are the two biggest cost heads for most brands below the gross profit line. Marketing is where the reallocation can be done. Simply by paying customers instead of Big Adtech, brands can achieve customer delight, increased revenues, greater loyalty and higher profits.
What was lacking was an entity to solve this coordination problem and bridge brands and customers binding them together into a win-win relationship. This is where MuCo with its Mu points and tokens comes in, building on the opening created by the interactivity offered by Email 2.0 to create a hotline which was tenuous at best in the past. MuCo can establish a new equilibrium between brands and customers.
Marketers need to recognise their own importance. They should stop being collection agents for Big Adtech by funneling money for a continuous stream of clicks from individuals they barely know (or worse, bots). They need to go back to basics: crafting great experiences for their customers by getting to know them better. The best way to do it is to adopt a new mantra: Pay customers, not Big Adtech.
Dear Marketers: Do it right, and we, your customers, will come back for more and get our friends.
