Profit-centric Marketing: Start with Email 2.0 and Loyalty 2.0 (Part 2)

Two Problems

Marketers are pouring money into adtech for new customer acquisition. They are taking unsustainable shortcuts in pursuit of growth. CAC is rising rapidly and sucking away even more of the marketing budget. Marketers therefore face a doom loop of spending: rising CAC demands more adtech spending, which reduces funds available for existing customers, which impacts the relationship and experience, which in turn causes churn, which pushes marketers further down the adtech path. The solution lies not in trying to optimise adtech spending but to start with existing customers and focus on how to build a better relationship with them.

In this quest, marketers need to solve two problems: attention recession and data poverty. Existing customers can be brought back to the brand’s properties (website and app) via two mechanisms: great branding or push messages. Branding takes time and money to build, and is also an outcome of the experience delivered. On a daily basis, it is the push messages (sent on email, SMS, WhatsApp or as app notifications) that have to do the magic. The problem here is that customers are not paying attention to the promotional messages sent by marketers: open rates in email and SMS are very low and push notifications are blocked by many app users. In other words, customers are not listening to what brands are saying.

There is a second problem: lack of a unified customer view  to personalise the customer experience. While martech platforms help brands collect a lot of customer data, the first-generation point solutions do not provide an integrated view since data gets siloed and integration costs can be very high. For example, one of India’s leading banks does not recognise me as the same person who has a bank account and a credit card with them even as the mobile number is the same for both accounts!

Taken together, attention and data are the two fundamental challenges that marketers need to solve. So far, they have taken the easy way out: discounts to get customers to pay attention (which means treating every existing customer as a new customer each time) or just retargeting them via the adtech platforms. Both are expensive propositions and hurt profits. But for marketers goaled on growth, profits are not their concern. But for a CEO or CFO, this short-sightedness has serious implications on the bottom line.

This is why I believe profit-centric marketing must become a founder/CEO/Board agenda. Unless the top leadership understands what’s hurting their business, they will not escape the spending trap. And without ending adwaste, there is no path to profitability, even though they may be able to demonstrate short-term growth. To make sustainable profitable growth a reality needs a rethink on all aspects of marketing: next-gen ideas for email, loyalty, martech and adtech.

Profit-centric Marketing: Start with Email 2.0 and Loyalty 2.0 (Part 1)

The Shift

The past few years have seen consumer companies spend big on growth at all costs. Traditional and new-age companies have been splurging on new customer acquisition on the adtech platforms (primarily Google, Meta, Amazon). Some of the spending was justified as the pandemic accelerated the adoption of digital. Also, the printing of money by central banks made capital almost free and investors seeking growth found fast-growing B2C/D2C companies as a good hedge against low interest rates.

This ‘growth at all costs’ has led to a digital arms race where the only winners have been the adtech companies. Rising CAC (customer acquisition cost) has meant brands have had to invest increasingly higher money for new customers. This is unsustainable, and there are signs that the tide may be shifting back to more sustainable and profitable growth. As Fred Reichheld, the creator of the Net Promoter Score, said in a webinar recently: The only way to grow is to ensure customers come back for more and bring their friends.

For a business, more than top line growth, what matters is the growth in gross margin and profits (EBIDTA). Top line growth can be achieved by giving discounts to existing customers for transactions and spending big on new customers. This is not good growth. What a business needs is to grow the gross margin and then profits; between these two numbers is the cost of running a business – primarily, employee costs and marketing. Of these, marketing is the one which can vary dramatically depending on the choices made.

Thus, for a business to be profitable, there are two key requirements: grow top line in a healthy manner by increasing revenue from existing customers without discounting aggressively, and then keep marketing costs under control by calibrating the spend on new customer acquisition. This is at the heart of what can be termed as “profit-centric marketing.” For every business, profits are a must because otherwise there is a need for continuous capital inflows to fund the losses.

Profit-centric marketing actions can be further sharpened to the following:

  • Drive growth from Best customers. These 20% customers account for 60% revenues and more than 100% of profits since the cost of servicing and acquiring other customers dents profits.
  • Reduce “Adwaste”. Brands are wasting half of their marketing spends on reacquisition and wrong acquisition. (Globally, this is a $200 billion waste.) This means building direct and deep relationships with existing customers. It means ensuring customers come back for more and bring their friends.

