Published October 28-November 1, 2023
Countless eCommerce companies grapple with slim or non-existent profit margins. On the surface, the hefty price tag of customer acquisition (CAC) seems to be the primary culprit. But a deeper analysis reveals an industry-wide problem lurking beneath the surface. This is what I term as the “eFolly” – the decision to ignore existing customers and almost exclusively focusing on new customers. This eFolly of disregarding current customers pervades digital companies across the board. It is a costly misstep that eCommerce leaders perpetrate, inadvertently (and inevitably) gnawing away at their profitability. In the absence of external capital to absorb losses, this blunder can even lead to startup failures.
An astounding half of global adtech spending is being squandered. As a result, a significant portion of the $200 billion AdWaste, which could have been potential eCommerce profits, instead finds its way into the P&L statements of Big Tech companies. This AdWaste serves as an alarming testament to the magnitude of this eFolly.
This counterproductive trend has taken root deeply within the ever-evolving landscape of eCommerce. Lured by the promise of scale and novelty, marketers fall into the all-too-easy trap of constantly seeking new customers. They focus their strategies on the top of the sales funnel and become consumed by the deceptive delight of an ever-expanding customer base.
However, in this relentless chase, an essential component of their business falls by the wayside — their existing customers. The quest for new acquisition consumes such a significant share of resources that it eclipses the more sustainable and arguably more profitable segment — existing customers. These are the customers who have already demonstrated their trust and loyalty towards the brand, and who are ignored in favour of new ones. This focus on new customers creates an attention deficit for existing customers, gradually eroding the potential for repeated purchases, brand loyalty, and advocacy. Instead of using these existing relationships as a catalyst for sustainable growth, marketers find themselves in a bidding war for the new, with spirally increasing spending to replenish a leaking customer bucket.
This eFolly, far from being a mere oversight, has far-reaching repercussions on profitability. The incessant chase for new customers drains marketing budgets and diminishes the overall return on investment. It fosters an unsustainable business model — like being on an ever-accelerating treadmill – trapping marketers in an exhausting pursuit of customer acquisition.
This flawed race doesn’t just diminish profit margins; it also diverts resources that could be more effectively utilised to foster existing customer relationships, enhance customer lifetime value, and fuel steady, organic growth. The lack of focus on existing customers triggers a domino effect of friction across the customer journey, resulting in broken experiences, thereby further exacerbating the challenges marketers face in their quest for profitability. A neglected customer inevitably becomes a disgruntled one. The missed opportunities to engage and enhance the experience for existing customers morph into friction points, leading to dissatisfaction and eventually churn. Each instance of churn represents not only a lost customer but also a dent in the brand’s reputation, a potential negative review, and further churn. (We are all customers of many eCommerce brands and have experienced this first-hand.) Overlooking existing customers in favour of new acquisitions is thus more than a faulty strategy; it’s a ticking time bomb for eCommerce profitability.
However, the winds of change are beginning to blow, ushered in by a wave of innovative ideas and ground-breaking solutions. The eCommerce landscape is ripe for this transformation, marking an exciting and much-needed shift from relentless customer acquisition to meaningful customer retention and engagement. For the first time, marketers have at their disposal tools potent enough to embark on a journey from eFolly to profitability, and eventually, towards achieving a “profipoly” (profits monopoly). With the right mindset, effective strategies, and the courage to redefine conventional norms, exponential forever profitable growth to building an enduring, great company is a very real and achievable goal.
For a long time, establishing deep, meaningful relationships with existing customers was seen as a herculean task. While branding efforts did manage to pull back some customers to websites and apps for transactions, it always remained an expensive line item, frustratingly nebulous and hard to quantify. Push messages, the only other hope to bring customers to the brand’s properties for transactions, are easily ignored and becoming less effective. This predicament left eCommerce companies with minimal choices but to employ adtech to retarget their own customers.
Once caught in the adtech web, brands and marketplaces find themselves embroiled in a fierce bidding war. The object of contention? Not just the shiny, new prospects, but also their own “one and done” customers. This battle inevitably propels marketing costs upwards, often outpacing sales, leaving profits battered and bruised in its wake.
However, a revolution is brewing. Fresh innovations and transformative ideas are poised to pull eCommerce businesses out of this quagmire. But the transition is far from smooth. In numerous conversations with managers across the industry, I’ve encountered an alarming reluctance to embrace these game-changers. The reasons are many: inertia to try out new methods (“I am simply too busy to try out these unproven ideas), flawed KPIs (“I am measured by website and app traffic so Inbox Commerce could actually hurt my performance”), lack of internal resources (“If it requires any IT integration, I will not be able to get it done”), a short-term mindset (“I cannot take any risk because I have weekly targets I need to deliver on”), and so on. The comfort of targeting new and existing customers through familiar adtech platforms often trumps the unfamiliar territory of experiments with martech initiatives. As one CMO candidly admitted, “Profitability is not my concern; I only need to deliver topline growth, and it’s much easier to do that via spending on Google and Meta.”
