Email 2.0 Progency: eCommerce’s Profit Powerhouse

Published January 3-8, 2024

Opportunity

As brands contemplate their path to becoming a Profipoly, what impact can Progency, have on the profitability of eCommerce businesses? My estimate is that it can add 500 basis points. Meaning, it can add 5% of revenues to profits. And combined with a couple other ideas (fixing wrong acquisition and maximizing lifetime value from Best customers) there can be a 1000 basis points increase to brand profitability. In this series, we will see how this is possible.

Let’s begin by first looking at the profit inhibitors (or funnel frictions, as I have described them earlier):

Wrong acquisition
Reacquisition
Not differentiating experiences for Best customers

Wrong acquisition and reacquisition are part of what I have termed as “AdWaste”. They make up half the advertising budget. A concerted effort to provide “Velvet Rope Marketing” for the most valuable customers can also deliver a revenue boost.

I have used this table in the past:

Here is a step-by-step approach to increasing profits. A Progency can partner with the brand to deliver on the potential, in return for a share of the upside.

Let’s start with the Adtech expenses. Half of the spending is wasted because of wrong acquisition and reacquisition. Wrong acquisition can be fixed by using the Best Customer Genome to better target which customers to acquire. Reacquisition is about using the right of way available to reactivate relationships with dormant and inactive customers, rather than remarketing to them via the adtech platforms. Together, they can eliminate the AdWaste and bring down the adtech spending by half.

The next focus is on growing revenues. By providing superior experiences to correctly identified Best customers based on their lifetime value, it is possible to increase revenues from them. That can generate half of the revenue increase. The other half can come from driving revenues from the Long Tail (dormant / churned customers).

Progency, with its combination of software and services, is best placed to deliver all of these four benefits. In this series, I want to focus on how Progency can deliver on two counts:

Reactivating dormant / churned customers to bring in 300 basis points of Adtech savings
Growing revenue from these reactivated customers (whom the brand ignores) to deliver 400 basis points of gross margin increase. (A revenue increase of 10 units will deliver 4 units of gross margin assuming 40% gross margin.)

These are revenues from what I have termed as the “Test” customers – identified (meaning the brand has either an email address or a mobile number) but no longer actively engaged with the brand. This is the “iceberg” part the marketing department is not seeing. This is Progency’s opportunity.

Funnel

There are three ways customers come to a website or app for transactions:

Paid marketing – via adtech platforms
Organic – on their own (via branding impact, search engines, word of mouth, referrals)
Push messaging – which in the US is typically email. Other channels include SMS, WhatsApp, RCS, app push notifications, and browser push notifications

For our subsequent discussion, we will focus on the impact of the messages. Paid marketing is expensive; Organic is good, but the repeatability and consistency is uncertain. Push messaging is fully within the control of the marketing department.

We can now look at a typical funnel across engagement, conversion, and retention. Let’s also assume the average frequency of purchase is 3 months.

Assume a B2C/D2C brand has 10,000 identified digital contacts, which have been acquired over time. Of these, the brand is typically sending push messages to about a third of the database. The other two-thirds are ignored because they have not previously engaged or responded to the brand’s messages.

This aligns with the split of customers like this:

20% Best customers who account for 60% of revenue
30% Rest customers who account for 30% of revenue
50% Test customers who account for 10% of revenue. These have become dormant.
Another large bucket is that of Left customers. These have churned. They could be as big as the Test bucket.

In other words, from a pool of 150 customers:

20 will be Best
30 will be Rest
50 will be Test
50 have Left

Taken together, the Test and Left customers make up for 100 out of 150 customers – two-thirds of the base. Brands will typically stop sending emails and other forms of communications to them because of worries on cost and domain reputation (in the case of email marketing).

To complete the picture, Next customers come into the mix and some Rest customers will move into one of the other buckets.

Going back to the 10,000 customers’ list:

33% will be sent messages
67% will be ignored

Of the ones who are sent, over a three-month window, let’s assume about 30% engage with the brand (so about 1,000 customers), while the others just ignore the messages. So, the “Engaged” base is about 1,000 out of 10,000, leaving about 90% (9,000) unengaged. (My definition of an “engaged” customer is one who clicks on the message and goes to the brand’s website or app.)

Next, let’s look at conversion.

Of the 1,000 customers who engage (i.e., come to the website or app from a push message) during a typical three-month window, what percentage of them can be expected to buy? In conversations with many marketers, 5% seemed like a reasonable consensus number. Which means, 50 buyers. In other words, 950 of the 1,000 customers who come to the website or app do not buy.

