Marketing: Disrupted and Simplified (Part 26)

Summary

This has been a long series. It has taken many hyperlinks en route to create a story about how marketing is getting disrupted and needs to be simplified. I will end with a short summary of the key points in the narrative:

  1. Marketers are overinvesting in acquisition and underinvesting in building engagement with existing customers. In fact, they are in a negative spiral where the lesser they invest in retention, the more they are forced to spend on re-acquisition (and re-re-acquisition) of those who become dormant.
  2. Google and Apple, under pressure on privacy, are changing the rules of acquisition and engagement. Third-party cookies on Chrome are going to get deprecated, Apple is making big changes to the use of device identifiers, and is introducing a new privacy framework to limit tracking. The only way around the trap of dependency on the tech giants and other intermediaries is for brands to build direct, deep, data-driven relationships.
  3. These are then the two disruptions marketing faces: ever-increasing costs of new customer acquisition and changing rules of engagement with their existing customers. Instead of letting these disruptions overwhelm them, marketers need to go back to basics.
  4. To simplify marketing, marketers need to focus on three things: protecting the profits from the Best customers (top 20%), retaining the revenues from the Mid-value customers (next 30%), and controlling costs of servicing the Long Tail (the remaining 50%).
  5. The starting point for this is segmenting customers by CLV (Customer Lifetime Value), decoding the BCG (Best Customer Genome) and then focusing on providing differentiated experiences via VRM (Velvet Rope Marketing) for the Best Customers.
  6. To build equations with their customers, marketers either need to spend on building top-of-mind recall or use push messaging to draw customers to their owned properties (website, app) for transactions. Push messaging channels include SMS, email, PN and WhatsApp.
  7. The problem that brands face is that customers are ignoring the push messages. Since attention and action is upstream of a transaction, the most important problem that marketers need to solve is to get customers to pay attention.
  8. To get customers to pay attention, marketers need to pay for In fact, they need to pay customers directly for their attention because otherwise they end up paying the media and tech intermediaries who have the attention. Marketers need to consider rewards for attention: this is the idea of ARM (Attention Rewards Marketing).
  9. This is where the idea of Microns comes in. Microns are messages with rewards via a virtual currency (Mu). Marketers can incentivise specific actions and make reading their messages a habit in customers’ lives.
  10. To make VRM and ARM successful, marketers need to re-allocate their budgets from a 90:10 split in favour of new customer acquisition to a more equitable distribution across new acquisition, VRM and ARM. Marketers also need to create two new teams to focus on Best customers (for VRM) and Rest customers (for ARM).
  11. The more brands can open hotlines to their customers, the lesser they will need to spend in the acquisition arms race underway on Google and Facebook. This is the choice CEO and marketers have to make: contribute to increasing profits of the tech giants, or create a profits monopoly (profipoly) by building the best business moat possible: maximising extremely loyal and attentive customers.

And to capture it all in a single sentence: “Disrupt and simplify your own marketing program: make attention the new acquisition, and rewards the new experience.”

Marketing: Disrupted and Simplified (Part 25)

The Choice

I began this series outlining the disruptive changes being forced on the industry by Google and Apple. This is a great time to start fundamentally rethinking marketing for the digital world. For far too long, marketers have ignored the most important task: building deep relationships with their existing customers, persuading them to share data to personalise the journey and messages, and constructing differentiated experiences for the Best. Instead, marketers fed the Google and Facebook machines for the past decade to the extent that they have now become the money-guzzling monsters that need to be constantly fed via auctions in an arms race where brands can never win. It is time for marketers to reclaim the relationships with their own customers.

Marketing’s early and glory days consisted of direct marketing and CRM (customer relationship marketing). With the advent of digital and the explosion of data, the ‘direct’ was forgotten, and in stepped the gatekeepers – they now had the direct relationships and brands were forced to pay to play. CRM which once was a tool for building customer pyramids and focusing on those at the top. Marketers got lost in the deluge of data and forgot about differentiation. They had so many customers to reach out to! Instead of using messaging as the means to the end (attention and action), the message became the end. Measurement was less about profits in a world of infinite, easy money but all about fuzzy metrics of opens, clicks, installs, DAUs, MAUs. The Best were ignored and they have responded by ignoring the brand.