However, I observe flickers of hope. A growing number of marketers are demanding a better return on investment, which is a very good first step. But they seem to be missing the bigger picture, concentrating on optimising unit-level spending (“Improve the return-to-spend ratio on email”). Their tunnel vision blinds them to the larger issue – the eFolly of failing to see their existing customers as growth engines and profit drivers, and its detrimental impact on their businesses.
This should arguably be the most important agenda for marketers and CEOs. Unfortunately, beyond the chorus of “Help! Our CAC is rising”, I see no concrete steps to address the core of the problem. Marketers need to shift their thinking towards profitability. To achieve this, they need to navigate through the five funnel fractions I’ve outlined in my previous trilogy [ProfitXL to Profipoly: Solving the Four Funnel Frictions, Solving eCommerce’s Fifth Funnel Friction: Identifying Unknown Shoppers, and Email 2.0: The Fulcrum for Fixing Five Funnel Frictions]. But crucially, they first need to acknowledge and comprehend their eFolly.
Starting this journey of transformation requires examining the funnel elements that marketers know well – ToFu, MoFu, and BoFu (top, middle, and bottom of funnel). In addition, there is a need to scrutinise what lies above the funnel (ATF) and below the funnel (BTF). Only then can marketers truly begin to change their minds and turn the tide from eFolly to Profipoly. At stake is the very future of eCommerce: $200 billion of AdWaste which can be converted to brand profits.
Here are the new building blocks for the eFolly to Profipoly transformation.
Email 2.0 as the Fulcrum: Emerging as a central axis for customer engagement, Email 2.0 leverages AMP to transform static email content into a dynamic, interactive platform. This enables customers to perform transactions or browse content directly within the email. A complement, Microns, refers to micro newsletters that deliver personalised, snackable content to users, making email engagement quick and convenient.
Martech 2.0: It represents a shift from siloed, point solutions to a unified, integrated solution. The Unistack concept involves consolidating diverse marketing tools into a single, streamlined platform. Unichannel (beyond omnichannel) ensures a seamless, consistent, and unified user experience across all touchpoints, eliminating the barriers between online and offline channels.
Large Customer Model and Digital Twin: The Large Customer Model involves building a detailed, large-scale model of customer behaviour and preferences. Think of it as a CDP on steroids. The Digital Twin concept is the creation of a comprehensive, digital representation of each customer, enabling highly personalised marketing tactics. Digital Twins (a “Virtual You” of every customer) interact in a Mirror World to predict next best actions and maximise lifetime value.
Velvet Rope Marketing: VRM is about creating differentiated and exclusive experiences for Best Customers by combining the principles of Customer Lifetime Value (CLV) and the Best Customer Genome (BCG). CLV facilitates a forward-looking view on customers, focusing not just on their past transactions but projecting their future value based on behavioural, demographic, and psychographic data. The BCG, on the other hand, serves to create an intricate, personalised profile of the most valuable customers, much like a genetic code, highlighting their preferences, habits, and interaction history.
Atomic Rewards (Loyalty 2.0): This redefines the traditional loyalty programs. It offers small, frequent, and highly personalised rewards (hence ‘atomic’) to customers. It focuses on offering pan-brand micro-incentives for non-monetary transactions: attention and data in the upstream, and reviews, ratings and referrals in the downstream.
Progency: A new breed of marketing facilitator, Progency (product-led agency), merges the robustness of a platform with the adaptability of services, transforming into a trusted ally for marketing departments. Its performance-based compensation mirrors the adtech agencies, creating an alignment with brands and fostering a shared objective of success.
Earned Growth: Serving as the North Star guiding marketers towards sustainable success, Earned Growth is an innovative metric to assess real progress in the profipoly journey. It quantifies the revenue derived from returning customers and their referrals, intentionally excluding income from paid acquisitions. This sharp focus on organic growth and customer loyalty underscores the importance of customer retention and advocacy in the long-term growth narrative of a business.
We will now relook at the frictions in the customer journey, and how these ideas and innovations can power the eFolly-to-Profipoly transformation.
ATF, ToFu, MoFu, BoFu, BTF
In previous writings, I have discussed the five funnel frictions, the good fractions, and the solutions. [[ProfitXL to Profipoly: Solving the Four Funnel Frictions, Solving eCommerce’s Fifth Funnel Friction: Identifying Unknown Shoppers, and Email 2.0: The Fulcrum for Fixing Five Funnel Frictions]
The frictions and fixes can be better represented in the form of the traditional marketing funnel – ToFu, MoFu and BoFu (top, middle and bottom of funnel). To these three stages, I have added two more which are outside of the funnel: ATF (above the funnel) and BTF (below the funnel).
