Martech 2.0 and Web3: Solving Advertising’s 50% Problem

Published March 24-27, 2022 and April 8-17, 2022

1

Overview

“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” This was a statement made by John Wanamaker about 100 years ago. And it still holds true. The modern equivalent of the first half of the statement would be: “Half the money I spend on adtech is wasted.” If marketers actually did some analysis, the second half would say: “I know exactly which half.” But few do it; most are happy to keep the spending going on Big Tech (Google, Facebook – now Meta –  and increasingly Amazon) to have new customers flowing in – even if the bucket is leaky. To make matters worse, almost every marketer is worried about the rising cost of customer acquisition. All of this hurts profits. The day when easy money stops is when marketers and CEOs will need to face up to the harsh reality that unless they curb their ad spends, there is no path to profitability.

In this series, I will argue that for the first time it is possible to cut the waste in advertising on tech platforms. Given that the total spending in 2021 was $400 billion, this comes to eliminating $200 billion of waste being spent on reacquisition and wrong acquisition. This $200 billion is perhaps one of the biggest opportunities in tech. And yet, very little attention is paid on solving it because the focus has been in the wrong place.

The industry has been guilty of the streetlight effect: “A policeman sees a drunk man searching for something under a streetlight and asks what the drunk has lost. He says he lost his keys and they both look under the streetlight together. After a few minutes the policeman asks if he is sure he lost them here, and the drunk replies, no, and that he lost them in the park. The policeman asks why he is searching here, and the drunk replies, “this is where the light is”.”

To solve the 50% adtech waste problem, a good starting point is to remember two quotes. Albert Einstein said: “We cannot solve our problems with the same thinking we used when we created them.” Buckminster Fuller: “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” These have to guide us in the search for the solution.

In my view, the solution can be found by shifting our thinking from trying to optimise adtech spending to focusing on martech and existing customer. It is only by increasing focus and spends on current customers that marketers can reduce the adtech waste. Making martech successful needs a full-stack solution encompassing CDP, automation, engagement, analytics, personalisation, search, product experience, omnichannel two-way communications, AI, APIs and more. It also needs to consider new ideas like Velvet Rope Marketing (VRM), a rethinking of how referral marketing is done, a “progency” (product-led agency), and an adtech-martech bridge. This is the world of Martech 2.0.

The new model that needs to be incorporated into Martech 2.0 is that of Web3 – a decentralised platform powered by crypto tokens to power “Atomic Rewards” – for attention, engagement, and habit creation. Only by first solving the problem of Attention Recession can marketers make Martech 2.0 work. This twin combination of Martech 2.0 and Web3 is the secret sauce that can solve adtech’s waste problem and power brands to exponential forever profitable growth.

2

The Waste

The problem of wasted ad spends has been there for a very long time. MediaVillage writes: “Imagine any other profession, and I use the term advisedly, tolerating the belief that half of its effort is wasted? Who would work with an accountant who files tax returns that are right only half the time? Who would work with a lawyer who loses half of his cases? Who would seek out a doctor whose diagnostic hit-rate is only 50 percent right? The advertising industry loves to perpetuate the myth that half of its spend is wasted — and that’s just how it is; you can’t win all the time. Is the click real or fraudulent? Human or bot? Who cares? It’s a flip of a coin, heads or tails, wasted or not. It’s the 50 percent rule.”

Earlier, it was in the context of print and TV advertising. Now it is the same with digital advertising. While the belief was that targeting online would eliminate waste, that has not happened. Even with programmatic advertising, the waste has continued. A 2018 post by Timothy Taylor pointed to a 2016 study by Interactive Advertising Bureau (IAB) and quotes Judy Unger Franks: “The IAB identified ten different value layers in the Programmatic ecosystem. I believe they are being overly generous by calling each a “value” layer. When you need an ad blocking service to avoid buying questionable content and a separate verification service to make sure that the ad was viewable by a human, how is this valuable? When you add up all the costs associated with the ten different layers, they account for 55% of the cpm (cost-per-thousand) that an advertiser pays for a programmatic ad. This means that for every dollar an advertiser spends in Programmatic Advertising over half (55%) of that dollar never reaches the publisher. It falls into the hands of all the third parties that are required to feed the beast that is the overly complex Programmatic Advertising ecosystem. We now know which half of an advertising investment is wasted. It’s wasted on infrastructure to prop up all those opportunities to buy individual audiences across the entire Programmatic Advertising supply chain.”

