Rethinking Referral Marketing (Part 1)

The past few months have given me a lot of time to think deeply about marketing. Starting with the ideas of Velvet Rope Marketing (VRM), I have had dozens of conversations with CMOs and digital heads of brands in India, SE Asia, Middle East and Africa. The basic problem statements are the same: how to get more from the existing customer base and how to optimise new customer acquisition.

In this context, the VRM pitch works well:

  • All customers are not equal; some have more customer lifetime value (CLV) than others
  • Identify your best customers – say, the top 20% — based on CLV
  • Create a differentiated experience for these customers to maximise revenue and retention
  • Among the rest, use individual customer genomes to identify who could be future best customers
  • Also use the characteristics of best customers to acquire new customers who look like them

On paper, this looks simple. But it is quite surprising how few companies actually do this in a disciplined manner.

I have identified eight problems that handicap the use of VRM:

  • Limited data: Brands are not collecting customer data at every touchpoint
  • No CRM / CDP: The collected data is not centralised into a single place to provide a unified customer view
  • Data not being analysed: If the data is there, then the analysis is either not being done or is very limited
  • No internal team / skillsets: The right talent is missing for doing the analytics and then acting on it
  • Incorrect CLV calculations: Too often, the CLV calculations are done in a very simplistic manner (for example, basing it on the average value of past transactions)
  • No tech platform: Even if all the above is done, there is no tech platform to help implement the use cases
  • Adtech-Martech silos: The acquisition process is not streamlined because there is no exchange of data between the acquisition and engagement teams
  • Cannot measure RoI: Finally, it is hard to get the green light for VRM because the CMO is unable to show the actual uplift in revenue

In my presentation, I address each of these challenges and show the solution to every identified problem. These series of essays discuss the VRM roadmap in depth:

And as it happens so often, one idea leads to another. While VRM does well in addressing the needs of the best customers, a question that came up repeatedly in my meetings was about how to optimise new customer acquisition.

Tomorrow: Rethinking Referral Marketing (Part 2)

Daniel Silva’s Gabriel Allon

Every year for the past many years, I have been devoting a day to read the latest Daniel Silva thriller featuring Gabriel Allon. There have been 20 books in the series so far – and I have read all of them. The latest one, “The Order“, was published a few days ago — becoming available in India before the US. I spent Sunday with Allon. Even though I do like thrillers, there is no other character I afford this privilege to — of reading the book as soon as it has been published.

Allon is a character you cannot but help admire. And at times when I face a challenge, I cannot help but ask myself, “What would Gabriel Allon do?” (He is an assassin, but my point is not that — it is about the way he approaches a problem.)

In busy times like now, it becomes difficult at times to create contiguous time to read fiction and transport oneself into the world created the author. The joy of sitting in one place for many hours reading is a feeling that has become increasingly rare in our busy interrupt-driven lives.

PS: Another excellent book I read recently was “A Burning” by Megha Majumdar.

 

 

Podcast on Velvet Rope Marketing

I recorded a podcast with Dennis Dayman as part of the “Email Unplugged” series driven by our US team.

We discuss my early entrepreneurial journey, and then go deeper into VRM:

  • What is Velvet Rope Marketing all about?
  • How can businesses implement VRM during a crisis?
  • How to identify your best customers and communicate with them effectively
  • How to cut down marketing costs with VRM
  • The importance of full-stack automation platform to leverage VRM
  • How VRM can help you acquire new customers
  • Special tips to optimise your email campaigns with VRM

Announcing: hippoBrain

Along with Jaimit Doshi, I have launched a new show — hippoBrain. As we put it, it is about “hippo-sized conversations with hippo-sized brains.” The focus will be largely around data, tech and the consumer.

The idea came a couple months ago. While there is a lot of content out there, what I find missing is deep conversations with people — to really understand their mental models and how they think. In today’s attention-deficit world, everyone is looking for that 30-second sound byte. But what is missing is the context around that. Why does the person think in that way? That’s what we want to do with hippoBrain — give an insight into how the guest on our show think.

