Published October 6-13, 2023
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Scaling Profits
Many ecommerce businesses struggle to attain profitability, typically due to two categories of reasons. Externally, factors such as competitive pressure, limited product diversity, pricing mistakes, slow delivery times, supply chain mismanagement, and excessive returns can undermine success. Meanwhile, internally, a range of inefficiencies – what I term “funnel frictions” – impede progress at every stage, from customer acquisition and conversion to retention, repeat purchases, and loyalty.
In this series, I will focus on these funnel frictions. Addressing some of these frictions can empower brands to significantly boost their profits – a strategy I’ve termed as ProfitXL, or PxL. However, to construct a profits monopoly, or a “profipoly”, it’s crucial to resolve all these issues. A profipoly provides a brand with a formidable competitive advantage – by monopolising profitability, it drains competitors’ chances of survival.
Historically, we’ve seen several non-government profipolies. More than a century ago, Standard Oil reigned in the US, until it was dismantled by government intervention. In the 1960s and 70s, IBM ruled computing. AT&T in the US was the profipolist in telecom until it was broken up by US regulators. Many others persisted until technological advancements or strategic blunders diminished their dominance. Microsoft and Intel, colloquially known as Wintel, held a commanding position in the computing industry throughout the 1980s and 1990s, and reportedly garnered 110% of industry profits, implying a 10% loss for all others! Nokia, with its 40% market share in mobile phones, was another profipoly, which was eventually surpassed by Apple. In the adtech space, Google and Facebook have forged a profitable duopoly, leaving scant room for others. Visa and Mastercard reign payments processing, Amazon rules ecommerce and reinvests its cash flows for increasing market share. LVMH has created a house of luxury brands, allowing it to seize a large portion of the market’s profits, mirroring the concept of a “profipoly.” De Beers maintains its stranglehold on diamond trade. In India, Indigo Airlines, with a striking 60% market share, has continued to grow by continuously investing in expanding routes, causing several competitors to capitulate.
In ecommerce, profitability is often stymied by four funnel frictions. These ‘friction fractions’ pose challenges for brands:
- 1/100: Clickthrough rate on messages sent, primarily due to Attention Recession
- 1/33: Conversion rate on website/app sessions, stifled by ‘red journeys’
- 1/3: Active customers in the database, whittled down by churn and dormancy
- 1/2: Fruitful new customer acquisition, with the remaining spending becoming Adwaste
Unless brands devise strategies to overcome these hurdles, they will struggle to achieve exponential forever profitable growth, let alone create a profipoly. In this series, I’ll introduce four practical solutions to these problems: Inbox Commerce, Green Journeys (with iDarpan), Reactivation Progency, and Near-Zero Acquisition Costs – concepts I’ve previously discussed. It’s now time to weave these solutions into a comprehensive strategy. This not only transitions the focus from Adtech (acquiring new customers) to Martech (retaining and growing existing customers), but also heralds the progression from Martech 1.0 (isolated point solutions) to Martech 2.0 (full-stack approach). By resolving these funnel frictions, brands can navigate the course towards building a profipoly and an enduring, great ecommerce business.
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Past Writings – 1
Best Customers and Velvet Rope Marketing: “By building a double moat of getting the industry’s Best Customers and then maximising revenues from them, it becomes possible to create a profits monopoly (profipoly) which can cut off the oxygen that competition needs to grow.”
The Coming Martech Era: Driving Exponential Forever Profitable Growth: “Profits are important for an additional purpose. They deprive the competition of the oxygen they need for their growth. The profit pool in a category is finite and a zero-sum game. Customers cannot keep buying the same products from multiple sellers… By working to maximise and then monopolise the profits in a category, brands create a profits flywheel to lead to a “profipoly”. This works as a double moat in the coming Martech era: the most profitable customers are retained to maximise lifetime revenues, and competitors are deprived oxygen of growth capital in the form of profits. The profipoly is thus the endgame. It also works as the beginning – because the profits can power the expansion into new categories – either organically or via acquisitions. Creating a profipoly is the real secret of creating a model that can power the “rinse and repeat” of exponential forever profitable growth.”