ATF (Above the Funnel) – Adtech AdWaste to Near-Zero Acquisition Cost: This is the initial engagement phase where potential customers first encounter a brand. By curtailing AdWaste because of wrong acquisition and reacquisition, marketing initiatives can reach an unprecedented level of efficiency and cost-effectiveness.
ToFu (Top of Funnel) – Identity Gap to Anon-to-Known: At this stage, marketers face the challenge of transitioning anonymous site visitors into identified contacts. The primary goal here is to incentivise visitors to share their email ID and mobile number, thereby ensuring digital reachability and facilitating their progression to the next funnel stage.
MoFu (Middle of Funnel) – Attention Recession to Inbox Commerce: This phase is about retaining customer interest and engagement through the amplified potential of Email 2.0, leveraging tools like Microns, Email Shops, and Engaging Footers. Search functions, recommendations, cart management, and even payments can all be accomplished in-channel, increasing transaction completion probability. Furthermore, Atomic Rewards can help gather zero-party data voluntarily provided by customers.
BoFu (Bottom of Funnel) – Red Journeys to Green Journeys: This is the phase for those customers who land on a website or app with a potential buying intention. It is crucial to ensure their customer journey is seamless and frictionless, minimising drop-offs and optimising conversions. Here, the potency of Martech 2.0 and the Large Customer Model with Digital Twins prove indispensable to predict the next best actions. Velvet Rope Marketing, targeted at the most profitable customers, can maximise their lifetime value via exclusive offers and personalised experiences – further boosting profitability.
BTF (Below the Funnel) – Dormancy and Churn to Reactivation Progency: This final stage concentrates on retaining customers after their initial purchase. The objective here is to re-engage and reactivate those customers who have fallen into dormancy, thus promoting repeat purchase and enhancing customer loyalty. This approach steers marketers away from the prevalent practice of retargeting and reacquiring customers through expensive adtech expenditure. Partnering with a Progency serves as an effective means to keep marketers focused on nurturing active and transacting Best Customers.
Instead of merely considering topline growth or the size of the marketing budget, Earned Growth should serve as the primary performance indicator for a marketer’s success. As Earned Growth surges, marketers will move past their eFolly and ensure their brand evolves into a profipoly.
In the dynamic, ever-evolving landscape of eCommerce, eFolly — a myopic focus on new customer acquisition over nurturing existing customers — is an endemic pitfall, often resulting in squandered resources and overlooked growth opportunities. Yet, amidst this, a fresh wave of transformative ideas and innovations is at hand for marketers. These integrated solutions which solve the funnel frictions by combining technology, strategic insight, and a profound comprehension of customer behaviour, can assist marketers in offsetting the eFolly’s impact and fostering more rewarding relationships with their existing customers.
The heart of these innovative concepts lies not merely in refining transactional interactions, but in fundamentally reconceptualising the way we engage with customers. They provide a roadmap to transcend ephemeral conversion goals and construct a robust, customer-centric ecosystem that values and prioritises long-term relationships. Crucially, these solutions are designed not to merely cap off at acquisition but to follow through with retention, loyalty, and advocacy, hence maximising customer lifetime value. They are about curating bespoke customer journeys and experiences by predicting and executing next best actions. Additionally, they enable in-channel conversions, thereby obviating the need for redirects and clickthroughs.
By capitalising on these innovative approaches, marketers are empowered to transition from the single-minded pursuit of new customers to the maximisation of the lifetime value of their existing customer base, expanded with low-cost acquisition approaches. The transformational ideas encompass a range of strategies — from rejuvenating the role of email as a vibrant and interactive communication channel, to constructing large customer models and a digital twin of each customer for heightened personalised engagement, to reimagining loyalty beyond transactional confines.
At their core, these groundbreaking ideas and innovations effectuate a paradigm shift. They prompt marketers to pivot away from entrenched practices, rethink their strategies, and recalibrate their objectives to reflect a more holistic view of customer relationship management. This paradigm shift – from the costly eFolly of ignoring existing customers to a more sustainable profipoly, a profits monopoly through customer retention, referrals, and loyalty — forms the crux of a formidable strategy for building an enduring, great business.
The eFolly-to-Profipoly journey is about driving change in mindsets and harnessing the potential of innovations. It calls for a significant realignment of the core business philosophy, moving from a culture of relentless acquisition to a more equitable model that values customer nurturing equally. It’s about internalising the fact that real growth and profitability are not the result of ceaselessly hunting new customers, but in transforming each customer into a lifelong advocate. When this view of customer relationship management is adopted, a natural progression ensues, marking the path towards a sustainable, profitable future, rather than forcing a change.
This shift, from strategy to a way of life, is a call for CEOs and CMOs-turned-CPOs (Chief Profitability Officers) to think entrepreneurially and champion the transition. It is in this metamorphosis that the essence of real business growth and “built-to-last” endurance lies.