Despite all this, the power of the digital platforms has grown rapidly. Ben Thompson summarised the reasons for their success:

…The traditional marketing funnel made sense in a world where different parts of the customer journey happened in different places — literally. You might see an advertisement on TV, then a coupon in the newspaper, and finally the product on an end cap in a store. Every one of those exposures was a discrete advertising event that culminated in the customer picking up the product in question in putting it in their (literal) shopping cart.

On the Internet, though, that journey is increasingly compressed into a single impression: you see an ad on Instagram, you click on it to find out more, you login with Shop Pay, and then you wonder what you were thinking when it shows up at your door a few days later. The loop for apps is even tighter: you see an ad, click an ‘Install’ button, and are playing a level just seconds later. Sure, there are things like re-targeting or list building, but by-and-large Internet advertising, particularly when it comes to Facebook, is almost all direct response.

This can make for an exceptionally resilient business model: because the return-on-investment (ROI) of direct response advertising is measurable to a fantastically greater degree than traditional advertising measurement, advertisers can spend right up to the level they place on a particular customer or transaction’s value.

It is the combination of ease and measurability which propelled the success of the digital ad platforms. And so far, marketers have been largely oblivious to the waste that has been happening. But going forward, I believe they will have to look at these spends critically because the problem of rapidly rising costs of acquisition is going to become a serious drag to profitability.

3

Rising CAC

The problem marketers are increasingly complaining about is rising customer acquisition costs (CAC). This is no surprise because the past two years have seen an acceleration of digital growth in part forced upon all of us by the pandemic and ensuing lockdowns. This has been happening not just on media platforms but also on marketplaces. The biggest beneficiaries of this have been Google, Facebook and Amazon.

In 2021, Google’s advertising revenue grew to $210 billion, up 42% from the previous year. Facebook (Meta) grew its revenues 37% year-on-year to $115 billion. Amazon’s ad revenues in 2021 stood at $31 billion, growing at 32%. Tally up all three and their 2021 take comes to $356 billion. According to Digiday: “Together they accounted for more than $7 in $10 (74%) of global digital ad spending last year, which is 47% of all money spent on advertising over that period … The rest of the online ad market is growing at a combined growth rate of 3% year-on-year in comparison.”

Where is this growth coming from? From marketers competing against each other to grab customers. It is little wonder then that the cost of acquiring new customers is rising so rapidly. Massive inflows of venture capital into startups have also fuelled this spending mentality. The result is spending on new customer acquisition like there is no tomorrow – creating what I have called as the “doom loop” of ad spending.

My assessment of the waste is that it happens in two ways: reacquisition and wrong acquisition. Reacquisition is about those customers who have churned. As I wrote earlier: “This is because the pool of available customers is limited. Outside of the loyal cohort, the lifetime of other customers with brands is perhaps no more than a couple years – which means half of them churn each year. And since they were valuable at one point of time, they are more likely to get retargeted for acquisition.” Wrong acquisition is about new customers who churn quickly. It is estimated that half of those who install an app uninstall it within the first 30 days. While no formal estimates are available, I believe that each of these two categories sucks away a quarter of the ad spending.

Apple’s new privacy framework and the rising backlash against cookie tracking are also going to create hurdles and increase cost of acquisition. Marketers therefore face a leaky bucket with their ad spending.

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Past Writings – 1

I have been writing about the changes in adtech (which will create the opportunities for martech) over the past several months. Here are some excerpts:

Marketing: Disrupted and Simplified: “Seduced by the ease of spending on Google and Facebook, and the excitement of continuously acquiring new customers, they missed deepening relationships with existing customers. It is not just marketers but even CEOs who are at fault. The question that gets asked is: how many new customers did we acquire? There is little discussion about retention and revenue expansion from existing customers. (This is true for B2C and B2B brands.) In a competitive market, the focus shifts to landgrab and leads to an arms race of spending investor money or retained profits to show perpetual growth of website traffic or app installs. The rise of ad revenues of Google and Facebook testify to the marketers’ folly.”

