Published October 14-20, 2023
1
Elusive Profits
The pervasive issue crippling many eCommerce businesses is their poor profitability. This predicament arises chiefly from an over-reliance on acquiring new customers and an inability to fully capitalise on the lifetime value of existing ones. The consequence is a staggering $200 billion in AdWaste—half of the $400 billion spent globally on adtech each year—siphoned from the P&Ls of eCommerce companies. Therefore, the most urgent task for eCommerce firms and martech vendors is to drastically curtail this wastage, a move that would significantly augment profits and enhance business valuations.
Imagine this: a 30% reduction in the total ad expenditure of $400 billion could return an additional $120 billion to brands. At a modest earnings multiple of 15 times, this could yield a monumental increase in the collective valuations of eCommerce companies—$1.8 trillion to be precise. The logic is indisputable, but paradoxically, the necessary budgetary realignment of adtech and martech spending is yet to materialise. Why is this so?
Two primary reasons contribute to this inertia. Firstly, marketers often fail to comprehend the four funnel frictions (Attention Recession, Red Journeys, Dormancy and Churn, and Adtech AdWaste) that are chipping away at profitability. Even if they do, the solutions to these problems elude them. Consequently, marketers tend to resort to the only tried-and-tested method of driving consistent revenue growth – incessantly replenishing the top of the funnel with new customers, irrespective of the acquisition cost. Profitability, they believe, falls under the purview of the CEO and CFO, not the CMO.
To offer some defence for the marketers, the solutions to these four frictions (Inbox Commerce, Green Journeys, Reactivation Progency, and Near-Zero Acquisition Cost) are far from apparent. These solutions amalgamate many novel ideas and innovations (some of them unproven): Email 2.0 with AMP, Atomic Rewards, Digital Twins in a Mirror World powered by Generative AI, Velvet Rope Marketing and Best Customer Genome, Adtech-style Performance Pricing, and Earned Growth as a performance metric. Most global martech firms, grappling with slowing demand and their own path to profitability, fail to lead their customers (marketing departments) towards sustainable growth. Thus, AdWaste persists, compelling eCommerce CEOs to slash costs elsewhere – measures which inadvertently compromise customer experiences.
Adding to these woes, many eCommerce businesses grapple with a fifth friction—the inability to establish relationships with unidentified shoppers, originating from three sources: unregistered website visitors, marketplace buyers, and physical store shoppers, the last becoming increasingly common as the Covid-induced online surge recedes. Failure to create direct, digital relationships with these customers hampers the brand’s ability to reconnect during future shopping instances, thereby escalating transaction costs and further squeezing profits.
In this series, I will revisit the four frictions and their respective solutions, before delving into a discourse on tackling the fifth friction. Overcoming these frictions can power a dual engine of profitability, fuelling sales growth while simultaneously trimming marketing expenses. This holds the key to unlocking exponential forever profitable growth, culminating in a “profits monopoly” (profipoly) – the most formidable business moat an eCommerce business can aspire for.
2
Four Frictions, Four Solutions
In a previous series, I wrote about how ecommerce companies’ profitability often suffers due to an over-reliance on acquiring new customers. A disproportionately high focus on constantly expanding the customer base overshadows the potential in maximising value from existing ones. As I wrote: “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.” The four funnel frictions are: Attention Recession, Red Journeys, Dormancy and Churn, and Adtech AdWaste. These frictions can be effectively addressed by optimising the “good fractions,” leading to profitable growth and creating a profipoly.
The first friction, Attention Recession, stems from the fact that customers are bombarded with marketing communications, leading to a decrease in engagement with promotional messages. To bolster the 1/100 good fraction, eCommerce companies need to adopt Inbox Commerce via email shops. This strategy involves transforming emails from mere communication tools into virtual shops, thus captivating their attention and moving the conversion funnel closer to where their attention resides.
Next, the Red Journeys friction refers to the challenge of customers disengaging on brand properties (websites and apps) due to irrelevant content. The 1/33 good fraction can be boosted by adopting Green Journeys via iDarpan, a tool that predicts the next best action for each customer. By personalising interactions, brands can ensure relevant content and experiences, reducing drop-offs, boosting engagement, and eventually transactions.
The third friction arises because of Dormancy and Churn, where customers become inactive over time or switch to other brands. The 1/3 good fraction can be improved by partnering with a Reactivation Progency to re-engage dormant customers. A progency leverages data enrichment and targeted content to recapture the interest of dormant customers, often at a fraction of the cost of acquiring new ones.
Lastly, Adtech AdWaste is a friction arising from ineffective spending on customer acquisition caused by wrong acquisition and misguided reacquisition. The 1/2 good fraction can be increased via the strategy of Near-Zero Acquisition Cost which emphasises reactivation over reacquisition, robust referral programs focused on Best customers, and acquiring lookalikes using the Best Customer Genome (BCG). This approach reduces wasteful marketing spends, thus improving the bottom line.