Crafting Profits: A New Marketing Paradigm: “The most important realisation for marketers needs to be that customers are not just numbers and metrics. They have needs for which they are willing to pay with their time and money. In fact, the non-monetary assets that customers have – attention, data, network and voice – can turn out to be as valuable as their ability to spend money. In the past, marketers could not do anything with these assets. Innovations like Email 2.0 enable the creation of hotlines which can now help marketers and customers build a win-win relationship and exchange, and thus build a profits pipeline. A new era of marketing awaits us – one that can deliver exponential forever profitable growth for brands.”
Digital Marketing and its Discontents and Disruptions: “Without profits, brands will be forever challenged to deliver the right value to customers. For far too long, marketers handed over the keys of their customer relationships to Big Adtech. While it worked well initially, the result was that it became like a drug marketers could not resist – and it has proved very detrimental to the health of business profitability. This is what needs to change… Earned Growth (a metric based on revenue growth from existing customers and new customers coming in via referrals) should be the North Star Metric for marketers. Email 2.0, Loyalty 2.0, Martech and Velvet Rope Marketing 2.0 are the four horsemen to lead marketers into this new world of exponential forever profitable growth.”
Profit-centric Marketing: Start with Email 2.0 and Loyalty 2.0: “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”.”
Solving the $200 Billion AdWaste Problem: “Hotlines, not optimised ads, are the future of digital marketing and the crux of the new brand-customer relationship. $200 billion spent on customers rather than Big AdTech will make marketers the profit makers and multipliers. It will also delight customers and take marketing back to its roots: bring back existing customers for more, and make sure they get their family and friends – without the crutches of the omniscient digital intermediaries. Hotlines are the 10X idea – offering a magnitude increase in conversions, and a substantial increase in brand profits thanks to increased revenues without a concomitant increase in costs.”
Stop Loss: The Power of Attention Messaging: “Velvet Rope Marketing focuses on the most valuable customers – the top 20% who can deliver 60% of revenues and 200% of profits. A combination of Attention Messaging with VRM can lay the foundation for a profits monopoly (“profipoly”). Deep customer engagement and continuous attention of Best customers are the best possible moats a brand can create.”
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Past Writings – 2
Marketing: Disrupted and Simplified: “If we were told to design the ideal business with no resource constraints, what would we do? The goal would be to maximise industry profits, thus leaving no surpluses (“oxygen”) for competition to invest and grow. As we have seen, not all customers are profitable if acquisition and servicing costs are factored in. So, the first task would be to identify the sector’s most profitable customers and acquire them. Once acquired, the next objective would be to ensure to keep them forever and get 100% of their spend in that category. This would necessarily mean providing them with the best possible experiences (“velvet rope marketing”) and perhaps combined with a loyalty program that keeps the goodies coming as they keep spending…The next stage would be to turn customers into advocates – thus dramatically reducing acquisition costs for the Next (Best) customers. Best customers are likely to know other potential Best customers in their friends and family network. Incentivising them to get more like them can create a continuous supply of new customers with similar characteristics in terms of spending and profitability…If all of this can be made into a repeatable process, the flywheel kicks in – and that’s the secret to super-normal growth and profits. It is what the best businesses do…suck out the oxygen of growth from competition and create a “profits monopoly” (profipoly).”
ProfitXL: “ProfitXL is built around five themes: the need for one-way push channels to become two-way conversational pathways thus bridging the chasm between acquisition and conversion, the transition from point solutions on the brand’s properties (website and app) to a unified martech stack, the identification of Best customers and creating differentiated experiences for them, getting close to zero CAC (customer acquisition cost) for new customers, and measuring growth based not on paid marketing spends but on repeat purchases from existing customers and revenues from referrals. This is ProfitXL’s SHUVAM framework: Story, Hotlines, Unistack, Velvet Rope Marketing (VRM), Acquisition (done right), and a new set of Metrics to measure progress. SHUVAM is the path for exponential forever profitable growth. If followed rigorously, it can help a brand create the ultimate endgame and moat in a business – a profits monopoly (“profipoly”). The ProfitXL mindset and SHUVAM strategy will help marketer’s increase revenues, reduce spends and improve shopper experiences. After almost two decades of digging the AdWaste hole, marketers can climb the profits mountain and aspire to reach the profipoly pinnacle.”