Attention Messaging: Bridging Adtech, CPaaS and Martech: “Digital marketers find themselves trapped between new customer acquisition and re-acquisition of those whom they lose. The supply of new customers is not infinite – after a time, there are diminishing returns in acquiring new customers whose spending potential is low. And yet, for the business to show growth, they need to keep new customers coming in. Where do they find such customers? From their own pool of lost or dormant customers! This leads to what I call the “doom loop” of spending: customers get acquired, some of them become inactive, they are then re-acquired, some among them become inactive again, and they are re-re-acquired.”

Stop Loss: The Power of Attention Messaging: “Digital customers mean digital marketing. And digital marketing has been reduced to handing over money to Google and Facebook for acquiring new customers. And then re-acquiring them when they are lost. This creates a doom loop of spending which has meant that 90% of digital marketing budgets (which can be half of funds raised by startups and growing companies) is channelised to the tech giants. Marketers are getting locked into an arms race of spending for acquiring less valuable new customers and a growing pool of inactive customers, even as revenues and profits for the tech duopoly reach record highs. Even D2C marketers face a challenge – marketplaces like Amazon vacuum away budgets in hypercompetitive search placements.”

The Coming Martech Era: Driving Exponential Forever Profitable Growth: “The past two decades have been the golden period of the Adtech Era. The platforms, Google and Facebook, have seen their market cap grow immensely on the back of creating an easy point-and-click approach to targeting ads and acquiring new customers. Every business wants a continuing pipeline for conversion, and the tech platforms have done this amazingly well. Aided by the big ad agencies, the duo sucks away an increasing percentage of revenues from companies hungry for growth. New customer acquisition has never been easier, thanks to Google and Facebook. As VCs, PEs and public markets have rewarded growth over profits, companies have channelled resources for new customer acquisition.”

The Coming Martech Era: Driving Exponential Forever Profitable Growth: “The big mistake brands have made is to let these two giants [Google and Facebook] get in between them and their customers. It is time to reclaim the direct relationship and exit the arms race of ever-increasing new customer acquisition costs. This is the key to simplifying marketing.”

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Past Writings – 2

The Coming Martech Era: Driving Exponential Forever Profitable Growth: “Privacy has become the central theme across the operating systems that dominate our digital lives – Apple’s iOS and Android. Cookies are set to be banished, email trackers are being stopped, and a wall is being constructed between brands and consumers. Without first-party data and explicit permissions, personalised engagement will become almost impossible. This rapid change is creating a new world for advertisers (for acquisition of new customers) and marketers (for retention and growth of existing customers).”

The Coming Martech Era: Driving Exponential Forever Profitable Growth: “Because businesses have not built deep relationships with their customers, their customers do not listen to them. Businesses have either not captured adequate data from their customers or do not even know who their customers are. As a result, what do they do? Spend money where the eyeballs are – Google and Facebook. Both have also accumulated plenty of detailed data on individuals thus enabling sharper targeting. Even after the recent changes by Google and Apple, the reality is that the only entities that will emerge stronger are the ones who have the attention, first-party data and targeting technologies – Google and Facebook.”

Martech’s Magicians: Microns, Micronbox and µniverse: “In the race to acquire new customers, brands are overspending and wasting precious resources. Besides facing rising ad costs and acquiring low value customers, brands are also now facing the prospect of disruption in the form of the coming death of third-party cookies and privacy restraints being introduced by the adtech platforms…This continuous and spiralling spend is unsustainable and will end once easy investor money dries up … What marketers will end up with is a leaky bucket of constant churn. It is easy to spend money on Google and Facebook and get “Gooked”. What marketers need to think of is “Hooked” – how to create hooked customers who have a net retention rate of greater than 100% and who work as micro-influencers to drive referrals from their family and friends to create the exponential growth that is so central to creating a profits monopoly in the category.”

Progency for Martech: The Missing Link: “With FOMO (fear of missing out) engulfing every B2C and D2C brand, this has now become a spending war to acquire every possible digital customer before someone else does it. Easy investor money has fuelled the spiralling spends on Google and Facebook to the extent that marketing departments have become their collection agents.”

The common theme across these writings is that marketers face big future challenges with their ad spending. Unless they regain control of their marketing budgets and think differently, it is going to be very difficult for them to propel their businesses out of the doom loop and towards sustained profitable growth. This is where Martech 2.0 and Web3 come in.