Our final funnel step is retention – what percentage of buyers go beyond becoming “one and done”? From marketer conversations, 40% seemed like a good number. Meaning that, of the 50 who bought, 20 will come again to buy, while the other 30 will not make a subsequent purchase.

Just to put this in perspective:

We started with a list of 10,000 contacts
Emails were sent to a third (3,333) over a 3-month window.
Of these, 1,000 “engaged” – clicked on the email and came to the website or app
50 of them eventually purchased
20 of them are “retained” – make more than one purchase in a 12-month window

The EnCore (Engagement-Conversion-Retention) Triad thus becomes: 10, 5, 40. [See Part 10 of my previous essay.]

For every 1 retained customer, the brand needs 500 contacts in their database. (This can be thought of as the EnCoRe ratio.)

The Anti-EnCoRe Triad is 90, 95, 60. This is the “waste” in the martech funnel.

(While this is a simplified funnel and calculation, my guess is that the numbers will not be dramatically different for most brands.)

Marketer’s Gold

If marketers can figure out how to reduce the waste in the martech funnel, they will reap rich rewards. Here is a summary of the funnel waste:

90% of those in the contacts database are not engaging
Of the 10% engaged, 95% are not buying
Of the 5% (of the 10% engaged) who are buying, 60% are not making a second purchase

If marketers can fix the funnel of 90% unengaged, the 95% non-buyers (of the 10% engaged), and the 60% “one and done” buyers (of all the buying customers), they can transform the profitability of their business.

The problem is that most marketing teams are weighed down by the three primarily responsibilities:

Building brand
Performance marketing for new acquisition
Planning and executing campaigns and journeys for the 10% who are engaged and likely to buy

There is no time for other activities. In fact, it is highly likely that the unengaged customers will end up in the “remarketing” pool given to the adtech platforms because there is no obvious way for brands to reach out to them. (This is the reacquisition part of AdWaste that I had mentioned earlier.)

Enter Progency, an entity which brings in software and service. Its mission: how to make money from the 99.8% of the database that is not generating revenue for the brand? The first step: the 90% disengaged customers. This is where the gold lies.

Progency works in concert to the brand’s marketing department. Its goal is simple: generate revenue from those customers who are not delivering any value. In fact, they could become future cost centres if marketers run retargeting campaigns for them via the adtech platforms. A model where the Progency works on a 100% pay-for-performance model is what will get the brand excited – all additional revenue generated is “free money.” It is as if a brand has a store in Mumbai and Delhi, and the Progency comes in and works like a franchisee opening a store in Pune or Agra, thus bringing in completely new revenues. This is the opportunity for Progency: to tackle the $100 billion problem (half the $200 billion AdWaste) and simultaneously deliver the revenue and profits upside. Progency can deliver a 700 basis points upside for reactivation and new revenue generation from the customers the brand is ignoring.

Before we move on, let’s address the question of why brands are not doing this today. There are two reasons. First, marketing departments are already very busy managing branding, adtech platforms, and martech platforms. A fourth track will not be easy for them to handle. Second, there is a cost associated with sending emails and adding more users to the martech platforms, which they would be reluctant to do since the outcomes are uncertain. That’s why this exercise is best outsourced to Progency, which can combine product and agency skills and charges only on outcomes. The Progency pitch to brands: we will make money for ourselves only if we make money for you.

How

So, how can Progency take this “Blue Ocean” of customers and convert them into gold – for the brand and itself? This is where Email 2.0 comes in.

Email remains the most cost-effective channel for push messaging, especially in markets like the US. (eCommerce brands tend to generate 20-40% of revenues from email marketing campaigns.) The email experience has not been upgraded for over a decade. This is about to change. There are 10 Email 2.0 innovations that can be combined to create a totally new experience in the push messages being sent.

AMP in email to make messages interactive and eliminate the friction of clicking through to a landing page
Atomic Rewards to gamify engagement in email by offering micro-incentives for attention and data
AI to personalise emails for segments of few or even a “segment of one”
Search to find the next products to buy
Magic carts to transform the shopping experience
Recommendations to help with next products to buy
Payments to speed up the completion of the transaction
Dynamic Email Footer for making emails exciting with content and progressive profiling
Actions Ads to offer a second monetisation track
Microns to make emails informative and a daily utility

(I have discussed all of the innovations in my Email 2.0 essays. Also see Email 2.0: The Fulcrum for Fixing Five Funnel Frictions.)

