Rajesh Jain

Marketer’s Challenges

I have been thinking and writing about brand-customer relationships for the past couple of years. My key theses have been along two tracks. First, that a small percentage of customers deliver a large percentage of revenues and an even greater quantum of profits, and brands need to create a separate internal business unit to deliver exceptional experiences to these customers. This is an idea I have termed as “Velvet Rope Marketing” and more recently “Extreme Retention”. Second, brands are guilty of “Adwaste” – half of their marketing spends are being wasted because of reacquisition and wrong acquisition. A more balanced approach is needed between adtech spending for new acquisition and martech spending to build deeper engagement with existing customers – what I have termed as “profit-centric marketing”. Martech 2.0 is about focusing on the 4 Ps (pipe, partitioning, properties, prospecting) and 5 Rs (retention, repetition, referrals, reactivation, replenishment). This is also where the ideas of Email 2.0 (Hooked Score, AMP, Ems, Atomic Rewards, Progency) and Loyalty 2.0 (tokens for attention and data) come into play.

This is a long list of ToDos for a modern marketer who is caught between the demand for continuing growth in revenue at all costs (which can be brought in easily via spending on Google, Meta, Amazon and increasingly Tiktok) and the need to deepen relationships with existing customers (which needs CDPs, marketing automation, personalisation, analytics, omnichannel engagement, and more). The latter is more effective but takes time, while the former delivers results instantly. The conundrum is that the cost of new acquisition (CAC) has been rising rapidly – in many cases, at 40-50% year-on-year. This is sucking away marketing dollars into adtech when the right thing would be to grow the engagement with existing customers. With a slowdown and possible recession likely in the next 12-24 months, belt tightening has begun. There are only two paths to profitability in such a scenario – cut employee costs or cut marketing costs. This is the difficult choice for CEOs and CMOs.

It was against this backdrop that Rumelt’s new book made me ask the question: What is the crux of the brand-customer relationship? Among all the challenges faced by a modern marketer, what is the gnarly problem to tackle which can unlock profitable growth? The candidates were many: optimise return on ad spending (ROAS) on Big Tech platforms for new customer acquisition, offer bigger discounts to drive more revenues from existing customers, to invest in more martech solutions for omnichannel engagement and personalisation, and so on. In fact, there are many profit killers [Parts 3 and 4 in my Extreme Retention = Profit-centric Marketing essay] in a business which can be addressed and converted into profit creators. But there had to be that one thing which could be the gamechanger – the crux faced by marketers, a challenge that was critical and solvable. This is what I was thinking about while immersed in Rumelt’s book on the flight back from Newark to Mumbai.

CommerceNext Conference

Here is a gist of what I heard in the various sessions on the first day at the CommerceNext event in New York on June 21. (I could not attend the second day since I had my flight back to Mumbai.)

• Retail is overstored; ecommerce is growing
• Same day delivery is expensive
• Customer acquisition is difficult and expensive, and getting harder
• It is hard to be a retailer; more bankruptcies are coming
• Delivery companies are being hit with wage inflation
• Many sectors are over-inventoried
• US retail environment is very competitive
• Fashion accounts for 4% of global carbon emissions
• Brands go out of business for three reasons: lack of product-market fit, cannot operationally scale, and run out of growth capital
• Customer touchpoints keep increasing
• Inventory management is a big challenge; and supply chain disruptions are hurting
• Brands need future hunters who can look a few years ahead
• Brands need to think servicing, not transacting; think experiences, not transactions
• UGC and Community creation are becoming very important
• New investment areas: omnichannel, search, personalisation, loyalty
• Need to think full-funnel marketing, not distinctive brand and performance marketing
• Story-telling is important to differentiate
• Tiktok is the hot new thing; that’s where the attention is; but it offers limited measurement
• Measurement (attribution) needs to be done right
• Need to focus on profits – now! Also need to optimise cashflows.
• Make marketing spend as a profit generator
• Brands must ask “how did you hear about us” for new customers on the order confirmation page
• Think of media and creative as investments for the future
• Identify new pockets of traffic beyond Google and Facebook
• Conversational commerce via 2-way SMS
• Think “in-the-moment” interactions
• Customers willing to share personal data in return for some value exchange
• Offer multiple ways to earn loyalty points beyond transactions
• Personalisation needs customer data and product data; need for a unified data model
• It costs 5-25X more to get a new customer than to keep an existing customer
• Consider doing testing on the copy (words/images) used on the website/app; small visual cues can have a big impact in the customer journey
• Online chat can be very helpful
• New trends to consider: metaverse, NFTs
• Use AI and data for decisions because humans don’t scale
• The future is about mobile experiences