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The Solution – 1

The problem of rising customer acquisition spending cannot be solved by optimisation or better targeting. The solution lies in the relationships that brands build with their existing customers. Through the years, this has been given short shrift. The brand’s current customer base is taken for granted; the excitement is with new acquisition. This is reflected in the skew of marketing budgets: 80-90% of the spending is done on adtech, leaving only 10-20% on martech.

But martech’s promise comes with its own challenges. Martech is about building deep relationships with existing customers; it is about retention, growth, and cross-sell. Martech is a lot of grunt work, a daily grind for the marketing department; unlike calling up a digital agency and deciding the budget and letting them do the job of getting new customers via the adtech platforms. Martech involves getting into the trenches: collecting data from and about existing customers, segmenting the base, running a multitude of campaigns for the various cohorts, orchestrating journeys, planning how to use personalisation, mixing marketer insights with machine predictions, and delivering messages across multiple channels. Do all this and customers may still go dormant or churn.

As I wrote previously:

In the martech world, unknown customers can now be uniquely identified, thus making it possible for brands to build relationships with them. This entails anticipating their next needs, at times even before they know it. Digital is now not an afterthought but the primary engagement option. For a brand, digital equals data. The hitherto anonymous buyer is now identified. Each customer is as unique as a snowflake. Branding and push messages help in driving this 1:1 engagement – a visit to the website, or opening the app. Every action (or non-action) needs to be tracked so AI engines can further improve the experience. The endgame is omnichannel personalisation, and the bar keeps rising for this. 1-way communication channels are becoming 2-way conversational platforms. Customers want seamless movement across channels for which brands need to ensure experience continuity.

…The ideas and tech solutions are all there for brands to make our experiences better. Atomic rewards. Velvet Rope Marketing. CLV. BCG. RFM. Automation. Journey orchestration. CDP. Omnichannel personalisation. Unified customer view. Next Best Action. Nudges. Conversational AI. Permission marketing. Predictive segments. Preferred channel. QR codes. Send time optimisation. Frequency capping. Interactive messages. Identity resolution.

A new world of brand-customer engagement is possible. If only the individuals making decisions at brands saw themselves as customers at the receiving end. If only the marketing department felt the pain of poor engagement, churn and wasted money. If only the CEO or CMO started thinking like Chief Profitability Officers. If only the idea of exponential forever profitable growth starts taking root. Only when retention and growth become more important than acquisition and reacquisition. Only then will true “digital” transformation happen. Only then will our lives as customers will transition from “delete” to “delight”.

Little wonder then that marketers favour adtech over martech. But adtech has become a giant perpetual money sucking machine. CEOs are now realising it, and so are investors in consumer companies. But the current approach of trying to figure out ways to optimise the ad spends is not going to work. As Peter Drucker said, “Nothing is less productive than to make more efficient what should not be done at all.”

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The Solution – 2

It is time for marketers to not fall victim to the streetlight effect and approach the problem differently. The starting point has to be to focus on the bird in hand (existing customers) before imagining the two in the bush (future customers).

The new agenda for marketers (and CEOs) need to be the following. Think of the attention of customers as the starting point rather than focusing on transactions. Use atomic rewards via Web3 (crypto tokens) to solve the attention recession problem and improve retention. Leverage Martech 2.0 solutions to get past the limitations of Martech 1.0 to drive repeat transactions. Use Velvet Rope Marketing to prioritise the creation of differentiated experiences for Best Customers and maximise customer lifetime value. Consider referral marketing as zero-cost acquisition. Replace reacquisition with reactivation. Use martech data to sharpen targeting for new customers to reduce adtech spending and thus reduce wrong acquisitions.

Here then are the five shifts which brands need to make:

  1. Retention: shifting focus from transaction to the upstream (attention, engagement and habit creation), to stop customers ignoring push messages and thus creating an omnichannel and persistent hotline to them
    • Solutions: Messaging 2.0 (especially Email 2.0), and Crypto Tokens (Mu)
  2. Repetition: shifting focus from ordinary/commoditised experiences for all customers to memorable/differentiated experiences for Best Customers to maximise their CLV, complemented by crypto/Web3 incentives
    • Solutions: Velvet Rope Marketing (with CDP, CLV, BCG) and Martech 2.0 full stack for Unified Customer View
  3. Referrals: shifting focus from inefficient link/code-based requests to targeted marketing which leverages network effects, thus sharply reducing cost of new acquisition
    • Solution: Referrals 2.0, and Crypto Tokens (Mu)
  4. Reactivation: shifting focus from using reacquisition via adtech platform to leveraging a new-gen martech product-led agency to reduce deactivation and drive reawakening
    • Solutions: Progency, which works on KPIs and is paid based on performance
  5. Replenishment: shifting focus to from random new acquisition to smart, high-value acquisition
    • Solution: Adtech-Martech Bridge, with use of martech data to drive targeted new acquisition