An Email 2.0-powered Progency is the key to unlocking value for brands and setting them on their path to becoming a Profipoly. This is what Progency would do:

Focus on the Test and Left customers
Use Email 2.0 for making emails interesting and interactive
Focus on driving Inbox Commerce including payments in the email

Here’s how to make it happen. Use Mu-led gamification in the Subject line to get more opens. Also use a micron-like format (short emails sent at the same time every day). Offer a “Daily Deal” only available on email with instant payment without having to clickthrough to a landing page. (AMP’s interactivity can enable that.) Useful content in the footer (quizzes, polls, advice / tips – perhaps generated at scale via Gen AI) can be another incentive to open the email. The “Action Ads” can be used across non-competing brands to drive more awareness and opens – especially because the base being targeted has not opened emails from the brand for a long time.

For a brand, there is no cost to this entire exercise. The payout only happens when there are transactions. So, there is no downside. The Test and Left customers have long been gone or forgotten. And yet, there is opportunity – it is just that they are a low priority for marketers. That’s where the Email 2.0 Progency comes in – working like an alchemist.

Upside

The economic argument for the Email 2.0 Progency is compelling. Here is what success looks like:

A 700 basis points increase in profitability!

So, why is this not happening? I think there are three reasons:

Marketers are too focused on the Next, Best, and Rest customers. The Test and Left customers are not on their radar. The workload is high, the cost is not insignificant, and the RoI is not clear. Dormancy and churn are seen as problems to live with, rather than frictions to be fixed.
Martech SaaS companies, who are the only entities who can create the Progency, are not interested in services. They do not want to risk today’s guaranteed revenue for an uncertain future payoff, even though it may be a big.
In fact, there is an easy solution for Test and Left customers that marketers resort to: reacquisition via adtech. Sure, it is expensive, but no one questions that spending.

Progency will not be an easy sell. CMOs are focused on growth, not profitability. And CEOs and CFOs who worry about profitability don’t get involved in the marketing function. Everyone’s trapped in a low equilibrium situation and the status quo persists. This is the problem Progency will need to solve.

The good news is that there is pressure eCommerce companies face to grow profitability. There is only so much that can be squeezed from the rest of the business. The Email 2.0 innovations provide a ray of light which can transform the end customer experience. But just offering piecemeal solutions is not good enough. The need is for entrepreneurial Martech 2.0 companies to go beyond the red ocean of competing based on features in their stacks to providing real solutions which impact profitability, and where they have skin in the game. Progency is the game changer – for brands and the martech industry. Instead of competing in a $10 billion market, they can focus on the $100 billion reacquisition AdWaste segment. The time for Email 2.0 Progency has come!

Progency offers a revolutionary opportunity to amplify eCommerce profitability. This software and service solution targets and revitalises a significant, often overlooked segment of a brand’s customer base: the dormant (Test) and churned (Left) customers. By reducing AdWaste and implementing “Email 2.0” innovations, Progency seeks to engage this “Blue Ocean” of users interactively and efficiently. These innovations make emails more personalised and actionable, thereby addressing funnel frictions and optimising the potential for sales conversion. The Progency model, which only charges for successful outcomes, presents a compelling economic argument for brands seeking to maximise profits, especially when tapping into the unused potential of inactive customers.

I asked Claude to provide a short summary of the essay. Here it is.

Progency is a proposed software and service solution that can increase eCommerce profits by 500-1000 basis points. It does this by targeting dormant/churned customers that brands currently ignore.
Progency would use innovative “Email 2.0” tactics like gamification, AI personalization, in-email payments etc to re-engage these customers profitably.
This would eliminate wasted ad spend on re-acquiring dormant customers (called “AdWaste”). Progency would also drive incremental revenue from this “Blue Ocean” of ignored customers.
For brands, there is no risk or upfront cost. Progency only gets paid on successful outcomes through revenue share.
However, Progency faces challenges because brands focus more on acquisition than profitability. Martech companies also prefer predictable revenue over uncertain outcomes.
But the economic potential is huge – a 700 basis point profit increase by saving on AdWaste and unlocking revenue from dormant customers.
Progency is a gamechanger that can move martech companies beyond feature competition. Instead of a $10B market, they can target the $100B AdWaste segment.

In summary, Progency leverages Email 2.0 to profitably re-engage a brand’s ignored customers. Its pay-for-performance model and profit focus make it compelling for brands seeking to amplify profits.

Gen AI Pre-mortem

So, how could the Email 2.0 Progency idea fail? I asked ChatGPT and Claude.

