Profitability
With easy financing drying, profitability is the key driver for businesses. Marketers have so far not been burdened with driving profitable growth – their task has been to grow the topline. Most have taken the easy path of pouring money on new customer acquisition via Big Adtech. As consumer spending slows in 2023 due to the twin effects of rising inflation and interest rates, CEOs will expect their CMOs to think and act like CPOs (chief profitability officers). For this, marketers cannot just optimise ad spending or try and improve customer experience on the brand’s owned properties (website and app); they will need to look at the elephant room in the room – the 50% AdWaste in their marketing budgets which is the root cause of diminished profitability or rising losses.
AdWaste is happening on account of wrong acquisition and reacquisition. The former is about paying Big Adtech for a user who does not transact or uninstalls the app within days; the latter is about paying Big Adtech for remarketing to an existing customer who has become inactive and thus not responding to the brand’s communications. The top imperative for marketers in 2023 will be to identify this wasted spending and eliminate it – without impacting revenue growth.
Marketers need to begin by answering two questions:
MSR today for most brands is 10-15%. Earned Growth is probably negative. The objective needs to be to get both to 50% or higher. (Sidenote: for a discussion on Earned Growth, see Net Promoter 3.0.) Think of the sum of MSR and EG as the FAB (Free Ad Budgets) Score. The path to profitability needs a FAB Score of 100 or more. There are two tracks marketers need to push profitability: build hotlines using Email 2.0 and Loyalty 2.0, and improve experiences on their digital properties with a unified Martech 2.0 stack and create differentiation for Best customers with Velvet Rope Marketing. [For a longer discussion, see Digital Marketing and its Discontents and Disruptions.) As I wrote in the essay: “Start by addressing the crux of the brand-customer relationship with Email 2.0 hotlines and move the conversion ever closer to customers. Loyalty 2.0 gamification tokens give marketers the ability to engineer shifts in user behaviour by redirecting the AdWaste spending towards Atomic Rewards. Martech 2.0’s unified stack ensures that the incoming traffic to the brand’s properties has a personalised experience high on relevance. A focus on Best Customers (for acquisition and retention) reduces AdWaste and increases revenues. Together, these innovations can double brand profits without an increase in marketing expenses.”
For many B2C/D2C brands, profitability had become an afterthought. This will change in 2023 with pressures from investors and consumers. The solution lies in looking onward to the AdWaste and then using obliquity to solve the problem by focusing not just at the extreme ends (ad spending optimisation and martech consolidation) but in the middle – converting 1-way push channels into 2-way hotlines. An E2L2 (Email 2.0 and Loyalty 2.0) implementation is the first step in the journey towards exponential forever profitable growth.
