Published June 25-28, 2022
The past few years have seen consumer companies spend big on growth at all costs. Traditional and new-age companies have been splurging on new customer acquisition on the adtech platforms (primarily Google, Meta, Amazon). Some of the spending was justified as the pandemic accelerated the adoption of digital. Also, the printing of money by central banks made capital almost free and investors seeking growth found fast-growing B2C/D2C companies as a good hedge against low interest rates.
This ‘growth at all costs’ has led to a digital arms race where the only winners have been the adtech companies. Rising CAC (customer acquisition cost) has meant brands have had to invest increasingly higher money for new customers. This is unsustainable, and there are signs that the tide may be shifting back to more sustainable and profitable growth. As Fred Reichheld, the creator of the Net Promoter Score, said in a webinar recently: The only way to grow is to ensure customers come back for more and bring their friends.
For a business, more than top line growth, what matters is the growth in gross margin and profits (EBIDTA). Top line growth can be achieved by giving discounts to existing customers for transactions and spending big on new customers. This is not good growth. What a business needs is to grow the gross margin and then profits; between these two numbers is the cost of running a business – primarily, employee costs and marketing. Of these, marketing is the one which can vary dramatically depending on the choices made.
Thus, for a business to be profitable, there are two key requirements: grow top line in a healthy manner by increasing revenue from existing customers without discounting aggressively, and then keep marketing costs under control by calibrating the spend on new customer acquisition. This is at the heart of what can be termed as “profit-centric marketing.” For every business, profits are a must because otherwise there is a need for continuous capital inflows to fund the losses.
Profit-centric marketing actions can be further sharpened to the following:
- Drive growth from Best customers. These 20% customers account for 60% revenues and more than 100% of profits since the cost of servicing and acquiring other customers dents profits.
- Reduce “Adwaste”. Brands are wasting half of their marketing spends on reacquisition and wrong acquisition. (Globally, this is a $200 billion waste.) This means building direct and deep relationships with existing customers. It means ensuring customers come back for more and bring their friends.
Profit-centric marketing done right can deliver the right sustainable and organic growth for businesses. By leveraging the power of digital, this can be made exponential and forever, as Best customers spend more, stay longer and get their family and friends who become tomorrow’s Best customers.
Marketers are pouring money into adtech for new customer acquisition. They are taking unsustainable shortcuts in pursuit of growth. CAC is rising rapidly and sucking away even more of the marketing budget. Marketers therefore face a doom loop of spending: rising CAC demands more adtech spending, which reduces funds available for existing customers, which impacts the relationship and experience, which in turn causes churn, which pushes marketers further down the adtech path. The solution lies not in trying to optimise adtech spending but to start with existing customers and focus on how to build a better relationship with them.
In this quest, marketers need to solve two problems: attention recession and data poverty. Existing customers can be brought back to the brand’s properties (website and app) via two mechanisms: great branding or push messages. Branding takes time and money to build, and is also an outcome of the experience delivered. On a daily basis, it is the push messages (sent on email, SMS, WhatsApp or as app notifications) that have to do the magic. The problem here is that customers are not paying attention to the promotional messages sent by marketers: open rates in email and SMS are very low and push notifications are blocked by many app users. In other words, customers are not listening to what brands are saying.
There is a second problem: lack of a unified customer view to personalise the customer experience. While martech platforms help brands collect a lot of customer data, the first-generation point solutions do not provide an integrated view since data gets siloed and integration costs can be very high. For example, one of India’s leading banks does not recognise me as the same person who has a bank account and a credit card with them even as the mobile number is the same for both accounts!
Taken together, attention and data are the two fundamental challenges that marketers need to solve. So far, they have taken the easy way out: discounts to get customers to pay attention (which means treating every existing customer as a new customer each time) or just retargeting them via the adtech platforms. Both are expensive propositions and hurt profits. But for marketers goaled on growth, profits are not their concern. But for a CEO or CFO, this short-sightedness has serious implications on the bottom line.
This is why I believe profit-centric marketing must become a founder/CEO/Board agenda. Unless the top leadership understands what’s hurting their business, they will not escape the spending trap. And without ending adwaste, there is no path to profitability, even though they may be able to demonstrate short-term growth. To make sustainable profitable growth a reality needs a rethink on all aspects of marketing: next-gen ideas for email, loyalty, martech and adtech.
To summarise the narrative so far:
- While brands can buy growth with adtech spending, that comes at the cost of profitability
- Good growth and profits needs repeat business and referrals from existing customers
- The challenges marketers face in dealing with existing customers are attention recession and data poverty
- A shift in focus from adtech to martech means a shift from acquisition and discounts to solving for attention and data
The path to exponential forever profitable growth comes down to something as basic as solving the problems of attention and data. In a world of digital and direct relationships, these are the two things that matter most. If a brand’s customers are not listening and if a brand does not have adequate data, it becomes hard to build a hotline to customers. Without the hotline, it becomes difficult to bring customers back to the properties for transactions.