Marketing needs to return to its roots. The Best-Rest-Next framework with a reprioritisation of budgetary allocations is the right response to the disruption that awaits marketers. Focus on the customers rather than cookies, collect data rather than device identifiers, reward attention and not just the transaction – this is the way forward for marketers.

The digital advertising and marketing industries needed a jolt – and it has got it. It is time to ride the disruption, change the focus, go back to the basics, eliminate complexity and waste, put the customer at the centre, marginalise intermediaries like Google and Facebook, and create a new beautiful world of direct brand-customer relationships. It is time to simplify marketing, go direct, and delight customers. The starting point is straightforward: create two new teams for Best and Rest customers, and fund them with a third of the acquisition budget. Else, the only two profipoly companies will be Google and Facebook. It is a choice every CEO and marketer has to make.

Marketing: Disrupted and Simplified (Part 24)

The Constellation

Bringing to life the world of ABC (Analytics, BCG and CLV), C2E2 (Customer Communications, Engagement, and Experience), M3 (Messages-Microns-Mu) and AMB (Adtech-Martech Bridge) is beyond what a single company can do. What it needs is a collective – a constellation.

In astronomy, a constellation is a group of stars that forms a pattern in the night sky. As Wikipedia puts it, a constellation is a “recognisable pattern of stars whose appearance is associated with mythological characters or creatures, earthbound animals, or objects.” Examples of constellations include: The Big Dipper/Ursa Major (‘The Great Bear’), The Little Dipper/Ursa Minor (‘The Little Bear’), Orion (‘The Hunter’), Taurus (‘The Bull’) and Gemini (‘The Twins’).

In businesses, a word that as used in the context of Japanese companies was keiretsu. According to Investopedia, “Keiretsu is a Japanese term referring to a business network made up of different companies, including manufacturers, supply chain partners, distributors, and occasionally financiers. They work together, have close relationships, and sometimes take small equity stakes in each other, all the while remaining operationally independent. Translated literally, keiretsu means “headless combine.” Examples of keiretsu groups include Mitsubishi, Mitsui, Sumitomo and Sanwa.

In global business, two words that have become common are platform and ecosystem. Almost every company likes to use one of these to define what they are doing. I prefer the word “constellation” – to define a group of companies that work together to solve problems none can solve on its own.

At Netcore, we have been working to build such a constellation of companies. Two partners are EasyRewardz and ProfitWheel. Together, this trio can help implement the many ideas we have discussed here.

ABC: Netcore and EasyRewardz can help do this for online and offline companies. The goal is to aggregate data from all touchpoints into a CDP, and then use CLV to segment customers and identify the brand’s Best Customers. These are customers who need Velvet Rope Marketing – a way to create differentiated experiences so that they never churn and maximise their category spend with the brand.

C2E2: This is what Netcore has been focused on for many years.

EasyRewardz too has significant capabilities in customer lifecycle management. As the Netcore press release about its investment in EasyRewardz put it, “With this strategic investment, Netcore Cloud can now do a tighter integration with the Easyrewardz platform and offer the CLM stack to its customers, across all the touchpoints, building on their promise of Omnichannel Intelligent Customer Experience… Leveraging deep integration of the platforms from Netcore and Easyrewardz, we are excited to bring to our clients, a true omni-channel marketing automation suite, integrated with POS that offers real-time rewarding capabilities across points, coupons and vouchers, and experience assessment via feedback, survey or polls.”

M3: This is a new idea that we have been working on at Netcore.

Mu can be integrated into any push messaging channel by any brand, instantly creating a rewards mechanism for attention and desired action, as precursors to transactions.

AMB: This is where ProfitWheel comes in. By taking data from martech platforms, it can improve new customer acquisition to focus on those customers who have the attributes of the Best. Data about new customers can also be used to improve the onboarding experience for future Best customers.

Together, Netcore, EasyRewardz and ProfitWheel are pioneering a new approach of multiple companies (stars) working together to create new patterns and drives business objectives (a “profit constellation”) which no single entity on its own can provide.

Marketing: Disrupted and Simplified (Part 23)

Making It Happen

The success of the new marketing ideas will be dependent on the budgetary allocations. In most brands today, the Best:Rest:Next budget is 2:8:90. The largest chunk is for new customer acquisition. A small allocation is for existing customers and since there is no differentiation, the spends in the Best and Rest category end up being proportional to the customers in these segments. In fact, most brands do not even have a Best and Rest split – treating them just as a single bucket of “All Customers”.