ChatGPT

Over-reliance on Email as a Platform: With the rise of multiple communication platforms, including messaging apps, social media channels, and push notifications, relying heavily on email could be a misstep. The younger demographic is increasingly distancing itself from traditional email, favoring instant messaging and other modes of communication. While email might still be prominent among older audiences, it may not be the ideal platform for engaging the whole spectrum of customers.
Potential Invasiveness and Perceived Spam: The concept of “interactive, personalized, and actionable” emails can be a double-edged sword. There’s a fine line between personalization and intrusion. Emails that seem too tailored might creep users out or feel invasive, leading them to ignore the emails or, worse, mark them as spam. A high frequency of such interactive emails can further exacerbate the issue, potentially tarnishing a brand’s reputation in the eyes of its users.
Technical Challenges and Integration Issues: Interactive emails that function like mini-applications need to be compatible across a vast array of email clients and platforms. Not all email platforms might support the features Progency is proposing, leading to inconsistent user experiences. Integrating these advanced email features with existing eCommerce systems could also present challenges, both in terms of compatibility and ensuring data security.

Claude

Low engagement rates: The essay assumes high open and click rates for dormant users. But engagement rates for inactive users are often very low. If emails go unopened, the innovations are useless.
Email fatigue: Consumers face email overload already. More emails, even if gamified and interactive, may simply lead to more fatigue and ignores.
Privacy regulations: Stricter privacy laws and regulations around data usage and email marketing consent may restrict how brands can re-engage dormant users. Progency’s data-driven targeting may face legal hurdles.
Changing consumer behaviors: More communication occurs on channels like social media, messaging apps. Email engagement is declining, especially for younger demographics. So email-centric strategies have inherent limitations.
Internal resistance: Marketing teams are incentivized for acquisition growth. Progency’s profit focus means shifting budgets from acquisition to re-activation. This may face internal political resistance.
Speculative outcomes: The profit increase estimates are speculative. Actual results may be much lower, making the economics less compelling for brands to undertake this change.

In summary, low engagement, email fatigue, privacy regulations, channel fragmentation, internal resistance, and uncertainty over actual outcomes could all hamper Progency’s vision of profitably re-engaging dormant customers via Email 2.0. Overcoming these challenges will be key.

What actions could be taken to address these issues?

ChatGPT

Diversifying Communication Platforms:
- Hybrid Approach: Rather than focusing solely on email, consider a hybrid communication strategy that integrates email with other communication platforms like messaging apps, social media, or push notifications. This can ensure the engagement of both older and younger demographics.
- Segmentation: Use user behavior analytics to segment the audience based on their preferred communication platform and tailor your communication strategy accordingly.
Striking the Right Balance in Personalization:
- User-Controlled Customization: Allow users to set preferences about the kind and frequency of emails they wish to receive. Giving users more control can reduce feelings of invasiveness.
- Transparency: Be open about the data you’re collecting and how you’re using it. A clear privacy policy that’s easy to understand can build trust.
- Optimal Frequency: Use data analytics to determine the optimal frequency for sending these interactive emails. If users are engaging less, consider reducing the frequency.
Addressing Technical and Integration Challenges:
- Universal Design: Design emails that degrade gracefully. This means that if an email client doesn’t support a certain feature, the email still looks good and is usable, even if not all interactive features are accessible.
- Regular Testing: Continuously test emails across a variety of platforms and devices to ensure compatibility. Using tools like Litmus or Email on Acid can help preview how emails render on different clients.
- Secure Integrations: Ensure that any integration with eCommerce or other systems is done securely, using best practices. Employ end-to-end encryption and work with IT experts to routinely check for vulnerabilities.

Claude

Low engagement rates – Use AI and analytics to identify micro-segments with higher propensity to open and click. Send targeted content that is highly relevant. Use subject line optimization and personalization.
Email fatigue – Limit email frequency and avoid over-communication. Make unsubscribes easy. Focus on value-add through interactivity and utility.
Privacy regulations – Build robust consent management and provide transparency around data practices. Shift towards anonymized data usage.
Channel fragmentation – Take an omnichannel approach beyond just email. Use SMS, messages, web push etc. based on user preferences.
Internal resistance – Start with small experimental budgets. Demonstrate incremental profits without cannibalizing acquisition. Get executive buy-in on profit goals.
Speculative outcomes – Set realistic targets based on pilot tests. Take an agile approach with continuous optimization. Build statistical models to refine projections.
Churn prevention – Use insights from re-engagement efforts to improve retention and prevent future churn.
Value exchange – Offer incentives and value to re-activated users to maintain engagement. Don’t over rely on interruptive communications.

The key is to take a targeted, personalized, and omnichannel approach. Combining the creativity of Email 2.0 with robust analytics and optimization can overcome many of these challenges. Testing and iteration will be critical to demonstrate tangible upside and make the economics work.

Now, it is for martech platform entrepreneurs to take over!

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