More: “Eliminating the “profit killers” in marketing is about instilling good habits in the marketing strategy which can lead not just to profitable growth, but also make it enduring, and eventually help the brand to creating a profipoly…ProfitXL is more than a single point solution or even a stack (multiple interconnected solutions); it is a bigger idea that the marketing industry has forgotten – how to ensure existing customers come back for more and bring their friends. ProfitXL is about creating a disciplined process which can deliver 25% year-on-year growth for long periods of time and at the same time cut marketing spending by 50%, leading to a dramatic improvement in profitability.”
PxL: “The PxL approach advocates the following: For Best customers, remove friction in their engagement and ensure omnichannel personalisation and the ‘perfect’ next action by maximising zero- and first-party data. For Rest customers, build better hotlines via the push channels to reactivate many of them. For Next customers, get as close to zero-CAC acquisition by driving referrals, reactivating instead of reacquiring customers, and using data from Best customers to sharply target acquisition. Most eCommerce journeys suffer from broken experiences. PxL is about beautifying every broken profit killing customer experience on properties and push channels to create a profipoly (profits monopoly). The focus of PxL is beyond just retention and engagement; it is about directly improving the economic engine which drives sales growth, cuts wasteful spending, and thus drives greater profitability… At every step, the focus must be on frictionless and personalised experiences. Email shops, powered by Email 2.0, combined with other innovations like Atomic Rewards, Full-stack Martech, AI-enriched product catalogs, and Progency can transform eCommerce businesses and help them transform their P&Ls.”
More: “There are three key challenges facing brands. First, boosting the Best: how to generate more sales from the top 20-30% customers as they account for the majority of transactions. Second, reactivating the Rest: how to rebuild relationships with those customers who have gone dormant as an alternative to retargeting them via Big Adtech platforms. Third, near-zero CAC for the Next: how to acquire the right new customers without breaking the bank and thus reducing AdWaste due to wrong acquisition and reacquisition. Solving these three intertwined problems is the crux to building an exponential forever profitable growth business en route to creating a profits monopoly (profipoly).”
Martech 2.0: “There are three major profit killers in a B2C/D2C business. Firstly, the potential of a brand’s app and website might be underutilised due to insufficient data collection on existing customers. This occurs due to isolated point solutions not sharing data, which obstructs effective personalisation. Furthermore, an ineffective onsite search engine might fail to showcase products that loyal customers are likely to purchase…Secondly, push channels are often used merely as broadcast mediums, lacking interactivity. Generally, the expectation is that customers, attracted by the message, will click through to the website or app. However, as we know, push channel open and clickthrough rates are usually low. These push messages are the most cost-effective way to lure customers back to your platforms. But, if customers become unresponsive, a brand is left with either expensive branding campaigns or retargeting via adtech platforms. Finally, a substantial portion of the acquisition budget is squandered due to AdWaste. Shockingly, almost 50% of the advertising expenditure proves to be ineffective. While optimisation strategies for ad spending might seem like an attractive solution, they only offer a minimal reduction, typically around 5-10%, which is insufficient. Retaining an existing customer holds much more value than acquiring a new one. Studies indicate that customer acquisition costs are five times higher than retention costs, and a mere 5% increase in customer retention can elevate profits by 25-95%… Transitioning to Martech 2.0 will transform profitability and customer experience.”
More: “Martech 2.0 revolves around increasing sales while reducing marketing costs, thereby enhancing profitability. It is about bringing back existing customers for more, and ensuring they get their friends. It is about laying the groundwork for exponential forever profitable growth, and eventually, a profipoly, by building remarkable products that function as profit generators, enabling brands to establish a competitive edge and ultimately, a profit monopoly (or ‘profipoly’).”
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1/100: Attention Recession to Inbox Commerce
Unless ecommerce businesses have established a strong brand recall or have become indispensable fixtures in the lives of their customers, push messages are the only tool to entice shoppers to their properties (website and app) completing transactions. Push channels available to marketers are email, SMS, RCS, app notifications, and in some countries, WhatsApp. Each of the channels has their pros and cons, but what’s common is the low clickthrough rate: typically 1%, or 1 in 100. This constitutes the first funnel friction fraction.