In the presentations I heard, there is a mix of what modern marketers think: the challenges they face, the opportunities that they are, managing the short-term and the long-term, thinking new acquisition and retention marketing, piloting new technologies, and worrying about the changing macro environment. At the heart of everything: the evolving brand-customer relationship.

The Crux – 3

Gartner book review: “Rumelt defines true strategy as the mix of policy and action designed to overcome a significant challenge.  Rumelt calls these significant challenges “Cruxes”.  A crux is further defined as a challenge that is both critical and appears to be solvable. It is a very simple, but immensely powerful way of thinking – particularly compared to the current goals first. Using this view Rumelt effectively advocates that strategy is a special form of problem solving with the ability to deal with Gnarly problems. Gnarly problems or situations … may have no clear definition of the problem itself, it tough because the issue is not self-evident nor self-defined. This means that gnarly problems are either overlooked or avoided in favor of simplistic goals, because you have to work at them and face the truth … [They] do not have a single or simple goal, rather they often require addressing a number of potentially competing ambitions. Again, they are hard to solve and cannot be wished away with a goal of mission statement.”

Rumelt in McKinsey Quarterly: “A gnarly challenge is not solved with analysis or the application of preset frameworks. A coherent response arises only through a process of diagnosing the nature of the challenges, framing, reframing, chunking down the scope of attention, referring to analogies, and developing insight. The result is a design, or creation, embodying purpose. I call it a creation because it is often not obvious at the start, the product of insight and judgment rather than an algorithm. Implicit in the concept of insightful design is that knowledge, though required, is not, by itself, sufficient. The way through a gnarly challenge may not seem clear at first but working to grasp the structure of the challenge is often the best way of seeing a path through. As a number of problem-solving researchers have found, “at the least, problems must be deeply analyzed before an insight solution can be achieved … The skilled strategist recognizes the heart of a challenge as the thing blocking an easy solution. Attention is drawn to it because it hints at leverage—that if we could only just move the keystone, the whole wall can be breached.”

Rumelt added about how Elon Musk identified and solved for the crux in the early days of SpaceX:

As an example, the entrepreneur Elon Musk is passionate about populating Mars. He imagined promoting this idea by sending a small payload there. In 2001, Musk had tried to buy an old rocket but was unhappy with the style of bargaining and how the price tripled during the negotiations. He began to look at the challenge of cost—why did it cost so much to put payloads into orbit? He was quick to see that the high cost was because rockets were not reusable. There was no cheap way to return to Earth through the furnace-heat of blasting back through the atmosphere at 18,000 miles per hour. Was there a way around this problem, the Achilles heel of the old space shuttle? Then Musk had an insight: fuel was a lot cheaper than vehicles. It might make sense to avoid the huge complexity of super-high-heat reentry by carrying more fuel and using it to slow the rocket’s return to Earth. Like many old science fiction stories, Musk imagined a rocket that would turn around and slow down by firing its engine, leading to a soft landing. No violent reentry furnace would char the outside of the vehicle. The process could be automated, as well—no need for a human pilot. The key would be engineering a rocket engine that could reliably start and stop and accurately throttle and direct its power. With this insight, soft reentry became the crux challenge for SpaceX.

As I read the initial chapters of the book on the flight from Newark to Mumbai at the end of my vacation, the question that came to me was: What is the crux of the brand-customer relationship? In other words, what is the hardest (“gnarly”) problem that marketers need to solve to help them in their journey of maximising customer loyalty, revenues and eventually, profitability?

