Overview
In my previous series, I highlighted the urgent need for martech companies serving B2C/D2C businesses to shift towards a performance pricing model. This change would enlarge their Total Addressable Market (TAM), capture part of the AdWaste, and ultimately transform brand P&Ls. Here is a concise summary of the crucial takeaways.
There exists a glaring imbalance in the budget allocation of brands to adtech and martech. Despite adtech’s costly and often less productive customer acquisition strategies, brands persist in funnelling the majority of their budget into this area while under utilising martech’s customer retention and revenue growth capabilities. With increasing pressure from investors, brands are now seeking profitability over growth-at-all-costs, which opens up an opportunity for a transformative shift in martech: a move towards performance-based pricing.
Martech must learn from adtech’s evolution, particularly its shift from CPM (cost per thousand impressions) to CPC (cost per click), and transition from user- and usage-based pricing models to ones focusing on utility and uplift. Google AdWords’ successful industrialisation of the pay-per-click model, which enhanced advertising efficiency, accountability, and effectiveness, serves as a key example.
Leading martech companies like Netcore need to pioneer this transformation by selling based on tangible business outcomes rather than mere volume of communication. Adopting this approach could significantly expand martech’s TAM, helping it catch up with adtech’s vast $450 billion market. In addition, a performance-based pricing model can fuel exponential growth for both martech companies and brands.
In the essay, I proposed a comprehensive 11-point agenda for martech companies transitioning into Martech 2.0 entities. This includes defining outcome-based performance metrics, moving towards performance-based pricing models, stimulating product innovation, establishing robust tracking and attribution capabilities, and upholding transparency and trust. In this paradigm shift, maintaining regulatory compliance, ensuring platform flexibility and scalability, optimising acquisition strategies through martech, forging strategic partnerships, and educating customers about the new model are also vital. Embracing the ‘progency’ model, where martech companies supplement their products with a thin layer of services, is key to ensuring the maximum benefits of this transformative approach.
Martech 2.0 heralds a pivotal shift in martech’s business model, marking a new era where companies can deliver more value while optimising resources. The time is ripe for a transformation akin to adtech’s performance-based pricing model shift two decades ago, allowing martech companies to align closely with the profitability goals of the brands they serve. As we look to the future, this transformative approach ensures that martech vendors are not just service providers, but strategic partners whose success is intrinsically tied to their clients’ growth and profitability. This revolution in martech could optimise brands’ budget allocations, minimise AdWaste, and maximise customer value. By fostering a symbiotic relationship, Martech 2.0 is poised to redefine the dynamics between martech vendors and brands, creating a landscape marked by shared success and collective growth.
In the rest of this series, I will play out an imaginary conversation between a marketer of a B2C eCommerce brand and a Martech 2.0 vendor, and discuss the merits of this shift, the innovations to drive the change, the first steps on the journey, and how to persuade the CEO to embark on this transformation.