I wrote about this problem as one of the marketer’s OR Conundrums:
The conundrum for marketers has been about the balance between push and pull: brand marketing versus push marketing. Brand marketing is about the emotional connection and becoming a utility in the customer’s life, so they return to the property whenever they have a need. Push marketing is about crafting the right content and creatives to ensure the messages sent are opened and acted on. In both scenarios, the objective is the same: ensure a visit because the conversion takes place on the brand’s property.
The problem is that the vast majority of push messages sent are largely ignored by customers. Email open rates are low, SMS read rates (in India) are even lower, and push notifications are blocked by many. Marketers too have overdone the push messaging in their desire for clickthroughs. If consumers do not react to the push messages and don’t have the brand pull, then the only path left to the marketer is to retarget the customer on the adtech platforms – a very expensive proposition considering that an acquisition cost was probably already paid for. This problem of attention recession and limited activity on the brand’s property also limits the data marketers have about the customer to do personalisation.
This was the solution I had proposed: “In many markets, WhatsApp has opened up for business. Its primacy in the end customer’s life for personal messaging allows brands (for a fee) to insert themselves into the message flow. In markets like the US, pricing changes on SMS have increased its popularity, especially because 2-way interaction is possible. The biggest bang is coming via email, with the power of interactivity (AMP with Email 2.0) and gamification (Atomic Rewards with Loyalty 2.0). Interactivity is also coming to notifications. In short, the 1-way push channels are becoming 2-way conversion funnels. This transformation into “hotlines” is the big shift marketers have to prepare for.”
For ecommerce companies, the solution is Inbox Commerce. It is about bringing the conversion funnel closer to the customer – from the website/app to the inbox. It seeks to consolidate the customer’s journey from awareness to purchase within the inbox itself, effectively acting as a micro-ecosystem. This is particularly powerful in an era of overwhelming digital noise, as it provides a streamlined, focused, and more personalised user experience.
Email has emerged as the most promising channel for this strategy due to its widespread use and acceptance, especially in developed markets. I explored the idea of Email Shops in a recent essay: “The transformative solution in eCommerce is to think of websites and apps inside emails – where the entire journey from search and browse to purchase can be completed right inside the inbox. AMP makes this possible. These “email shops” are the next storefronts – and one which marketers can control because they can “push” these messages to their customers rather than relying on them to remember to visit their properties. Combined with Atomic Rewards to incentivise opens and other non-transactional actions, email shops have the potential to increase conversions exponentially, thus reducing the need for expensive and continuous new acquisitions to drive revenue growth. Email shops can thus become the profitability drivers for brands.”
In conclusion, the first friction, Attention Recession, can be effectively combated through a strategic implementation of Inbox Commerce, with Email Shops playing a pivotal role in its execution. By cutting through the clutter and bringing the shopping experience directly to customers, brands can not only increase engagement but also exponentially boost their conversion rates and profitability.
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1/33: Red Journeys to Green Journeys
In a previous essay, I had pointed to this conversion funnel from Smart Insights:
The second friction fraction presents a clear challenge: just 1 of 33 sessions on a website or app culminates in a transaction. These sessions could be described as ‘red journeys’, where potential customers are frustrated at multiple stages due to inadequate personalisation and relevance because the showcased products may not align with their interests. Succinctly put, the “value exchange” fails to materialise. Customers resist parting with their money as they perceive the value derived from the potential purchase insufficient. Consequently, the “Double Thank You” moment – where both brands and customers express gratitude for a successful, mutually beneficial transaction – remains elusive.
The problem is apparent: how can the ecommerce brand anticipate the customer’s next best action (product purchase) and subtly guide the customer towards it? The brand, in effect, needs to construct a ‘green journey’ that facilitates swift completion of transactions by the customers. This is where iDarpan comes in. It functions as a mirror world (akin to a metaverse), populated by each customer’s digital twin that interacts with a Generative AI-powered Large Customer Model (LCM). This digital counterpart always operates a few steps ahead of the real customer, absorbing insights from every action (or inaction) taken by the real customer. By comparing the customer’s data genome with those of other customers, it can make educated predictions about potential next best actions, offering recommendations accordingly.