Profit-centric marketing done right can deliver the right sustainable and organic growth for businesses. By leveraging the power of digital, this can be made exponential and forever, as Best customers spend more, stay longer and get their family and friends who become tomorrow’s Best customers.

A Tale of Three Conferences (Part 7)

Return Flight

On my way back from Newark, NJ to Mumbai, for the first time in three weeks, I was able to take a step back and look at the big picture of the meetings, conversations and experiences I had gone through. I felt an excitement about the possibilities of the future – along with the fact that through the blog things that I had written were not off the mark. In my writings, I let my mind wander and imagine what tomorrow can bring. The conferences gave me a real glimpse of what’s coming – through the words and products of others. As I look back, the decision to start the blog was the best one I have made in recent times – the discipline of writing daily makes me read and think. That prepared me for the three conferences – each distinct in its own right. EIS was all email, IRCe was about marketing, and Permissionless was about Web3 and crypto. At the intersection of these are my new ideas: Email 2.0, Loyalty 2.0, µniverse (Muniverse) and Bharatverse.

Ideas by themselves are just a start. What’s next is how to bring these new ideas to life. That is never easy. Most of my ideas have failed in their execution – at times, too early, and at other times, too esoteric to have mass impact. What this trip has shown is that the Email 2.0 and Loyalty 2.0 ideas have legs. Email 2.0 is about ‘making email cool again’ – innovating in a space where others have given up trying to make things better. Loyalty 2.0 is about connecting the upstream (attention, engagement, habits, zero-party data) with the world of Web3 (tokens) to create a pan-brand program that can cut the $200 billion adwaste which is hurting brand profits. Both are big ideas and linked with each other; email is the channel which can bring to life the first version of Loyalty 2.0.

µniverse and Bharatverse are outcomes of Web3 applied to marketing and politics. They are decentralised platforms – run by rules (code) not rulers. Done right, they could transform brand-customer relationships and the economic future of nations like India. Muniverse is about helping brands build deep and direct relationships with their existing customers; Bharatverse is about providing a platform for non-aligned and non-voters in a country to come together to create a new future of freedom and prosperity for their nation.

I will be 55 years old this August. This triple treat of conferences took me back to my early days as an entrepreneur – sensing excitement and seeing opportunities for a future that needs to be created to make the world better. An entrepreneur never gives up – it’s always about the next new thing. And that’s the road ahead for me!

A Tale of Three Conferences (Part 6)

Permissionless

Permissionless, organised by Blockworks and bankless, was my first blockchain conference. Over three days, I sat through over 20 hours of high quality content. My purpose was to understand the language rather than the tech, and get a sense of what are the themes being discussed. My starting belief was that there is a fundamentally new Internet being built, bringing back memories of the mid-1990s. I was not wrong; the excitement among the speakers brought back the heady days of the early Internet era, one which I saw and participated in first hand.

Here is how I framed the past 15-odd years of the rise of the crypto. One track has been about bitcoin and the rise of all other cryptocurrencies. This seeks to challenge fiat currencies which are being debased by money printing by central banks since the 2008 financial crisis and compounded through the pandemic years. A second track has been to apply the blockchain principles to finance leading to the rise of Ethereum, smart contracts, DeFi (decentralised finance) and stablecoins. (The week prior to the conference had seen the blow-up of Terra-Luna and the loss of $50 billion, but that did not dampen the spirit and the core principles.) A third track that has emerged in the past couple of years has been the growing popularity of NFTs (non-fungible tokens). These will now extend into multiple disciplines – from creators and brands to gaming and social. DAO (decentralised autonomous organisation) is another construct that is being discussed.

My view, reinforced after the conference, is that these are early days in the creation of the next generation Internet infrastructure – decentralised, permissionless, ownership, built on cryptography, enabled by blockchain. It is up to entrepreneurs to ask the question: what is centralised today that can be decentralised? And from there will sprout a range of businesses. A recent report by a16z offers a review of the current landscape and possible future directions. For me, the two areas of interest are applying the Web3/crypto/blockchain ideas to marketing and politics. [I have discussed these ideas in my writings on the µniverse and Bharatverse on my blog.]