We have launched with 3 amazing guests: Vivek Bhargava (Denstu;  ad-tech authority), Kartik Jain (DBS, ex-HDFC Bank; marketing maestro) and Anindya Ghose (NYU Stern; mobility and AI guru). We will have one new hippoBrain episode every Friday.

 

My Proficorn Way (Part 15)

The Sub-broker Moment

During the IndiaWorld days (around 1997-98), we figured out a way to make IPO application forms available for NRIs. We did this through smart software which auto-incremented the application number in the PDF form. Thus, NRIs could now easily get access to the IPO forms without those being physically couriered to them. We charged about Rs 15K for the service to securities firms for this service.

Then, in August 1998, RBI launched the Resurgent India Bonds (RIB) to shore up foreign reserves. I quickly realised that this was going to be big – NRIs would apply to invest in huge numbers. And if we continued to just offer the Rs 15,000 service fee each from about 5-7 securities firms who had a digital presence. A lakh or so was good money at that time – all for a few tweaks in the software.

It was then I got an idea. What if we could get a cut of the money invested – this could increase our revenues substantially. Was that even possible? Yes, if our contribution was tracked. And how would that be possible? One of our customers gave me the idea – become a sub-broker. In essence, every form could carry a special code allocated to us which allowed the brokerage to track which forms came through us. I loved the idea. I decided to share the risk in return for the upside.

And it worked! We generated almost Rs 10 lakh in revenue from the sub-brokerage fees. A simple idea, that increased our revenues 10X.

Later in life, I would refer to this as the “sub-broker moment.”  A few months before the RIB issue, I would have laughed if someone had said that IndiaWorld would become a sub-broker. And yet here we were! A proficorn is always looking for incremental innovations – small tweaks and pivots which open up new opportunities. That is how new worlds open up.

In Netcore, we had started in 1998 as a mail server company. We stayed that way for many years, even though we tried many new ideas – all of which failed. But the spirit of searching for pivots did not go away. We had corporate relationships for mail servers. When SMS started growing, we became an SMS aggregator. And then an email marketing company. And later, a martech automation provider. This “sub-broker” mindset of doing something better and spotting an opening to grow is what has led to 10+ years of continuous profitability. In every business, there is always something which can be done better. The proficorn entrepreneur is always seeking that out.

Will be continued soon.

My Proficorn Way (Part 14)

Dealing with Failure

Everyone who says that learning through failure is how they succeeded is wrong. If that there were the case, failing first and fast would become the alternative to a business school education!

No entrepreneur sets out to fail. And yet, most do. Every entrepreneur believes they have a 70-80% chance of succeeding, and yet 99.99% of new ventures fail.  That is the reality of the world. It is easy to say that one has learnt a lot through failure. What else can you say? And it also sounds good. And yet, failure is the hardest experience for an entrepreneur to live through. It is gut-wrenching and emotionally debilitating. Each day seems like an eternity. It is a tunnel without any light anywhere.

I have had plenty of failures in my life. I never set to fail so I could “learn.” Each venture that I started had a dream, a vision, a rainbow that I could see. I kept imagining how the world would be a better place with what I was doing. And yet, many mistakes later, those same dreams would be destroyed. I had to face the reality that I had failed. And it is never easy – never mind all the previous failures.

Entrepreneurs live on hope and breathe optimism. As such, they are somewhat removed from reality – the same ability that gets them to see what others don’t also creates a distance when it is about coming to grasp with failure. As such, most ventures linger in a zombie zone for many more months than they should because the eternally optimistic entrepreneur always believes tomorrow will be the big day when everything will magically turn around.

The first step to dealing with failure is recognising it. Bad businesses need to be shut down and the entrepreneur needs to move on. Only when one door is closed can new doors be opened. Failure is not a business school or a ladder to success; it is part of an entrepreneur’s journey. Failure is the most likely and default outcome for a venture. What needs to be explained is success, not failure.