In the fiercely competitive eCommerce arena, where customer loyalty is a prize to be won, LCMs can be game changers. When integrated within systems like iDarpan, they facilitate true one-to-one personalisation. By accurately predicting the next steps in a customer’s journey, brands can create highly customised experiences that resonate with customers, fostering loyalty and driving repeat purchases. In the long run, LCMs can enable brands to carve out a ‘profits monopoly’ (profipoly). As they mature, brands can maximise profitability by effectively nurturing their customer base.
With iDarpan, LCMs can power an eCommerce revolution, driving customer engagement at an individual level and shaping marketing strategies through predictive customer behaviour. This transformative approach can transform the future of eCommerce, mirroring the customer to reflect their needs, preferences, and behaviours, crafting a shopping experience that feels uniquely their own.
… iDarpan is thus about constructing the equivalent of a “Virtual You” for every customer and situating it in the context of a software-powered replica of their digital (and perhaps even physical) storefront… It helps brands beautify every profit killing customer experience—delighting both the customer and the eCommerce manager.
Consequently, the solution to the second friction of Red Journeys resulting in aborted conversions is a Green Journey powered by iDarpan. This involves digital twins and LCMs interacting within a mirror world, anticipating next best actions to eliminate obstacles and reduce drop-offs along the shopping journey. Brands can leverage iDarpan to implement real-time personalisation, adjusting the customer’s journey based on their actions and preferences identified by the digital twin and the LCM. With more personalised and satisfying shopping experiences, customers are likely to stay loyal to the brand, increasing their lifetime value, translating into lower marketing costs over the long term. This is a key ingredient in building a profipoly. iDarpan’s predictive capabilities could also be used to experiment with different strategies, allowing brands to test various approaches and learn what works best for different customer segments. This test and learn approach can help fine-tune the customer journey and maximise conversions.
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1/3: Dormancy and Churn to Reactivation Progency
The third friction concerns inactive or dormant customers. Out of every three customers, two fall into this category, leaving only one in three as the active customer base that a brand typically interacts with. Some customers may have stopped responding to brand messages because they found them irrelevant; others may have churned despite being good customers at one time. Either way, it is a big loss for an ecommerce brand because resources were spent acquiring the customer.
As I explained in a previous essay: “They may have registered but not purchased or done a small number of purchases. Marketers do not know enough about these customers. From a relationship standpoint, this segment is either dormant or dead… The current approach taken by brands is to push promotional emails or SMSes (assuming the customer or visitor shared the email address or mobile number). There is nothing special done for this cohort. Promotional emails typically are a list of periodic offers focused on enticing some action. After some time, these promotional emails tend to look the same to the customer and are ignored – as happens to 85% of brand emails. The marketer then stops sending emails – worried about impacting the domain reputation because of low engagement. And thus, a relationship is broken and lost forever… And here’s the rub: it is entirely possible that the brand’s acquisition programmes will perhaps target and try to reacquire the same customer again! This is a cycle that continues.”
This also becomes one of the OR conundrums faced by marketers:
As marketers seek to grow their active customer base, they do a lot of paid acquisition. Over time, a large percentage of these customers become inactive. The question that marketers face is whether to try and reactivate them through existing push channels (owned by the brand) or reacquire them via retargeting campaigns on paid media (Big Adtech). The cost of using owned media is a fraction of paid media, but most marketers opt for the latter because they are unable to get their customers to listen to them on the push channels. These reacquisition campaigns can be a big drain on marketing budgets.
Ironically, the inactivity of existing channels is in part a result of marketers not building better relationships with them. Because push channels have remained largely unchanged in their capabilities, marketers have been unable to get past the twin problems of attention recession and data poverty. Also, with 85-90% of the budget being directed towards new customer acquisition and retargeting of inactive existing customers, the focus on existing customers and keeping them interested is low. Thus, marketers get trapped into a negative feedback loop with the worst possible spending – reacquiring and retargeting existing customers on expensive paid media.