In the pre-digital world, what mattered was branding. Great copy and ads created the customer connect and brought them to physical world stores. While branding still matters, it takes time and is expensive to build. Only a few succeed. For all others, the opportunity for B2C/D2C businesses comes from the push messages to get their communication out to their customers. This has been forgotten by marketers eager to show growth at all costs.
The problems of attention and data can be solved. For this, the mindset of marketers needs to evolve. The world of customer engagement must begin with the push channels. Today, there is very little attention paid to these channels. The channel with the best RoI – email – sees a spend of $8 billion annually. This is just 2% of what is being spent on adtech platforms globally.
I believe that email can and must become a marketer’s new best friend. Email is not what it once was – 1-way broadcast and semi-spam. Email is now ready in its new avatar: Email 2.0. This email can be interactive, informative, gamified, fun and exciting. It is email like customers and marketers have not seen or imagined. Email 2.0 is a way to convert the delete mindset into delight. It can become a powerful channel for getting customers to volunteer data about themselves. For this, Email 2.0 needs to be combined with Loyalty 2.0. Tokens for attention and data with a new spam-free inbox which delivers surprises and rewards can bring brands and customers closer in a win-win relationship.
With attention and data, marketers can then deliver omnichannel personalisation on their properties and differentiated 360-degree experiences for their Best customers (Martech 2.0) and slash acquisition costs via referrals and targeted new customer acquisition (Adtech 2.0).
This is the new world of marketing, reinvented for a digital world. The basics do not change. Marketing is about bringing customers back for more and ensuring they get their friends. What is different is the ‘how’ to get started – a new-look email format (what I call “microns”) and atomic rewards in the form of tokens for attention and data to nudge behaviour. These are the ideas that hold the key to building the pipe (hotline) with existing customers, and therein lies the secret of profit-centric marketing.
The starting point is with a revamp of the email program. In case a brand does not have email IDs, it should run a program to collect email IDs and link them to mobile numbers. The email ID is perhaps the most valuable asset that a brand can have. In emerging markets like India, the focus tends to be on the mobile number. What brands must remember is that a mobile number only enables them to communicate with an eighth of their user base: 30-day app retention is about 25%, and half of those who keep the app installed have push notifications switched off. While brands can choose to send SMS and WhatsApp messages, the costs can be 10-50 times higher than that of an email.
Email 2.0 must become the cornerstone of the revamped program. Email 2.0 makes emails 2-way, a daily utility in people’s lives, interactive, informative and gamified. It is something customers will welcome in their daily lives – “invited advertising” or invertising!
There are two ways to implement an Email 2.0 program: marketers can do it internally or partner with a Progency (product-led agency). A Progency does to martech what the digital agencies did to adtech – offer a one-stop solution with payment linked to performance. This leaves the marketer free to think about the bigger picture and strategy rather than getting too caught up with the day-to-day grunt work of running campaigns. (In fact, the ideal marketing department of tomorrow will probably be a single person supported by a progency which in turn combines an AI-first martech platform and people.)
The gamechanger for building the hotline and thus capturing attention and data are the Loyalty 2.0 tokens. These tokens take marketing into the Web3 world. They disintermediate the Big Tech platforms, foster a direct relationship between brands and customers. What marketers need to remember is: To get customers to pay attention, pay for attention (else they will pay Google and Facebook 100 times more.) The budget for Email 2.0, Progency and Atomic Rewards comes from cutting the adwaste which accounts for half the marketing spend. Savings from this will flow to the bottom line, as will the increased revenues from customers converting more because they are listening more to what the brand is saying.
Email 2.0 and Loyalty 2.0 are thus the first steps towards profit-centric marketing. They will later need to be augmented by Martech 2.0 and Adtech 2.0. This new framework will transform business bottom lines and create loyal customers. Without profits and without customers who return and get their friends, no business can survive for long. These new marketing ideas – Email 2.0, Loyalty 2.0, Martech 2.0, Adtech 2.0 – are disruptive innovations, and can serve as the anchors for success and the creation of exponential forever profitable growth and eventual “profipolies”.
- The Coming Martech Era: Driving Exponential Forever Profitable Growth
- Martech’s Magicians: Microns, Micronbox and µniverse
- The Subscriptions Future: Customer Retention Forever
- Progency for Martech: The Missing Link
- Martech 2.0 and Web3: Solving Advertising’s 50% Problem