Profits Problem
Countless eCommerce companies grapple with slim or non-existent profit margins. On the surface, the hefty price tag of customer acquisition (CAC) seems to be the primary culprit. But a deeper analysis reveals an industry-wide problem lurking beneath the surface. This is what I term as the “eFolly” – the decision to ignore existing customers and almost exclusively focusing on new customers. This eFolly of disregarding current customers pervades digital companies across the board. It is a costly misstep that eCommerce leaders perpetrate, inadvertently (and inevitably) gnawing away at their profitability. In the absence of external capital to absorb losses, this blunder can even lead to startup failures.
An astounding half of global adtech spending is being squandered. As a result, a significant portion of the $200 billion AdWaste, which could have been potential eCommerce profits, instead finds its way into the P&L statements of Big Tech companies. This AdWaste serves as an alarming testament to the magnitude of this eFolly.
This counterproductive trend has taken root deeply within the ever-evolving landscape of eCommerce. Lured by the promise of scale and novelty, marketers fall into the all-too-easy trap of constantly seeking new customers. They focus their strategies on the top of the sales funnel and become consumed by the deceptive delight of an ever-expanding customer base.
However, in this relentless chase, an essential component of their business falls by the wayside — their existing customers. The quest for new acquisition consumes such a significant share of resources that it eclipses the more sustainable and arguably more profitable segment — existing customers. These are the customers who have already demonstrated their trust and loyalty towards the brand, and who are ignored in favour of new ones. This focus on new customers creates an attention deficit for existing customers, gradually eroding the potential for repeated purchases, brand loyalty, and advocacy. Instead of using these existing relationships as a catalyst for sustainable growth, marketers find themselves in a bidding war for the new, with spirally increasing spending to replenish a leaking customer bucket.
This eFolly, far from being a mere oversight, has far-reaching repercussions on profitability. The incessant chase for new customers drains marketing budgets and diminishes the overall return on investment. It fosters an unsustainable business model — like being on an ever-accelerating treadmill – trapping marketers in an exhausting pursuit of customer acquisition.
This flawed race doesn’t just diminish profit margins; it also diverts resources that could be more effectively utilised to foster existing customer relationships, enhance customer lifetime value, and fuel steady, organic growth. The lack of focus on existing customers triggers a domino effect of friction across the customer journey, resulting in broken experiences, thereby further exacerbating the challenges marketers face in their quest for profitability. A neglected customer inevitably becomes a disgruntled one. The missed opportunities to engage and enhance the experience for existing customers morph into friction points, leading to dissatisfaction and eventually churn. Each instance of churn represents not only a lost customer but also a dent in the brand’s reputation, a potential negative review, and further churn. (We are all customers of many eCommerce brands and have experienced this first-hand.) Overlooking existing customers in favour of new acquisitions is thus more than a faulty strategy; it’s a ticking time bomb for eCommerce profitability.
However, the winds of change are beginning to blow, ushered in by a wave of innovative ideas and ground-breaking solutions. The eCommerce landscape is ripe for this transformation, marking an exciting and much-needed shift from relentless customer acquisition to meaningful customer retention and engagement. For the first time, marketers have at their disposal tools potent enough to embark on a journey from eFolly to profitability, and eventually, towards achieving a “profipoly” (profits monopoly). With the right mindset, effective strategies, and the courage to redefine conventional norms, exponential forever profitable growth to building an enduring, great company is a very real and achievable goal.