The resolution to the issue of dormant customers is found in collaborating with a “Reactivation Progency”. A Progency is a product-led agency which operates based on an adtech-influenced performance pricing model. This approach harnesses the power of martech to revitalise dormant customers and stop customers from churning using a myriad of techniques: firstly, it leverages existing opt-in permissions to send incentivised and interactive emails, thereby increasing the likelihood of engagement; secondly, it combines data enrichment with targeted content and offers for the inactive individual; and finally, it operates an ad exchange program embedded in the email footers of cooperative, non-rival brands. (These ads carry dual benefits: they are interactive, engaging the recipient more effectively, and are served to identified individuals, ensuring a personalised, targeted approach.) Delegating this responsibility to a specialised partner is more beneficial than burdening the ecommerce brand’s internal team, as it allows for dedicated focus, fosters innovation, and enables the marketing team to concentrate on cultivating the highly profitable “Best” customer base instead of the lengthier and less profitable tail.
As I explained in the ProfitXL essay: “Reactivation is another strategy to reduce CAC – because the alternative could end up being expensive reacquisition! Existing customers (especially the Test ones) end up becoming dormant for a variety of reasons: they did not find what they were looking for, their interests changed, or the brand communications were not engaging enough. Some in the inactive category could also have churned away to a different brand. The key to note is that there was a relationship once – which means the brand has some identity information (mobile number, email address) to reopen a conversation. Informative content which is helpful and not pushy can be a good way to ‘awaken’ the inactive base. AMP and Atomic Rewards can be useful aids for reactivation.”
Therefore, the answer to the third friction – Dormancy and Churn – lies in engaging a Reactivation Progency. This serves as a cost-effective alternative to high-priced reacquisition strategies. By leveraging the Progency’s unique methodologies, reactivation may potentially be accomplished at half the expense of reacquisition, leading to considerable savings in marketing expenditure and significantly enhancing profitability.
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1/2: Adtech AdWaste to Near-Zero Acquisition Cost
The single biggest profit killer for a brand is the wasteful spending on new customer acquisition in the face of other lower-cost alternatives. Adtech has made new customer acquisition easy, leading to marketers becoming collection agents for Big Adtech. The blame must also be shouldered by CEOs who demand the continuous addition of new customers without realising that the value of every customer is not the same. In fact, after almost 25 years of the Internet, if brands have been in existence for even 5 years, it is very likely that they would have reached out in one way or another to every possible Best customer. The other three frictions we have discussed are what prevent ecommerce brands from maximising the lifetime value of such customers. Instead of fixing those problems, they go for a short-term booster in the form of new acquisitions instead of maximising revenue from the customers they already have.
The financial impact of this friction is substantial for eCommerce brands. In reality, only 1 out of every 2 customers acquired aligns with the desired customer profile. This implies that 50% of their adtech expenditure is being squandered – a phenomenon I’ve termed as ‘AdWaste’. Marketing costs represent roughly 25% of an eCommerce company’s gross margin. Given that acquisition typically consumes around 80% of this budget, AdWaste can account for a staggering 10% of the gross margin. Brands must take decisive action to curtail this ‘bad acquisition’ expenditure if they aspire to evolve into profipolies.
As I wrote in a recent essay: “As the founder of a B2C martech company (Netcore), I have often wondered why brands spend 80-90% of their marketing budgets on adtech (new customer acquisitions) and just 10-20% on Martech (existing customer retention, engagement, and growth). The land grab for new customers is an auction-powered arms race where the only winners are the Big Adtech platforms. Yet, brands continue to burn cash overlooking the pot of gold (existing customers) that exists right in front of them. They then complain about rising CAC, not realising that half of their spending is AdWaste because of retargeting, reacquisition, and wrong acquisition.” I also wrote: “Our data suggests that only a third of adtech spending is effective. Another third goes to “bad” spends – where there’s an immediate drop-off post the click or app install. The remaining third is allocated to “reacquisition” – retargeting inactive or dormant customers on adtech platforms rather than reactivating them through your owned channels like email. Half to two-thirds of this bad spend and reacquisition spend can be eradicated.”