The right way to allocate budgets is to allocate equally to all the three segments. While this may not happen immediately, a starting point should be to make the allocation 20:20:60 – reduce the acquisition budget from 90% to 60% and then spend the remaining budget equally for Best and Rest customers. Only when brands follow their customers and reallocate their money will this new simplified marketing approach.

Where should marketers spend this new money for Best and Rest customers? The short answer is: the marketing cloud. But how?

First, marketers need to get the ABC right – Analytics, BCG and CLV. CLV is key for customer segmentation and correctly identifying the Best customers. BCG tells marketers more about the attributes and activities of the Best customers – this is what has to be cloned for everyone else. Analytics and AI-ML can help make this process simpler – with continuous learning.

Second, marketers need a customer communications, engagement, and experience (C2E2) stack. This stack forms the core tech for Velvet Rope Marketing and needs to be activated only for the Best customers. While point solutions can be bought and integrated together, a full stack solution is likely to work better because it will eliminate the tech connectivity and data sharing challenges. More importantly, with all the data in a single store (rather than multiple silos), the magic of AI-ML can work much better. What the marketer needs is to know what happened yesterday, what to do today (next best action), and what is likely to happen tomorrow – a good AI-ML engine will help with the analytics and predictions freeing the marketer from the tyranny of the daily routine.

Third, marketers need M3 (Messages-Microns-Mu). Push messages need to be transformed into microns with rewards (Mu). These messages offer incentivises for attention and action for the Rest so they never ignore brand communications. It is better to pay one’s own customers for their attention rather than compete in auctions on Google and Facebook and spend 10 times more money in re-acquiring them via ad platforms.

Finally, marketers need an Adtech-Martech Bridge (AMB). This bridge serves two purposes: prepare the right attributes and profiles for adtech platform for acquiring the Next customers (lookalikes of the Best), and ensuring that the onboarding process is smooth for these first-time customers. So far, adtech and martech have largely operated independently even though they target the same customers at different points in the journey. The AMB is the missing link which can further optimise ad spend budgets.

Much like Luke Skywalker had R2-D2 and C-3PO, the modern marketer needs ABC, C2E2, M3 and AMB. And to all such marketers willing to make the leap, “May the Force be with You.” And as Qui-Gon Jinn says, “Your focus determines your reality.”

Marketing: Disrupted and Simplified (Part 22)

Pay for Attention

One of my earliest memories (as a kid in the 1970s) of a loyalty program is collecting Ramon Bonus stamps. After that, if my memory serves me right, I collected stamps from Akbarally’s from purchases made at their Fountain store in Mumbai. Both were early examples of programs that rewarded loyalty. In the past 50 or so years, we have seen an explosion of loyalty programs. All of these programs reward transactions. But none reward the two elements that are upstream of a transaction – attention and action.

For marketers to engage with their customers, attention and action are very important. As I wrote earlier, both are upstream of transactions. In the digital world, because every customer has a uniquely addressable identity (email ID or mobile number), it becomes possible to interact with each of them. If the brand imagery or habit doesn’t bring a customer back to a brand’s properties, the only other route is via push messages – sent by SMS, email, push notifications (on apps) or WhatsApp. For these messages to be effective, customers need to ‘pay attention.’

As we saw earlier, the sheer volume of incoming messages flooding the inboxes of customers has resulted in them (all of us) ignoring most such messages. The result is that this breaks the communications hotline for marketers – forcing them to resort to very expensive ads via Google and Facebook to win back the attention they have lost of the customers who were once theirs.

It is in this context that I have discussed the idea of Microns and Mu. Microns are messages with rewards, with Mu being the virtual currency that incentivises attention and action.

Microns delivered as email have additional benefits: they improve the reach and deliverability of email, thus solving two additional problems most email marketing programs face.

Microns and Mu are just one example of rewarding customers for their attention. The key is to remember the point I had made earlier: “To get customers to pay attention, pay for attention.” And the payment (in the form of rewards) should be made directly to customers. This innovation can go a long way in simplifying marketing by solidifying the relationship between brands and customers, which is what it should always have been.