The Crux – 2

Here are more quotes from Rumelt about the book and strategy, along with reviews about the book:

Rumelt in an interview with Martin Reeves: “The crux is an idea that comes from climbing, as you know. It means the hardest pitch or the hardest move on a climb. And the central message of the book is about focusing your strategic thinking on the hardest problem you face that you can actually do something about. And so that’s where the crux concept intersects the climbing idea … Good strategy, in the end, is a design created by judgment. How do you create a good song, or how do you create a great building or great painting? Not easy to explain. Strategy is a bit easier than that. But it’s in the same area of design-type problems. My intuition and my understanding of what works in strategy and what doesn’t work is that it’s better to start by looking at challenges … [T]here may be several addressable strategic challenges. The crux is narrowing it down to something special. I believe, although some may disagree with me, that the most fundamental concept in strategy is concentration and focus. The oldest strategic teachings are: you focus your strength on where your opponent is weakest, or where the market opportunity is the greatest. And that focus, that concentration, is the crux in some sense. This has to be part of a good strategy. You can’t try to do everything at once. You’ll fail.”

LeadingBlog: “Getting to the crux of the issue is harder than one might think. We are too often stuck in our assumptions. Often it requires a reframing, a new analogy, or a reanalysis of data in ways that we have not previously considered … Rumelt walks us through a crux defining, strategy creating process, which he calls the Strategy Foundry. It is an intense challenge-based discussion to get to the crux that will form the basis of the strategy. It is not goal setting or budgeting. [Quoting Rumelt] “By starting with the challenge, the group becomes responsible for designing a response rather than choosing among plans already advanced by members or others, or just filling in the blanks for a longer-term budget.””

Roger Trapp in Forbes: “[U]sing a variety of examples, ranging from Elon Musk’s SpaceX, through Google and Salesforce to Marvel and Netflix, [Rumelt] suggests that the key to setting an effective strategy is to identify a problem and come up with a way of solving it. Saying things like “we are always increasing sales and cutting costs” or “our company is going to beat all the other paint companies because we are customer focused” do not wash with him. “To have someone believe you and trust in your strategy, there has to be a logic and argument, and some evidence, as to how you are dealing with the challenges you face,” he writes.” … It is a wide-ranging book that takes in failings of military strategy in various conflicts as well as a host of corporate successes and setbacks. Although there are practical elements, including a section at the end designed to show how a group of employees might come together to help create a strategy, Rumelt really seems set on challenging assumptions about strategy.”

The Crux – 1

Richard Rumelt’s “The Crux” has a core idea that he builds on: the leader’s most important responsibility is to fund the crux of the challenge and solve it. In that sense, strategy is not about wish lists or numerical targets, but about problem-solving – pinpointing the most important issue and then crafting a solution, much as a mountaineer finds and gets past the “crux” to climb higher. (The book’s introduction has a fascinating explanation about the “crux”.)

Rumelt writes in the book’s introduction:

… [T]he term crux … denote[s] the outcome of a three-part strategic skill. The first part is judgment about which issues are truly important and which are secondary. The second part is judgment about the difficulties of dealing with these issues. And the third part is the ability to focus, to avoid spreading resources too thinly, not trying to do everything at once. The combination of these three parts lead to a focus on the crux—the most important part of a set of challenges that is addressable, having a good chance of being solved by coherent action.

As with climbers, every person, every company, every agency faces both opportunities and obstacles to their progress. Yes, we all need motivation, ambition, and strength. But, by themselves, they are not enough. To deal with a set of challenges, there is power in locating your crux—where you can gain the most by designing, discovering, or finding a way to move through and past it.

Rumelt adds: “A strategy is a mixture of policy and action designed to surmount a high-stakes challenge. It is not a goal or wished-for end state. It is a form of problem solving, and you cannot solve a problem you do not understand or comprehend. Thus, challenge-based strategy begins with a broad description of the challenges—problems and opportunities—facing the organization. They may be competitive, legal, due to changing social norms, or issues with the organization itself. As understanding deepens, the strategist seeks the crux—the one challenge that both is critical and appears to be solvable. This narrowing down is the source of much of the strategist’s power, as focus remains the cornerstone of strategy … [The] process of diagnosing the challenge and then creating a response is the best theory we have for strategy creation. You analyze the challenge and your resources, and you try to think of ways to surmount the challenge and realize some of your ambitions. A myriad of tools exist to help you analyze the challenge. And there are ways of stimulating and helping you think of a response—analogies to other situations, altering the point of view, doing again what worked last time, and so on. But these are only stimuli. You don’t “pick” a strategy; you create it. Then you do your very best to choose among the alternatives you have created. Finally, you need to translate the idea into specific and coherent actions.”