Thinks 468

WSJ: “[John Cochrane] traces the present inflation to the pandemic and the government’s response. Starting in March 2020, “the Treasury issued $3 trillion of new debt, which the Fed quickly bought in return for $3 trillion of new reserves.” The Treasury then sent checks to people and businesses, later borrowing another $2 trillion and sending more checks. Overall federal debt rose nearly 30%. “Is it at all a surprise,” Mr. Cochrane asks, “that a year later inflation breaks out?” He likens this $5 trillion in checks to a “classic parable” of Milton Friedman (1912-2006), the great monetarist at the University of Chicago, where Mr. Cochrane was a professor for 30 years before moving to Stanford in 2015. “Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community,” Friedman wrote in “The Optimum Quantity of Money” (1969). If they spent the money, inflation would result.”

Yazad Jal: “Markets, language, the law, all emerged spontaneously. Hundreds of thousands of years ago, when a hunter exchanged some of his meat for berries collected by a gatherer, barter was born. Markets evolved from this humble beginning. Language grew out of the grunts of early humans. When two tribesmen had a dispute and went to the wise woman of the village to settle it, her words became the first laws. None of these required a mastermind, a planner or a designer…Human knowledge is so fantastically dispersed that no one person can claim to know even a fraction of it. Even making a pencil is a complex endeavor, as Leonard E. Read’s story I, Pencil shows us. The important lesson is not the complexity, it is that this complexity is managed not by a mastermind but by many people, each with her own goal to achieve. They come together, as if led by Adam Smith’s invisible hand to create something that benefits all of society.”

Thomas Jefferson in 1807: “I will add, that the man who never looks into a newspaper is better informed than he who reads them; inasmuch as he who knows nothing is nearer to truth than he whose mind is filled with falsehoods & errors. He who reads nothing will still learn the great facts, and the details are all false.” [via Atanu Dey]

Martech 2.0 and Web3: Solving Advertising’s 50% Problem (Part 10)

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.

Thinks 467

Donald Boudreaux: “My George Mason University colleague James Buchanan won the 1986 Nobel Prize in economics in part for his work explaining why it’s mistaken to conclude that internally held debt imposes no (or only minuscule) burdens on the economy. Buchanan reasoned that the burden of the debt isn’t borne by the lenders: They lend voluntarily in hopes of receiving an attractive return. Had they not loaned to the government, they would have used their money in other ways, likely as loans to private investors. Nor is the burden of the debt borne by today’s taxpayers. It’s precisely to avoid raising taxes today — to avoid burdening today’s taxpayers — that government borrows. The burden of the debt falls just where common sense tells us it falls: on the people whose taxes are raised to pay it. Those people are taxpayers in the future.”

Bruce Bueno de Mesquita: “Why Europe became distinct after the year 1000 and not before can be reduced to this surprisingly simple reason: in Europe, the head of religion and the head(s) of state were different people who faced off against one another in long-standing, long-lasting, intense competition for political control. Certainly, the rulers of China and Japan were thought to be gods.” [via Tyler Cowen]

Dan Shipper: “In creative work there are two phases: exploration and execution. In the exploration phase, you don’t know what the thing is going to be, you don’t have all of the information or ideas you want to have, you don’t even know if what you’re thinking about is important, and any little breeze in the wrong direction might blow you off course. In the execution phase, you are inspired, you know what the thing is, you know how to make it, it feels urgent; all you need to do is sit down and do the thing. Execution is Elton John writing Your Song in 20 minutes. Exploration is everything that happened before that.”

Martech 2.0 and Web3: Solving Advertising’s 50% Problem (Part 9)

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.

Thinks 466

Atanu Dey: “We have to  distinguish between three distinct measures related to material prosperity: wealth, income and consumption. Wealth is a stock while income and consumption are flows. They are generally correlated but not perfectly so. A person with immense wealth may choose a level of consumption similar to a person with a modest income. Warren Buffett’s wealth is massive compared to that of a successful lawyer’s but their consumption would be quite similar. Basic point: we should be concerned about the consumption of the poor, and should be less concerned about the wealth of the super-wealthy. I don’t care how much wealth Bezos has; what I care about is whether a child is malnourished.”

Ray Dalio: “History has repeatedly shown that people tend to have a strong bias to believe that the future will look like a modestly modified version of the past even when the evidence and common sense point toward big changes. I believe that’s what’s going on and that we are in the part of the cycle when most people’s psychology and actions are shifting from deeply imbued disinflationary ones to inflationary ones. For example, people are just beginning to transition from measuring how rich they are by how much “nominal” (i.e., not inflation-adjusted) money and wealth they have to realizing that how rich they are should be measured in “real” (i.e., inflation-adjusted) money and wealth. From studying history, and with a bit of common sense, we know that when people shift their perceptions in that way, they change their investment and non-investment behaviors in ways that produce more inflation and that make central banks’ difficulties in balancing inflation and growth harder.”

Are We Measuring Our Lives in All the Wrong Ways? The philosopher C. Thi Nguyen believes that to understand modern life, we need to understand how games work.

Martech 2.0 and Web3: Solving Advertising’s 50% Problem (Part 8)

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.

Thinks 465

Quantum gravity sensor opens window into world beneath our feet: from FT. “New device can map objects hidden underground, from utility ducts to archaeological remains.”

Erik Love on Email’s Successor: “A true replacement for email, one that actually allows for effective collaboration across silos. Every attempt at replacement (Slack, Teams, Zoom) has significant drawbacks (not encrypted, requires signing up for an account, time limits or other gated functionalities). Unless email can be completely replaced by a superior technology—one that can be used across different companies, workspaces, etc.—all new communications systems are added on top of email. (You want to use Teams? Great, now I have to check Teams and email. And Slack. And my text messages.) All of this just compounds the problems of siloed, ineffective and incomplete communications systems like email.”

NYT: How a Book is Made. “It started as a Word document, pecked out letter by letter at a dining room table in Connecticut. Now, it is 150,000 copies of a 626-page book called “Moon Witch, Spider King,” with a luminous cover that glows with neon pinks and greens. While digital media completely upended industries like music, movies and newspapers, most publishers and authors still make the bulk of their money from selling bound stacks of paper. Here, we will show you how vats of ink and 800-pound rolls of paper become a printed book.”

Martech 2.0 and Web3: Solving Advertising’s 50% Problem (Part 7)

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.

Thinks 464

Tim Hartford: “Researchers and policy wonks have long studied pilot schemes such as criminal rehabilitation programmes, public health initiatives or innovative schools. They dread the familiar phenomenon of the pilot delivering sensational results, only to fade at a larger scale. This dismaying tendency was called “voltage drop” by the psychiatrist Amy Kilbourne and her colleagues in 2007. The economist John List has been exploring the causes of this voltage drop, first in a 2019 paper with Omar Al-Ubaydli and Dana Suskind, then in a recent book, The Voltage Effect.”

Bloomberg: “S&P Dow Jones Indices, MSCI and FTSE Russell. Their nondescript names mask their enormous influence. Between them, they design, calculate and manage hundreds of thousands of financial indices that steer capital around the world. In total, over $50 trillion of investor funds are benchmarked against metrics that these three entities control. Like the hedge funds before them, it’s not just companies that fall under their gaze but countries too. By setting the criteria for index membership, they act as gatekeepers, determining which countries are eligible for investment by many of those funds.”

Sherlock Holmes: “Never trust to general impressions, my boy, but concentrate yourself upon details.”

Martech 2.0 and Web3: Solving Advertising’s 50% Problem (Part 6)

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.”