Martech 2.0 brings a connected suite of solutions for winning customers’ hearts and money for life. It is anchored on two new ideas: atomic rewards (micro-incentives for changing behaviour) and Progency (a product-led agency that works as an extension of the in-house team, and works on KPIs – just like adtech agencies). Web3 adds a crypto layer via tokens – to power pan-brand atomic rewards. The crypto tokens, overseen by a DAO (decentralised autonomous organisation), are not a property of a single entity; they are a form of value change between brands and customers, without an intermediary.

This integrated construct of Martech 2.0 and Web3 brings together ideas from loyalty, gamifying and crypto to solve the 3 biggest problems faced by brands and marketers: attention recession, limited loyalty, and a cost-effective solution for new acquisition. It is about working at a new level (existing customers instead of new customers) and a new model (using own zero- and first-party data rather than Big Tech data).

These 5 Rs are the secret to exponential forever profitable growth. My belief is that for every additional dollar spent on martech, brands will be able to shave off two dollars from their adtech budgets. The savings thus generated will help drive the profits.

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References

Each of the ideas mentioned has been independently covered in my earlier writings and a few talks. (What was missing was a framework to unite them together to solve the larger problem of spiralling adtech spends – which is what this series does.) The ones in bold are good starting points.

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Marketer’s New Map

We are now ready to chart out a new roadmap for the marketer for cutting back out-of-control adtech spending by eliminating the 50% waste going into reacquisition and wrong acquisition. The big insight that a marketer needs is that the starting point is not focusing on optimising the adtech spend but to begin with the existing customer base. With only a tenth of marketing budgets being invested on building relationships with existing customers, it is little surprise that marketers are unable to maximise customer lifetime value and control churn. Pivoting to a martech-led strategy is the only way to pull back adtech budgets feeding the growing CAC (customer acquisition costs) monster.

The map has three stations en route its destination to exponential forever profitable growth: pipe, partitioning, and prospecting. Pipe is about solving the attention recession problem with existing customers. Only with an alert and active customer base can marketers persuade them with their messages. Partitioning is about segmenting the customer base into three: Best, Rest and Test customers. Best customers need a separate SBU focused on providing differentiated experiences since they are the ones who will deliver the profits. Test customers are the in actives, and need to be outsourced to a Progency for reactivation. The in-between segment of Rest customers is where business-as-usual marketing needs to be done to nudge them in their purchase journey towards the next best action. Prospecting is about the Next customers. This is where two ideas not being currently leveraged come into: an improved referrals program which persuades Best customers to open up their network of family and friends, and an adtech-martech bridge that targets the right set of customers based on the genome of Best customers.

This is a new map for marketers. Very little of this is being done today. In most brands, the pipe is non-existent because a very large percentage of brand messages are being ignored. Lack of attention results in a break in the brand-customer relationship because there is no other way to bring existing customers back to the properties (web and app) other than huge investments in branding. Partitioning is being done on trivial attributes rather than customer lifetime value. Without CLV, marketers are unable to correctly identify who the brand’s Best customers are. The experience thus becomes commoditised for all, and the high and loyal spenders tend to drift away because they are also the ones constantly being targeted by competition with attractive offers to switch. Also, the dormant customers are not being reactivated and instead end up being retargeted for new acquisition at many times the cost via the adtech platforms. Prospecting is being done in a vacuum, in many cases by an independent team that doesn’t talk to the martech team to understand the attributes of Best customers. Also, referral programs are non-existent in most brands.

Adtech and martech are both broken. Only by changing the starting point to martech can brands embark on a new journey. As Einstein said, “Insanity is doing the same thing over and over and expecting different results.” It is time for marketers to end the adtech spending insanity by embracing three innovations that we have discussed: Atomic Rewards (in the form of Web3 crypto tokens), Martech 2.0 stack, and Progency.