By combining VRM (Velvet Rope Marketing) for Best customers and ARM (Attention Rewards Marketing), marketers can go a long way in correcting their folly of solely relying on intermediaries (media platforms, tech giants, and increasingly, marketplaces) and build 1:1 relationships with their customers.

Marketing: Disrupted and Simplified (Part 21)

Three Teams

At its simplest level to get as close to the ideal, businesses (and marketers) need to do three things: keep the Best customers forever, migrate the Rest customers to becoming Best, and acquire Next customers with the potential to become the Best. In other words: Retain the Best, Rest to Best and Next like Best. Each of these three functions are distinct and need to be run by different teams for Best, Rest and Next customers.

Best: The goal of this team is to imagine the most amazing experiences for the top 20% customers. While they view the brand positively and don’t need much prompting to return to the brand’s properties, the question marketers must ask is: how can one go beyond just loyalty programs and treat these customers like royalty? This is where the ideas of “Velvet Rope Marketing” come in. Exclusivity, ease and access are three axes to define new customer experiences.  Further reading:

Rest: For the other 80%, the number one challenge is to get engagement going with the marketing messages being sent by the brand. These customers are not yet loyal to the brand and tend to ignore the emails, push notifications and SMSes sent. Brands have limited data about them thus making it difficult to do segmentation and personalisation. Without actions on the messages, it is very difficult to bring the Rest customers to the brand properties. And without them visiting the website or opening the app, it is almost impossible to get them to do transactions. Also, loyalty programs (in case they exist) don’t work with them because they never earn enough points to garner the rewards and benefits. So, the key challenge is to ensure the Rest customers engage with brand communications. Push messages are the only way to reach out to the Rest. They need to be lured back. This is where the ideas of Microns and Mu come in – to get customers to pay attention, pay for attention. Think of this as “Attention Rewards Marketing” (ARM) – messages with goodies to begin  a lifelong relationship with customers. This is the starting point for migrating Rest to Best. Further reading:

Next: Brands have been focused on new customer acquisition since time immemorial. The only change that needs to be done here is to acquire new customers based on the Best Customer Genome (BCG) rather than indiscriminately. Instead of relying on only Google and Facebook, brands should persuade their Best customers to refer others like them – and that is only going to happen when the Best customers have experiences they can talk about and share on their social networks. Each Best customer is a micro-influencer. This is the best way to acquire Next like the Best. This team thus needs to focus on cloning the attributes and behaviour of the Best for new acquisition and onboarding.

Three teams, each with clear objectives: protect the Best, persuade the Rest, prospect the Next. One common theme: get existing customers to pay for attention. How can marketers make it happen?

Marketing: Disrupted and Simplified (Part 20)

Profipoly

If we were told to design the ideal business with no resource constraints, what would we do?

The goal would be to maximise industry profits, thus leaving no surpluses (“oxygen”) for competition to invest and grow. As we have seen, not all customers are profitable if acquisition and servicing costs are factored in. So, the first task would be to identify the sector’s most profitable customers and acquire them.

Once acquired, the next objective would be to ensure to keep them forever and get 100% of their spend in that category. This would necessarily mean providing them with the best possible experiences (“velvet rope marketing”) and perhaps combined with a loyalty program that keeps the goodies coming as they keep spending. Airlines do this amazingly well with their loyalty programs. The “loyalty lock-in” ensures that travellers want to stick to the same airline, accumulate miles, move up the tiers, and get rewarded with better experiences. The perfect business would do the same – design experiences to ensure customers never churn and maximise their spend with the business.

The next stage would be to turn customers into advocates – thus dramatically reducing acquisition costs for the Next (Best) customers. Best customers are likely to know other potential Best customers in their friends and family network. Incentivising them to get more like them can create a continuous supply of new customers with similar characteristics in terms of spending and profitability. Once a new customer is acquired, the business then has to accelerate that customer’s journey to profitability by enabling them to follow in the footsteps of the Best customers – this is where the Best Customer Genome comes in by suggesting what products or services to recommend at each stage of the customer journey.

If all of this can be made into a repeatable process, the flywheel kicks in – and that’s the secret to super-normal growth and profits. It is what the best businesses do. Look at Amazon and Costco and you will see this growth flywheel at work. Amazon Prime and Costco’s Membership program are the cornerstones of building businesses that suck out the oxygen of growth from competition and create a “profits monopoly” (profipoly).