A new future is coming with the collision of Web3/blockchain, gamification, the creator economy and the metaverse. It will take many years to play out. Just like the Internet. Those who wrote off the Internet’s promise after the 2000 crash missed the real value creation that happened later with the rise of Google, Facebook, Netflix, Apple’s iPhone, AWS, SaaS and more. Something similar is playing out now. There will be many ‘crypto winters’. This is the nature of innovation. Creation and Destruction. New ideas emerge from the ones that die. If you are an entrepreneur or a CEO of a big business, pay attention to the Web3 world that is emerging. Plenty of capital and an awesome array of talent is leading the way in creating new ways for us to live, work, entertain and socialise.

A Tale of Three Conferences (Part 5)

Profit-Centric Marketing

Before I come to the blockchain conference, I want to discuss some aggregated insights from EIS and IRCe. The one clear theme that came up in many conversations and presentations was the rising cost of customer acquisition via the likes of Google, Meta (Facebook) and Amazon. A customer I met said their CAC was up 50% in a year. These expenditures are now impacting profitability. I had come to similar conclusions and had written extensively on the blog on the need to shift from adtech (new customers) to martech (existing customers). It was good to find reinforcement of this theme at the two events.

The deteriorating macro economic situation also brought the theme of profitability to the fore. With external capital becoming scarce and stock prices falling, brands will need to look harder at their costs. One of the big ones is their spending on new acquisitions. This is where I brought in my framework of the 4 Ps: pipe (building hotlines to existing customers with email being the best push channel), partitioning (segmenting customers into Best-Rest-Test and creating differentiated experiences for the Best customers – what I have previously termed Velvet Rope Marketing), properties (the experiences customers get when they visit the brand’s website and apps where data and AI can go a long way towards driving omnichannel personalisation), and finally, prospecting (how to smartly acquire new customers or renew existing relationships).

Netcore and Unbxd together have a very good framework to eliminate profit killers and ensure profit creators for brands. Bad search on websites is a profit killer. So is a low open rate for push messages. Not having an email address for app-first companies is a profit killer. Not engaging with customers post-purchase with daily messages about making the best use of the product is a future profit inhibitor. Not having enough zero-party data can be a profit killer. Not using AI to identify customers likely to churn and thus take pre-emptive action is a profit killer. Not doing “omni” is another such killer. Not leveraging referrals from Best customers, not renewing dormant customers, not responding speedily to chat requests (I waited 45 minutes on chat for a response from a Delta Air Lines agent) – all are profit killers. And there are many more. What brands need to do is to look at each profit killer and eliminate it with a “profit creator” idea. Profits are what will dominate Board agendas in the near-term, and this is where the CMO has the opportunity to become the CPO (Chief Profitability Officer).

The two conferences helped reassure me that my mental models were on the right track. The themes I have discussed on the blog over the past couple of years are the ones that are now coming to the fore: Velvet Rope Marketing and its ideas around CLV (customer lifetime value) and BCG (Best Customer Genome), the need to solve the upstream problems of Attention Recession and Data Poverty, Microns and Email 2.0, the coming shift from Adtech to Martech, the need for a Progency (product-led agency), the importance of Subscriptions, and the need to rethink Loyalty.

The innovation that could be a gamechanger for bringing some of these ideas to life is where I was headed next: the world of Web3, crypto and blockchain.

A Tale of Three Conferences (Part 4)

IRCe

The next stop was the Internet Retailer Conference and Expo in Chicago, part of the Retail Innovation Conference and Expo (RICE). Netcore and Unbxd had adjacent booths, and I had a workshop on Email 2.0 on the opening day of the event. Since I had more time (50 minutes) for the workshop, I also had time for Q&A with the 50+ attendees. I was much more confident doing the same deck a second time. The demo shown as part of the presentation encapsulating both AMP and Atomic Rewards did bring very positive feedback. We had multiple people who attended the workshop and then came to our booth to discuss further and schedule a 1:1 future engagement.

The one thing that had changed in the past week was the increasing talk about an impending slowdown and the possibility of a recession. So, when I spoke, I brought in the message about profit-centric marketing and the need to focus on existing customers. Every business has profit killers and it is important to replace them with profit creators. As the world of free and easy capital comes to an end, brands (and startups) will need to prioritise profits. For this, the adwaste needed to end, and a hotline needed to be built with customers to drive retention, repetition and referrals. (I have explored these themes here and here.)

