Scaling Profits
Many ecommerce businesses struggle to attain profitability, typically due to two categories of reasons. Externally, factors such as competitive pressure, limited product diversity, pricing mistakes, slow delivery times, supply chain mismanagement, and excessive returns can undermine success. Meanwhile, internally, a range of inefficiencies – what I term “funnel frictions” – impede progress at every stage, from customer acquisition and conversion to retention, repeat purchases, and loyalty.
In this series, I will focus on these funnel frictions. Addressing some of these frictions can empower brands to significantly boost their profits – a strategy I’ve termed as ProfitXL, or PxL. However, to construct a profits monopoly, or a “profipoly”, it’s crucial to resolve all these issues. A profipoly provides a brand with a formidable competitive advantage – by monopolising profitability, it drains competitors’ chances of survival.
Historically, we’ve seen several non-government profipolies. More than a century ago, Standard Oil reigned in the US, until it was dismantled by government intervention. In the 1960s and 70s, IBM ruled computing. AT&T in the US was the profipolist in telecom until it was broken up by US regulators. Many others persisted until technological advancements or strategic blunders diminished their dominance. Microsoft and Intel, colloquially known as Wintel, held a commanding position in the computing industry throughout the 1980s and 1990s, and reportedly garnered 110% of industry profits, implying a 10% loss for all others! Nokia, with its 40% market share in mobile phones, was another profipoly, which was eventually surpassed by Apple. In the adtech space, Google and Facebook have forged a profitable duopoly, leaving scant room for others. Visa and Mastercard reign payments processing, Amazon rules ecommerce and reinvests its cash flows for increasing market share. LVMH has created a house of luxury brands, allowing it to seize a large portion of the market’s profits, mirroring the concept of a “profipoly.” De Beers maintains its stranglehold on diamond trade. In India, Indigo Airlines, with a striking 60% market share, has continued to grow by continuously investing in expanding routes, causing several competitors to capitulate.
In ecommerce, profitability is often stymied by four funnel frictions. These ‘friction fractions’ pose challenges for brands:
- 1/100: Clickthrough rate on messages sent, primarily due to Attention Recession
- 1/33: Conversion rate on website/app sessions, stifled by ‘red journeys’
- 1/3: Active customers in the database, whittled down by churn and dormancy
- 1/2: Fruitful new customer acquisition, with the remaining spending becoming Adwaste
Unless brands devise strategies to overcome these hurdles, they will struggle to achieve exponential forever profitable growth, let alone create a profipoly. In this series, I’ll introduce four practical solutions to these problems: Inbox Commerce, Green Journeys (with iDarpan), Reactivation Progency, and Near-Zero Acquisition Costs – concepts I’ve previously discussed. It’s now time to weave these solutions into a comprehensive strategy. This not only transitions the focus from Adtech (acquiring new customers) to Martech (retaining and growing existing customers), but also heralds the progression from Martech 1.0 (isolated point solutions) to Martech 2.0 (full-stack approach). By resolving these funnel frictions, brands can navigate the course towards building a profipoly and an enduring, great ecommerce business.