As I wrote previously in Best Customers and Velvet Rope Marketing: “By building a double moat of getting the industry’s Best Customers and then maximising revenues from them, it becomes possible to create a profits monopoly (profipoly) which can cut off the oxygen that competition needs to grow.”

This brings us to the next set of questions: How does one create such a business? How can the marketer help in designing such a business? What impact will all the recent privacy-linked changes by Google and Apple have on the design? Is marketing really that simple? If so, why isn’t everyone doing it this way? How can marketers get started on this journey?

Marketing: Disrupted and Simplified (Part 19)

Building Blocks

Marketers need to start thinking like CEOs – or at least like Chief Profitability Officers for the business. Their goal is not to optimise campaigns and journeys, but to drive business growth. To make this happen, marketers need an Attention Stack. The starting point is to understand who the Best Customers are and what’s common to them. The three building blocks for this are customer data platform (CDP), customer lifetime value (CLV) and Best Customer Genome (BCG).

The CDP is the repository of all customer data across all touchpoints. In the non-digital world, customer data was very hard to collect – this is why retail stores introduced physical cards which shoppers could scan at checkout allowing the store to connect customers to their buying behaviour. In the digital world, this is much easier: all actions done on the website or app can be captured and stored in a database. I have discussed the CDP in my How Velvet Rope Marketing can transform Customer Loyalty series.

As defined by the CDP Institute, “A Customer Data Platform is packaged software that creates a persistent, unified customer database that is accessible to other systems…The CDP creates a comprehensive view of each customer by capturing data from multiple systems, linking information related to the same customer, and storing the information to track behavior over time. The CDP contains personal identifiers used to target marketing messages and track individual-level marketing results.” More from the Hubspot blog: “CDPs build customer profiles by integrating data from a variety of first-, second-, and third-party sources. This includes your CRM and DMP, transactional systems, web forms, email and social media activity, website and e-commerce behavioral data, and more.”

With the data in a single store, it becomes possible to calculate CLV for every customer and decode the BCG.

As I wrote previously in the Velvet Rope Marketing series quoting Peter Fader: “CLV is a forward-looking, predictive measurement that is calculated by modelling and projecting the following: how long the customer relationship lasted (for churned customers) or is likely to last (for active and future customers), number of transactions, value of the transactions, and other non-financial activities the customer may engage in. Eg. visits to website, willingness to try other products, posting ratings and reviews about the company’s products, and/or referring other prospective customers.”

I also explained BCG in the Becoming Chief Profitability Officer series: “The Customer Genome provides a distinctive digitally encoded representation of a customer. It allows us to compare different customers, predict what a specific customer is likely to do next and create personalised experiences… By looking at the Customer Genomes of the Best Customers as determined by their CLV, it now becomes possible to identify the Best Customer Genome (BCG) – those attributes and actions common to the most valuable customers of a brand… Knowing how these customers are different lets us replicate their attributes in acquisition and behaviour in the onboarding process to ensure that brands can manufacture more Best Customers.”

With this foundation in place, it becomes possible to focus on the business outcomes.

Marketing: Disrupted and Simplified (Part 18)

Money on the Table

Let’s dig deeper into the impact of the power law of marketing.

We can segment customers into Best (top 20%) and Rest (remaining 80%). Another way is to think of them as High, Medium and Low value customers – H, M, L. The following calculations are very simplistic but they will make the point that marketers are leaving a lot of money on the table by not getting  customers to pay attention to their marketing messages.

  • Top 20% customers [H] = 60% revenue; average for each 1% = 3%
  • Next 30% customers [M] = 20% revenue; average = 0.67%
  • Bottom 50% customers [L] = 20% revenue; average = 0.4%

Now, let’s assume that with better marketing, revenues from H and M customers can be increased.

  • Revenue from H customers increased by 10% = 60 à 66 units
  • Revenue from M customers increased by 20% = 20 à 24 units

This will lead to a total revenue increases by 10%. The marginal costs will not increase substantially and much of the extra gross margin will flow straight to the bottom line resulting in an increase in profits by at least 25-30%.

If marketers can play the attention game right, the impact can be even greater. This is the money marketers are leaving behind. Therefore, it is critical for marketers to get customers, especially H and M, to pay attention to their messages.