While I spent some time at the booth and walking around the expo, most of my time was spent in the conference sessions. I wanted to learn the new trends in marketing. The past couple of years had seen a step function increase in the use of digital, and the pace of new ideas and innovation had increased rapidly. The ones that stood out for me: live shopping, influencer marketing, social commerce, quick delivery (a number of examples from India were mentioned) and the rise of the metaverse. There was a lot of discussion around DTC (Direct-to-Consumer), marketplaces, and the looming presence of Amazon and competition with its Prime delivery.

A heartening feature of the event was the in-person attendance. There were a few thousand people – my largest post-Covid event. (This was easily outdone a week later at Permissionless where the attendance was even bigger!) We are social by nature; we like meeting people, we want to have face-to-face conversations. A screen is not a substitute for the experience of shaking hands and seeing each other in flesh and blood!

I was also amazed at the massive scale of McCormick Place. I remember attending a conference on document management 20-25 years ago, and the convention centre space seemed to have grown manifold. Many hotels are conveniently connected via bridges directly to the centre.

All in all, a nice experience. Real world, real people. Lots of them!

A Tale of Three Conferences (Part 3)

EIS

Email Insider Summit has an interesting format. The event brings together a bunch of sponsors who pay and a curated list of attendees who get to come for free. Mornings are for the conference sessions, while afternoons are for fun events (cruise, beach, golf), and evenings for cocktails and dinner. The venue chosen is quite isolated in the sense that there are no other things to do, which means maximum engagement time for the sponsors. There is enough time to engage 1:1 with many of the attendees. The format reminded me of what Netcore used to do with its Hashout events.

The conference sessions provided a good overview of the email space with a mix of product presentations from the sponsors and brand stories from some of the attendees. I spoke on the third day just before the close on Email 2.0. I was presenting to a live audience in the US after many years. My focus was on the innovations that can make email an even more powerful channel of communication and engagement with existing customers. [I have written about Email 2.0 previously on my blog here and here.] The five ideas that comprise Email 2.0 are Hooked Score, AMP, Ems, Atomic Rewards and Progency.

Some of the learnings and inputs from the conference and conversations:

  • When pitching a “switch” solution (like we were doing), it is necessary to initially talk co-existence. Rip-and-replace is not an easy option for most brands. So, even though we had a stack that could do a lot and meet all the needs of marketers, we needed to figure out how to “land and expand”.
  • I realised that we have a good opportunity for thought leadership in the email space globally. Most of our larger competitors have been bought by CPaaS companies. We are one of the few “originals” in this space. There is very limited innovation happening. As such, there was very good interest in the ideas we proposed – especially AMP, Atomic Rewards and Progency.
  • My blog writings were very useful. I would send relevant links to the people I met. The idea of one new post daily for the past two years has now created a huge library of work that I can share with others.
  • Email remains a very powerful communication channel for brands. The use of email has risen sharply over the past two years, despite rising competition from alternatives (push notifications, SMS, and in some cases, WhatsApp). Email’s advantages (no controller, open access, ability to support rich media, low price) continue to work to its advantage. Of course, the sophistication has increased: instead of broadcast messages, there is now segmentation and personalisation. AMP brings in interactivity and Atomic Rewards adds gamification.
  • Some of the standard words and phrases that were used by the presenters: omnichannel, cross-channel, personalised, unified, customer experience, (hyper) segmentation, customer journeys, campaigns, experimentation preferences, loyalty, gamification, engagement, triggers, deliverability, inboxing, conversations (and not just a focus on conversion), linkages to CDPs (customer data platforms), use of AI to ease marketer’s life, zero- and first-party data.
  • Also, against the backdrop of Apple’s privacy protection framework, Google’s decision to do away with cookies, and caching of images, “opens” as a metric needed an alternative. (This is where I spoke about Hooked Score.)

In this context, I was quite pleased with the Email 2.0 framework that I presented. Innovation in email has largely stagnated, and it was good to be able to discuss a set of genuinely exciting ideas for taking email to the next level.

A Tale of Three Conferences (Part 2)

Starting Turbulence

My travel to the US began on a wrong note. About 12 hours before departure, I was informed that my flight (Air India’s Mumbai-Newark nonstop) was delayed 15 hours. I figured the delay would probably only increase and by the time I could reach Hilton Head for the Email Insider Summit conference, I would have lost the better part of a day of a two-and-half-day conference.

