Category: Marketing

Marketing’s Wrong Turn

During my recent US visit, I met a friend who has been very active in marketing for a long time – as a professional and then as a professor. I browsed through some of her older books – a curated set of titles linked with her interests. Here is a glimpse of the collection:

What struck me was the focus on customer loyalty. This contrasts with the focus today on themes like digital advertising, performance marketing and social media marketing. Of course, the customer has changed – very digital and very targetable at an individual level. Yet, I could not help feeling that in the relationship that marketers are building for their brands with customers, something went wrong in the past decade.

Marketing’s wrong turn has been about an extreme focus on customer acquisition via adtech platforms. The likes of Google and Meta (Facebook) made it so easy to spend money targeting and acquiring new ‘customers’ that marketers went overboard on the future (new customers) and forgot about the present (existing customers). They have missed (or deliberately overlooked) the fact that half of their spending is being wasted on reacquisition and wrong acquisition. They have hurt their employers by ignoring retention and fostering loyalty, and instead focused on the shiny and new digital customers who click through and then sometimes vanish into a black hole.

Businesses are paying a huge price for this. When the revenue generated by the adtech platforms goes up 30-40% a year (about $50 billion in 2021), that money is coming from brands participating in an unwinnable race and cutting into their profitability pool. This may have been less of an issue in the past few years with free capital from investors hungry for topline growth. As a slowdown approaches and capital becomes scarce, the focus will necessarily have to shift to profits and free cash flows being the only oxygen for growth. CEOs will then be faced with two tough choices: cut employee costs or reduce marketing costs. This series is about helping leaders make the right decisions and correct marketing’s historical mistakes with the idea with a focus on what I call “extreme retention” (XR) is at the heart of “profit-centric marketing” (PCM) by eliminating the profit killers and bringing in the profit creators.

Getting Started

The starting point is with a revamp of the email program. In case a brand does not have email IDs, it should run a program to collect email IDs and link them to mobile numbers. The email ID is perhaps the most valuable asset that a brand can have. In emerging markets like India, the focus tends to be on the mobile number. What brands must remember is that a mobile number only enables them to communicate with an eighth of their user base: 30-day app retention is about 25%, and half of those who keep the app installed have push notifications switched off. While brands can choose to send SMS and WhatsApp messages, the costs can be 10-50 times higher than that of an email.

Email 2.0 must become the cornerstone of the revamped program. Email 2.0 makes emails 2-way, a daily utility in people’s lives, interactive, informative and gamified. It is something customers will welcome in their daily lives – “invited advertising” or invertising!

There are two ways to implement an Email 2.0 program: marketers can do it internally or partner with a Progency (product-led agency). A Progency does to martech what the digital agencies did to adtech – offer a one-stop solution with payment linked to performance. This leaves the marketer free to think about the bigger picture and strategy rather than getting too caught up with the day-to-day grunt work of running campaigns. (In fact, the ideal marketing department of tomorrow will probably be a single person supported by a progency which in turn combines an AI-first martech platform and people.)

The gamechanger for building the hotline and thus capturing attention and data are the Loyalty 2.0 tokens. These tokens take marketing into the Web3 world. They disintermediate the Big Tech platforms, foster a direct relationship between brands and customers. What marketers need to remember is: To get customers to pay attention, pay for attention (else they will pay Google and Facebook 100 times more.) The budget for Email 2.0, Progency and Atomic Rewards comes from cutting the adwaste which accounts for half the marketing spend. Savings from this will flow to the bottom line, as will the increased revenues from customers converting more because they are listening more to what the brand is saying.

Email 2.0 and Loyalty 2.0 are thus the first steps towards profit-centric marketing. They will later need to be augmented by Martech 2.0 and Adtech 2.0. This new framework will transform business bottom lines and create loyal customers. Without profits and without customers who return and get their friends, no business can survive for long. These new marketing ideas – Email 2.0, Loyalty 2.0, Martech 2.0, Adtech 2.0 – are disruptive innovations, and can serve as the anchors for success and the creation of exponential forever profitable growth and eventual “profipolies”.

Additional Reading:

• The Coming Martech Era: Driving Exponential Forever Profitable Growth
• Martech’s Magicians: Microns, Micronbox and µniverse
• The Subscriptions Future: Customer Retention Forever
• Progency for Martech: The Missing Link
• Martech 2.0 and Web3: Solving Advertising’s 50% Problem

The How

To summarise the narrative so far:

• While brands can buy growth with adtech spending, that comes at the cost of profitability
• Good growth and profits needs repeat business and referrals from existing customers
• The challenges marketers face in dealing with existing customers are attention recession and data poverty
• A shift in focus from adtech to martech means a shift from acquisition and discounts to solving for attention and data

The path to exponential forever profitable growth comes down to something as basic as solving the problems of attention and data. In a world of digital and direct relationships, these are the two things that matter most. If a brand’s customers are not listening and if a brand does not have adequate data, it becomes hard to build a hotline to customers. Without the hotline, it becomes difficult to bring customers back to the properties for transactions.

In the pre-digital world, what mattered was branding. Great copy and ads created the customer connect and brought them to physical world stores. While branding still matters, it takes time and is expensive to build. Only a few succeed. For all others, the opportunity for B2C/D2C businesses comes from the push messages to get their communication out to their customers. This has been forgotten by marketers eager to show growth at all costs.

The problems of attention and data can be solved. For this, the mindset of marketers needs to evolve. The world of customer engagement must begin with the push channels. Today, there is very little attention paid to these channels. The channel with the best RoI – email – sees a spend of $8 billion annually. This is just 2% of what is being spent on adtech platforms globally.

I believe that email can and must become a marketer’s new best friend. Email is not what it once was – 1-way broadcast and semi-spam. Email is now ready in its new avatar: Email 2.0. This email can be interactive, informative, gamified, fun and exciting. It is email like customers and marketers have not seen or imagined. Email 2.0 is a way to convert the delete mindset into delight. It can become a powerful channel for getting customers to volunteer data about themselves. For this, Email 2.0 needs to be combined with Loyalty 2.0. Tokens for attention and data with a new spam-free inbox which delivers surprises and rewards can bring brands and customers closer in a win-win relationship.

With attention and data, marketers can then deliver omnichannel personalisation on their properties and differentiated 360-degree experiences for their Best customers (Martech 2.0) and slash acquisition costs via referrals and targeted new customer acquisition (Adtech 2.0).

This is the new world of marketing, reinvented for a digital world. The basics do not change. Marketing is about bringing customers back for more and ensuring they get their friends. What is different is the ‘how’ to get started – a new-look email format (what I call “microns”) and atomic rewards in the form of tokens for attention and data to nudge behaviour. These are the ideas that hold the key to building the pipe (hotline) with existing customers, and therein lies the secret of profit-centric marketing.

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.

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.

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!

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.

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.

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!

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.