But as we all have experienced, this does not happen. Here is the reality of attention:

  • Emails: open rates 5-15%
  • SMS: open rates 10%
  • PNs: blocked / undelivered to ~50% of base

The net result is that a very large majority of customers are ignoring incoming messages. What if most of these are H and M customers? Have marketers done a correlation between CLV and engagement? If a brand’s valuable customers can be persuaded to open more messages, can that lead to more transactions? These are the questions that marketers should be asking – rather than figuring our whether they should be spending more on Google or Facebook!

To ensure “No Money Left Behind”, marketers need to work on the following:

  • Get H and M customers to pay attention
    • Else they are leaving a lot of money on the table (for competition)
  • Change customer mindset from delete to delight
    • How to train customers to never ignore messages?
    • How will they buy if they don’t know what is on offer?
  • Convert 1-off engagement into continuous relationship
    • Make opening and acting on messages a habit
  • Segment customers based on value
    • H (Best) more valuable than M who are more valuable than L
    • Selectively incentivise customers for specific actions
  • Do all this without any new budgetary allocation

This is marketing’s greatest challenge – and opportunity. And the simple truth that marketers have missed is: “To get customers to pay attention, pay for attention.” In fact, marketers know this very well – they are just paying the wrong entities for attention. It is time they stopped fattening the profits of Google and Facebook, and instead consider a rewards program to incentivise their existing customers for attention and action, the upstream of transactions. This is the secret to ensuring there is no money left on the table – for competition. The next question: what do marketers have to do differently to win their customers’ attention?

Marketing: Disrupted and Simplified (Part 17)

Power Law

Marketers for the most part have missed the “power law of marketing” – that a relatively small percentage of customers account for a big chunk of revenues and make an even bigger contribution to profits. For many non-subscription brands, an analysis based on customer lifetime value (or even past transactions) will show that 20% of the customers contribute 60% of revenues and more than 100% of profits. What this also means is that 80% of the customers contribute 40% of revenues and are a net cost to the brand if one factors in acquisition and servicing costs.

The power law of marketing (which can also be interpreted as the 80-20 rule or the Pareto principle) is core to the idea of simplifying marketing. I have discussed this in a previous blog series  The One Number to Predict Revenue. Here is how it looks:

The X-axis sorts customers while the Y-axis is the CLV. The area under the curve is the net predicted revenue – the aggregation of the CLV of each customer. The Best customers are towards the left of the X-axis (their revenue represented by the green shading) while the Rest customers make up the long tail (their revenue represented by the yellow shading). As I explain in my series, power laws are all around us. Most marketers have not opened their eyes and seen their customers in this context.

The complexity in marketing has arisen because of a lack of understanding of the fact that all customers are not equal and some are more valuable than others. By not differentiating between the Best (top 20%) and Rest (remaining 80%) customers, marketers have complicated their own lives – having to focus on a much larger base than they actually need to. Instead of providing amazing experiences for the most profitable customers, marketers have gone down the path of trying to provide a “lowest common denominator” experience to their entire base. This is ineffective and results in the churn of the Best and continuous re-acquisition of the Rest. No one is happy with the outcome.

What marketers need to do is to actually create two internal business units to focus on the Best and Rest customers. Their needs are different, the approaches to be followed are different. The same team cannot address the top 1% and the bottom 1%. And yet, I have not seen brands do this – outside of a few industries like airlines where a single transaction itself enables the segmentation and experience differentiation.

The reason for this is that most marketers do not think about customer lifetime value (CLV). Ironically, marketers are awash in customer data and the CLV calculation and identification of Best Customers is much easier now that it ever was. Marketers tend to think of the more immediate past (which customers have been active in the past 30/60/90 days) rather than analysing the long past (2-3 years) to predict the near future. The right CLV model needs to be used to factor in recency and frequency to calculate CLV for each customer and then segment them into Best and Rest. Without bringing in CLV and just looking at transactions from a narrow lens, all customers will look the same. As a result the focus ends up becoming on the trees (campaigns) rather than the forest (experience).

The power law of marketing is the big foundation idea for simplifying marketing. Understanding that the 20% Best Customers are many times more valuable than the 80% Rest Customers is the big insight that can remake marketing.