Waiting to take the delayed flight was not an option. The likelihood of further delays were high. And just sitting at home for another day wondering would be extremely unproductive mentally. At moments like these, my stoic approach to life comes into play. I could have expressed my frustration at the Air India staff and rued my bad luck. That would not have changed the reality. Instead, I calmly went online and checked on the Air India site for seat availability on flights from Delhi. (Air India has multiple direct flights from its Delhi hub to the US – JFK, Washington, Chicago and San Francisco.) I then had my assistant speak to Air India and told them to get me to any destination in the US via Delhi. After a couple hours of anxious wait, I was rebooked via Delhi to JFK. The flight would arrive at the same time as the Newark flight. A couple things likely worked in my favour. I was travelling Business class and because of my 2019 travels, I was on the highest frequent flier status (Maharajah Club). So, I probably got priority in the rebooking process.

When I reached Newark airport around 10 am, I figured that the net cost had been that I had to leave home five hours earlier (to travel to Delhi) and $150 for an Uber ride from JFK to Newark. I was exactly at the place I would have been had I taken the nonstop. So, not a bad eventual outcome. It could have been far worse had I not been rebooked on the alternate flight.

In life, such events happen. They are beyond our control. Getting upset or angry is not the solution. My general approach is that there has to be some good which will come out of it even though I cannot immediately figure out what. So, a calm demeanour and presence of mind is needed, rather than taking one’s anger out at the airline ground staff – they were not the cause of the problem.

As it turned out, this was the only flight delay I experienced. All my domestic flights in the US were on time. My baggage was not lost. And to top it all, the return flight from Newark to Mumbai three weeks later landed 40 minutes ahead of schedule!

A Tale of Three Conferences (Part 1)

Conferences and Me

I have always looked forward to attending conferences, especially in the US. The content is exceptionally good. Also, the time difference with India is large enough that there are no interruptions with calls and messages which allows for total immersion in the conference which heightens concentration and learning.

Right from the time I began my journey as an entrepreneur in 1992, conferences have been an integral part of my learning. To understand a new field, the best way is to spend 2-3 days listening to a diverse set of speakers, one after another. There are no distractions as one sits there and lets the presenter’s (or the panelists) words and ideas interact with one’s own to create mental models of the space.

For most of my life, it has been about attending tech conferences – mostly in the US, but a few in Europe and South-East Asia. For a brief period during 2014-2018, I switched to attending economics and public choice conferences. Then in 2019, it was back to tech with 5 conferences: SaaStr in San Jose, Email Evolution in Savannah, Gartner’s flagship Marketing conference in San Diego, along with Dreamforce (by Salesforce) and TOPO’s parallel event in San Francisco. In Jan 2020, I attended a special event by the Mont Pelerin Society at the Hoover Institution in Stanford University, along with the Antigua Forum in Guatemala. That made it seven conferences in just under a year.

And then came the pandemic. Everything went virtual, and it was just not the same thing. Sitting at home and listening to speakers or watching recorded videos – it was a very different experience. What I missed was the extended time spent at the conferences – the total focus, visiting the booths, and the random conversations with the people sitting around me. The in-person conferences were what I missed most during the past couple years.

And so, it was with some excitement that I decided in April to visit the US for 3 conferences: Email Insider Summit (EIS) in Hilton Head, Internet Retailer Conference and Expo (IRCe) in Chicago and Permissionless in Palm Beach. Netcore was a sponsor at the first two, and so I had an opportunity to present on Email 2.0 at both events. Permissionless was themed around crypto and blockchain – a new space for me, and relevant in the context of my thinking around Loyalty 2.0.

I planned a 3-week trip split equally between the conferences and meetings with customers, prospects and partners, and catching up with friends on the weekends. It was a hectic itinerary: Hilton Head, New York, Puerto Rico for a day, back to New York, Chicago, San Francisco and the South San Francisco Bay, Palm Beach and New York once again. Nine domestic flights in the US and international flights made for a lot of travel. After my 2-month stay in Sep-Oct 1994 when I envisioned IndiaWorld, this was my longest visit to the US in nearly three decades. I packed each day with meetings; I used the flights to reflect on my learnings and imagine the future course for Netcore.