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Three Innovations

The three innovations that form the kernel of the marketer’s new map are Atomic Rewards, Martech 2.0, and Progency.

Atomic Rewards

Many brands have loyalty programs linked to transactions and money spent. Atomic Rewards can be thought of as a loyalty program linked to attention and time spent. (It can later be extended to transactions also.) It is about incentivising customers for attention and engagement, and prodding habit creation such that they do not ignore incoming brand messages. It builds on a simple idea: to get customers to pay attention, pay them for their attention (else you will pay Google and Facebook 100X more). Atomic Rewards gamifies attention, and lets marketing change customer behaviour. For example, marketers can reward customers for their email actions like opens, clicks, providing rating/feedback, streaks, and proffering zero-party data (preferences). Atomic Rewards can be linked to existing brand loyalty programs, but a better way is to use a Web3 platform to ensure the earned points in the form of crypto tokens also become a useful investment over time.

As I wrote in a previous essay which offered a futuristic view of the success of the Web3 tokens: “The turning point came a few months after the launch of the tokens when an independent research study confirmed what the early adopters (brands and ESPs) had started to sense: tokens were driving changes in behaviour and solving the attention recession problem. This kickstarted the flywheel for tokens adoption: more brands started using them in emails directly and via email service providers, the exchange started buzzing as brands needed to buy tokens in the spot market leading to a steady increase in value, and consumers started wanting to earn more tokens by doing the actions desired by brands… Tokens embedded in emails helped drive meaningful actions. Brands controlled who could earn tokens, and thus had some measure of control on preventing fraudulent and frivolous behaviour. Consumers liked the fact that their attention (time) was no longer being taken for granted.”

Martech 2.0 Stack

Martech 2.0 addresses the problems of present day point solutions by creating a full stack. The chart below from an earlier essay captures the shift.

As I wrote then: “Martech 2.0 will be the “real thing” – what marketing should always have been with its focus on maximising lifetime value by building deep, engaging and rewarding customer relationships. The transaction is an outcome, rather than the only goal. With the focus on retention, reactivation and referrals incentivised at the right times with rewards, revenues will rise and so will profits.”

Progency

Progency is an agency built on top of a Martech 2.0 product platform; it is a product-led agency. It combines platform, people, and process into a unified offering priced on performance. It makes martech as simple as adtech is: identify a goal and outsource it to an agency. In this case, the agency is powered by tech. As I wrote previously: “The progency is actually a very scalable tech powerhouse with the full stack martech platform as the machine. Brands can either buy the machine itself (in effect, rent a version of it, since it’s all delivered from the cloud) or hire the machine developer to deliver the outcomes… Its pitch is simple: we will deliver the outcomes you need, we will get the job done for you. We have the machine and the operators. No one knows the machine better than we do. We constantly make the machine better. You don’t need to worry how it works. (No marketer knows how the targeting machines of Google and Facebook work.) You can of course buy the drill, but we are here to give you the hole that you really desire. You pay based on the performance, so we are on the same side.”

**

We are now ready to drill down and construct the marketer’s map with its three stations: pipe, partitioning, and prospecting.

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Pipe

The first focus for marketer’s wanting to get out of the doom loop of adtech spending is to create a pipe and hotline to their existing customers. This means solving the attention recession problem and converting the “delete” mindset (for incoming brand messages) to “delight”. This is where the innovation of Atomic Rewards with its Web3 crypto tokens comes in.

Brands push out a lot of messages over multiple channels to customers. The tragedy is that most are ignored. Open rates in emails for marketing messages are 10-15%, meaning 85-90% messages are ignored. SMS open rates are even lower. Push notifications are blocked by over half of app users – and more often than not, these are likely to be the Best customers. Without an active pipe to one’s existing customers, marketers have no way of communicating new products and offers. This is the problem that can be solved by the pan-brand crypto tokens.