In order to mitigate AdWaste, brands should focus their attention on three distinct strategies that, when implemented together, can effectively reduce Customer Acquisition Cost (CAC). I’ve encapsulated these approaches under the term “Near-Zero Acquisition Cost”. These strategies include the process of reactivating dormant customers rather than reacquiring them (a concept we’ve just explored), encouraging customer referrals, and employing a new approach to acquisition, which involves targeting customers who resemble the Best Customer Genome (BCG). From a previous essay:
Referrals involve leveraging existing customers to bring in new customers through word-of-mouth or social networks, which incurs minimal cost, thus making CAC almost zero. Best customers referring others can be particularly beneficial as they tend to bring in similar high-value customers. Simple techniques, such as adding a referrer field to the sign-up form, asking for referrals in the “Engaging Footer”, and offering micro-incentives, can boost referrals and thus profitability.
BCG-influenced acquisition is about using data about your Best customers – the Best Customer Genome – to focus on their lookalikes and thus refine targeting of new customers. Often, brands utilise data from all customers, leading to acquisition of the wrong customer type, who often disengage quickly. Profiling tools can help identify potential future best customers within the pool of next customers. If identified early, these customers can be offered superior experiences to foster longer and mutually beneficial relationships.
Hence, the solution to the fourth friction point, Adtech AdWaste, resides in the strategy of Near-Zero Acquisition Cost, achieved through a three-pronged approach: reactivation of dormant customers, leveraging customer referrals, and employing BCG-guided acquisition tactics.
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Getting Started
In this series, I have addressed the four funnel friction fractions and proposed solutions to each of them:
- 1/100: Mitigating Attention Recession with Inbox Commerce through the use of email shops
- 1/33: Countering Red Journeys on brand properties with Green Journeys, powered by iDarpan to predict the next best course of action
- 1/3: Overcoming Dormancy and Churn by partnering with a Reactivation Progency
- 1/2: Resolving Adtech AdWaste with a Near-Zero Acquisition Cost strategy
Addressing these frictions must take precedence for CEOs and CMOs of ecommerce brands. By resolving even one or two of these, a brand can significantly enhance profitability, setting it on a course towards exponential forever profitable growth. For the ultimate achievement of creating a fortified business and a “profits monopoly” (profipoly), ecommerce brands must strive to resolve all four friction points. Such a comprehensive approach separates ordinary businesses from extraordinary, enduring, great businesses.
As initial steps, I recommend beginning with Inbox Commerce and Reactivation Progency. Both interventions can seamlessly integrate into existing marketing activities, demonstrating quick success without requiring extensive tech integration. The crucial aspect is to identify a Martech 2.0 partner who is willing to adopt a performance-based pricing model for both initiatives.
The subsequent phase should involve addressing AdWaste. A successful reactivation program will contribute substantially towards solving this issue. Encouraging referrals from ‘Best’ customers through AMP email footers can further this endeavour. Finally, employing the Best Customer Genome data to influence the acquisition of ‘Next’ customers can provide a comprehensive solution to this challenge.
Here’s an alternate perspective on these four solutions:
- Inbox Commerce targets all customers (especially Best customers) to optimise lifetime value
- Green Journeys for Rest and Test customers aim to predict the next best action
- Reactivation Progency strives to re-engage Left customers and prevent Test customers from becoming dormant
- Near-Zero Acquisition Cost focuses on Next customers
Achieving just a 10% increase in revenues and a 30% reduction in marketing spends (primarily by halving AdWaste) can transform the company’s P&L, potentially more than doubling the profits.
Thus, successful execution of these four funnel interventions opens the pathway towards building a “profipoly.”
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To conclude, I’d like to highlight that these strategies are primarily designed for eCommerce businesses that maintain direct customer relationships. But what about businesses operating through offline stores or marketplaces, where acquiring customer digital details is a challenge? And what about the unidentified website browsers? These circumstances might well represent a potential fifth friction point within the sales funnel.
For such businesses, my advice is to start by collecting at least an email ID from every customer, thereby establishing a direct digital communication channel. As I touched upon in a previous essay: “The strength of marketplaces comes from their access to customers and the data they accumulate over time. For D2C brands, the lack of buyer data means that they stay dependent on the marketplaces. In some categories, it may be possible to include options to get end customer information. For example, a brand could include an extended guarantee or a discount on a future purchase if buyers provide their email address and mobile number.”
Ultimately, businesses that maintain the closest relationships with their customers will emerge as big winners. Even those dealing with anonymous or unidentified customers should endeavour to implement a Know Your Customer (KYC) program – “Anon-to-Known” – and build direct and deep connections.