Proficorn entrepreneurs go to work each day to reduce the risk of failure. They also recognise earlier than others when something is not working and stop it. Without the willingness to fail, there cannot be success – because the journey would never begin.

Tomorrow: My Proficorn Way (Part 15)

My Proficorn Way (Part 13)

Never Compromise Integrity

When I was running IndiaWorld in the late 1990s, there was an occasion in the early stages when I was asked for a kickback in return for giving me business. It was a lucrative deal. And all I had to do was to agree to give some money back in cash once I got the order. The offer came at a time when we were struggling for growth. It all seemed so easy to say Yes, generate some cash using fake invoices, and pay the individual. No one else would ever know. IndiaWorld would benefit and I would have more revenues to build the business faster.

The advice I got from a few close family members and friends was mixed. Those in favour had arguments like “if you don’t do it, someone else will – only you will be the loser”, “take the money and do something good with it” and “it’s not really a big deal – every business does it in India because that is the norm.” Those against said “you must build a business the right way”, “you cannot compromise your ethics for success” and “you only compromise integrity once – after that, you are one of them.”

In a highly competitive market, the additional revenues could help us invest in new initiatives. Getting that brand as a customer would have given IndiaWorld strong validation and helped me get more business from others. It was a moment of truth for me.

I said No, and walked away. My parents had always emphasised honesty – whatever be the case. That was a core value. I could not let it go. My wife gave me the courage to make the right decision at a time when I was weakening. I also knew there is never “just this one time.” I realised that if I did it once, I would do it again. That was not what I wanted to become. I wanted to succeed on the merits of what we offered and what we were building – even though it would take longer.

A proficorn is built when the foundation is right. One of the core values that can never be compromised whatever be the circumstance is integrity. Because you compromise integrity only once. After that, you are one of them.

Tomorrow: My Proficorn Way (Part 14)

My Proficorn Way (Part 12)

Forever Mindset

When I look back, there is one clear distinction between my successes and failures. Whenever I have tried to keep short-term objectives (like I did in Nayi Disha), I have failed. The times when I have focused on the long future, I have done well.

Setting goals only a year or two in the future is very tempting. But the consequence is that the decisions will then also suffer from short-termism. There is no grand plan to create something big, no journey that is the draw. It is all about “let’s get this done and move on.” That rarely works.

In Nayi Disha, I had goals that I set for a year at a time. Create a movement to change India’s Constitution. Failed. Replace Mumbai’s Municipal Corporation Act to make the city free. Failed. Make Dhan Vapasi happen by forming a government of Independents. Failed. Each had a timeline of a year and failed. Had I stuck to one thing for the long-term (for example, changing minds on what can make Indians free and rich), I would have perhaps accomplished something. In reality, after 3 years of effort, I had nothing to show for it.

The same was true early in my career when I ran through a succession of ideas – and each failed. A multimedia database. Reselling software from US companies. An image processing solution. All in less than three years.

But when I started IndiaWorld, I had no finish line. The Internet revolution had just begun. I had many ideas. But the broad premise stayed the same through the five years until it was acquired – to create an electronic marketplace connecting Indians worldwide.

I did have a name to describe this mindset until I read Simon Sinek’s book “The Infinite Game.” Writes Sinek:

Finite games are played by known players. They have fixed rules. And there is an agreed-upon objective that, when reached, ends the game. Football, for example, is a finite game. The players all wear uniforms and are easily identifiable. There is a set of rules, and referees are there to enforce those rules. All the players have agreed to play by those rules and they accept penalties when they break the rules. Everyone agrees that whichever team has scored more points by the end of the set time period will be declared the winner, the game will end and everyone will go home. In finite games, there is always a beginning, a middle and an end.

Infinite games, in contrast, are played by known and unknown players. There are no exact or agreed-upon rules. Though there may be conventions or laws that govern how the players conduct themselves, within those broad boundaries, the players can operate however they want. And if they choose to break with convention, they can. The manner in which each player chooses to play is entirely up to them. And they can change how they play the game at any time, for any reason.