Armed with these tokens, marketers can now get to work recrafting their push messaging strategy:

  • Every push message to have tokens as rewards. Incentivise customers for streaks – successive opens. This will lead to a habit of opening all messages.
  • Email remains the best channel from an RoI perspective. Make it the first channel for implementing Atomic Rewards for opens and clicks.
  • Use AMPlets in emails to make them interactive. This will help in getting feedback on the email and collect zero-party data. Tokens as rewards will increase response rates. Various studies have shown that customers are willing to share personal data in return for small incentives. (Collecting data is also critical for D2C brands who sell via marketplaces; acquisition costs on Amazon are also spiralling. Atomic Rewards can do the trick for such brands also.)
  • Use Ems to create mental availability for the brand by sending informative microcontent in story form. The idea is to become a utility in the life of the end customer. Tokens can incentivise open streaks. A Progency is ideally suited to do this.
  • Measure stickiness via Hooked Score, a 30-point exponential moving average. This can help track who are the most engaged users and correlate with transactions.
  • For mobile first companies, the biggest risk is a user uninstalling the app in the first few days. To prevent this, two ideas can be implemented: tokens for creating a habit loop, and getting an email address to open up an alternate channel for interaction in the event that the app is uninstalled.
  • Over time, the Atomic Rewards program can be expanded to other push messaging channels beyond email.
  • Begin with a 30- or 60-day pilot to do A/B testing and measure the uplift that can be derived via Atomic Rewards. This can be run in parallel with the existing marketing campaigns on a subset of the customer base.

All these ideas taken together will go a long way in strengthening the pipe and creating a hotline to existing customers. The success of the next set of initiatives lies in the pipe: once customers are paying attention and engaging with incoming messages, half the battle is won.

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Partitioning

Attention is a two-way street. Just as brands want customers to pay attention to their marketing messages, customers also want brands to make them feel special. While tech can help with personalisation to create unique experiences for every customer on the website or app, there is much more that brands can do. This is where the idea of Velvet Rope Marketing (VRM) comes in. It has 4 key foundational ideas:

  • All customers are not equal; some customers are more equal than others. In most non-subscription brands, an analysis will show that typically 20% customers will account for 60% of revenue. (In fact, if brands can measure profitability, they will find that these Best customers account for more than 100% of profits – because the long tail of other customers do not have enough revenues to cover their cost of acquisition and servicing.) This 20-60 rule can be considered as the Power Law of Marketing.
  • Calculating Customer Lifetime Value (CLV) is the way to segment customers and identify the Best customers. CLV needs to be a forward-looking measure and done right; there are many ways to calculate it incorrectly, and this will lead to improper identification.
  • Brands need to create differentiated experiences for these Best customers in order to ensure they never churn, maximise their spend, and can bring in their family and friends via word-of-mouth spread. For this, brands need to think “royalty” and not just ”loyalty”. Ease, access and exclusivity are three dimensions for creating memorable experiences for the Best customers.
  • Finally, decoding the Best Customer Genome (BCG) can provide a template for nudging other customers along the same path, and also providing the input for “lookalike” acquisition campaigns.

Implementing VRM right entails creating a separate SBU for Best Customers. This is akin to how airlines have separate teams for Business Class customers.

The next two partitions based on CLV are for Rest and Test customers. Test customers are easy to identify – they are the ones who are inactive. They came, engaged, perhaps did a purchase or two, but have now gone dormant. In most brands, these will account for at least a third of the total customer base. The goal must be to reactivate these customers; the alternative track of retargeting and reacquisition via Big Tech can be very expensive. A Progency is ideally suited for this.

That leaves us with the middle 50% or so customers – the Rest customers. The long-term goal must be to get them to become Best customers; the short-term goal is to nudge them along in their customer journey to the next best action, which can be identified by matching genomes against the Best customers.

So, a brand needs 2 internal teams to manage customers – one for the Best customer, and one for the Rest. (A smaller group can handle the outsourcing of Test customers to a Progency.) Martech 2.0 is what these internal teams need – an AI-powered full-stack martech platform that replaces various point solutions and provides a unified customer view. Retention, growth, and cross-sell must become the organisation’s mantra – replacing the attractiveness of showcasing just the number of new customers acquired. This is a CEO-level mindset change which then needs to permeate through the rest of the organisation. Enriching the lives of existing customers rather than enticing new customers is the surest path to success.

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Prospecting

The final question to address is that of the Next customers – the new acquisition. Today, this is the central focus of a marketing department. In the new map, this becomes an important but small program because it is the existing customers who become the key growth drivers. Two ideas can help marketers dramatically slash their adtech spending.

The first idea is referral marketing. The best advocates for a brand are its happy customers. Most existing referral programs tend to focus on getting any and every existing customer to try and attract new ones. This is a mistake. What brands should focus on is constraining referral marketing and offering it only to the Best customers because they are likely to get customers like them who can become tomorrow’s Best customers. Such referrals should be handsomely incentivised because a good referral cuts down the cost of new customer acquisition to zero. Tokens as part of the Atomic Rewards program can be a very good incentive for both the referred customer and the referrer.

The second idea is to create an adtech-martech bridge to ensure much better targeting in new customer acquisition. By analysing data from Best customers and using only this (rather than data from all customers), the acquisition program via the likes of Google, Facebook and Amazon can be sharper. ROAS (return on ad spend) should be the metric that should be measured and connected to CLV. Of course, the fundamental premise for this program’s success is the availability of zero- and first-party data. That in turn needs a CDP (as part of Martech 2.0) and incentives for customers to share their preferences. AMPlets in emails can use the footer space to craft a ‘zero-party data’ journey for each customer. The better a brand understands its buyers and the buyer journey, the better the acquisition program can be. Acquisition is where costs need to be controlled because the spends here are open-ended and exponentially increasing. Done right, brands can generate huge savings which can go straight to the bottomline.

Adtech spending thus is at the bottom of the funnel rather than being at the top. This inversion is what will propel brands to profitability. The Adtech era has made marketers lazy – pour money to the Big Tech platforms and watch as new customers steam in. But this has come to a huge cost – because there is little of the budget left for spending on building better relationships with existing customers. Unless this funnel is inverted to maximise spending on existing and especially the Best customers, brands will not be able to escape the pull of continuing cash burn on new acquisition. Referrals done right and the bridging of martech data to drive adtech spending are the two ways to stop the 50% waste.

14

In Summary

We started by shining light on a problem that has been around for a hundred years: the 50% waste in advertising. Until now with its combination of digital customers providing data via their devices, it was a problem that had no solution. Now, it is possible to identify where the 50% waste is happening – reacquisition of churned customers and wrong acquisition where new customers exit rapidly. Solutions to this modern 50% problem have not been forthcoming because of the seductive allure of new acquisition, the availability of easy money from investors, and the CEOs’ priority of growth over profits. There is now trouble in paradise.

The cost of new customer acquisition is rising faster than ever before – just witness the 30-40% year-on-year growth rates of Google, Facebook (Meta) and Amazon. Easy money is going to slow down or disappear. This will force CEOs to focus on growth with profitability – and even going as far as to prioritise profitability over growth.

It is in this context that the ideas outlined in this series (and through my past writings) need to be seen. There are multiple innovations which when combined together can help create a new future for marketers and martech. It is a world in which they can have it all – drive exponential forever profitable growth. Here are the key takeaways:

  • To solve the problem of rapidly rising customer acquisition costs, marketers need to address adtech’s 50% waste problem due to reacquisition and wrong acquisition
  • The starting point for fixing this is not optimising adtech, but focusing on existing customers and martech
  • Marketers need to make shifts in the 5 Rs of retention, repetition, referrals, reactivation, and replenishment
  • Three innovations can help power the modern marketer’s transition: Atomic Rewards, Martech 2.0, and Progency
  • The marketer’s new map is about Pipe, Partitioning, and Prospecting
  • Done right, this is the path to profitable growth and creating a “profits monopoly”

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PS 1: There is a famous line in Tolkien’s “Lord of the Rings”. Gothmog says, “The Age of Men is over. The Time of the Orc has come.” Of course, the Orcs are the evil ones and eventually lose. But to borrow the phrasing, what I can say is: “The Age of Adtech is over. The Time of Martech has come.” And hopefully, this time it will be a happy ending for brands and customers!

PS 2: I have been trying to think of a new name to describe this new thinking which combines Martech 2.0 and Web3 (along with the idea of a Progency.) Atomic Marketing, as a signal to the importance of Atomic Rewards? Or maybe Exponential Marketing, to indicate how exponential growth can now be possible? Or Profitable Marketing – because marketing has always been seen as a cost centre? Perhaps, replace Marketing with Martech because that is what it is all about – marketing powered by tech. I don’t have an answer yet. It is a question for another day and a future series!