Infinite games have infinite time horizons. And because there is no finish line, no practical end to the game, there is no such thing as “winning” an infinite game. In an infinite game, the primary objective is to keep playing, to perpetuate the game.

The world of business and entrepreneurship is an infinite game. This “forever business” mindset is what helps proficorns succeed.

Tomorrow: My Proficorn Way (Part 13)

My Proficorn Way (Part 11)

No Two Bad In a Row

Rory Sutherland of Ogilvy (and author of Alchemy: The Surprising Power of Ideas That Don’t Make Sense) tells this wonderful story in an EconTalk with Russ Roberts:

There’s a guy, I may not mention him in the book, called Francis Fulford, and his family have occupied the same, I think, it’s 10,000 acres in Devonshire that was given to them in something like 1240. And he’s inherited this, and the family still owns it, and they still own the house there by direct descent over about 800 years. And they asked him how on earth he’d managed this achievement. And he points up to the ancestral portraits and says–he’s a very sweary man, so I can’t report him verbatim. He said, ‘Well, if I go back to my ancestors, we’ve had loads of idiots. We’ve had drunken idiots, we’ve had gambling idiots, philandering idiots, idiots who get in prison for treason,’ he said, ‘But we’ve never had two in a row.’

When one hires to fill in senior positions, it is of course important to hire the right person. You will never know until a few months into the job whether that person is right or not. If there is a mismatch, best to let the person go quickly. But then make sure the mistake is not repeated. Because recovering from a succession of mistakes is very difficult, as Sutherland’s story illustrates.

I have made hiring mistakes. But generally, I have not had ‘two bad in a row.’ And that’s the key for a proficorn to succeed. The wrong person can be like termite – weakening the foundation of the business or the group being led. The damage won’t be visible initially, but the group and the sub-culture will be weakened. It will require another person a lot of effort to fix that, but it’s doable. However, two successive mistakes will be disastrous.

The converse is also true. For big success, the business needs a succession of good people at the leadership level. Netcore has grown under three excellent CEOs in a row. They are the ones who ensured the proficorn foundation which has stayed strong even in unexpected situations like Covid.

Tomorrow: My Proficorn Way (Part 12)

The One Number To Predict Revenue (Part 10)

What can you do as a business leader? Here are the 7 steps to getting started with the ideas and apply the ideas of NPR in your business:

  1. The starting point is transaction data. Collate customer-wise transaction data for the past few years.
  2. Calculate Customer Lifetime Value (CLV) for these customers. Remember that CLV mentioned here is predictive and forward-looking.
  3. Plot the CLV-Customers chart and see the power law at work
  4. Based on this, you can calculate the Predicted Revenue – the aggregate CLV for all present customers
  5. By factoring in loss of revenues due to expected churn and additional revenue via new customer acquisition, you can get the Net Predicted Revenue (NPR)
  6. The next step is to apply the ideas of Velvet Rope Marketing (VRM) to grow revenue from the Best Customers, get some of the Rest and Test Customers to become the Best, and acquire Next Best Customers who are likely to have a higher CLV (see graphic below)

  1. Set up a process by which the CLV and NPR calculations are automated and available periodically to all decision-makers.

Through these actions, you can now view in near real-time the impact of the marketing activities on a forward-looking basis through the lens of customer actions. NPR should thus become the single business number to discuss strategy and drive new initiatives.

These are ideas which can be applied to every business in every industry. By calculating NPR across time, one can see the impact of customer-centric initiatives. NPR thus allows vendors to become partners because the impact of each action can be measured, and thus gainshare models can be applied to customer acquisition, retention and development. For the first time, business leaders can get a measurable marker for future profit growth. The CLV-VRM-NPR triad is the path for every business leader to rise to the most important position in today’s challenging times – becoming the CPO (Chief Profitability Officer).