Addressing these frictions is paramount for any ecommerce brand aspiring to become a profipoly. By initiating the pivot to profitability with Inbox Commerce and Reactivation Progency, then curbing AdWaste, and finally cultivating Green Journeys, ecommerce brands can create enduring, profitable businesses.
This lays the groundwork for discussing the potential fifth friction (Identify Gap) with the solution (Anon-to-Known). The big winners in the future will be those who are closest to their customers, which necessitates identifying anonymous shoppers to build direct relationships, thus paving the way to more personalised and efficient marketing.
3
Identity Gap
As ecommerce companies grapple with the four primary “funnel frictions” hampering their profitability—Attention Recession, Red Journeys, Dormancy and Churn, and Adtech AdWaste—a fifth friction has quietly begun to exert its influence. The anonymity of customers presents a significant hurdle for eCommerce enterprises that aim to personalise marketing efforts and build sustainable relationships with their consumers. Unidentified or anonymous shoppers appear in diverse forms and across multiple channels, rendering this challenge multifaceted and complex. This emerging challenge, which I term as Anon-to-Known, involves getting anonymous shoppers to identify themselves to the brand, in order for brands to establish and nurture direct relationships with them.
The first segment of unidentified customers comprises those who visit eCommerce websites but opt not to register or provide any contact information. They may browse products, read reviews, compare prices, and even add items to their shopping cart. Yet, without completing a purchase or leaving contact information, they remain untraceable and unreachable in the digital landscape.
Secondly, the emergence and popularity of marketplaces have introduced another layer of unidentified customers. Marketplaces – platforms where multiple sellers converge to reach a large, diverse audience, such as Amazon, Flipkart, and Nykaa – while offering brands access to a broad customer base, simultaneously keep customer information under wraps. Brands selling on these platforms often have limited or no access to individual customer data, impeding the establishment of direct relationships or targeted marketing initiatives.
The third type of unidentified shopper is found in physical retail stores. As the pandemic-induced surge in online shopping begins to stabilise, many Direct-to-Consumer (D2C) brands are setting up brick-and-mortar outlets. While this strategy offers the tangible experience many customers still desire, it also presents a new set of anonymous customers—those who shop in-store but do not identify themselves or engage with the brand digitally. For brands accustomed to the data-rich world of eCommerce, these customers can seem elusive.
Moreover, additional sources of anonymous shoppers further complicate this issue:
- Social Media Platforms: Brands increasingly leverage social media platforms such as Instagram, Facebook, Pinterest, and TikTok for advertising and even direct selling. Users engaging with these posts or ads may remain anonymous if they do not click through to the brand’s own website or platform or if they fail to leave any identification
- App Installation Anonymity: Numerous app-centric brands neglect to collect any identity information at the time of app installation. Consequently, if the app gets uninstalled, these brands find themselves incapable of re-establishing contact with those users.
- Guest Checkouts: Some eCommerce websites offer a “guest checkout” option to expedite the purchasing process. While this feature can increase conversion rates, it also results in customers remaining unidentified as they don’t need to create an account or provide more than the essential required information. This lack of information makes retargeting them an impossibility.
- Third-party Retailers: Brands distributing their products through third-party retailers, both online and offline, often lack access to the end consumer’s data. This distribution model, the offline equivalent of marketplace selling, can make it challenging to establish a direct relationship with these customers.
In each of these scenarios, the inability to identify shoppers directly hampers a brand’s marketing efficiency, thereby impacting profitability. When brands cannot recognise their customers, they fail to personalise their offerings or marketing communications. They also lack the ability to measure and analyse customer behaviour adequately to inform strategic decisions. In this sense, unidentified shoppers contribute to increased transaction costs and reduced marketing effectiveness, ultimately eating into profits.
Thus, creating an “Anon-to-Known” solution becomes a pressing imperative for eCommerce brands. So, what actions can brands undertake to mitigate this fifth Identity Gap friction?
4
Comments
Here is a collection commentary on the problem of anonymous shoppers.
eCommerce Fastlane: “You don’t know most of your visitors. 80% of all your site visitors are anonymous. All told, this group makes up 84% of all visits. By a landslide, the amount of unknown shoppers carries site traffic. But don’t let that discourage you. A closer look reveals that there is some very encouraging news — you know more about the unknown than you might think. Not all anonymous shoppers are the same. You are probably already analyzing acquisition sources on your buyers to optimize your traffic mix. More directly though, you can look at the shopper’s specific engagement with you to learn more. Engagement history helps us further segment our anonymous shoppers into two groups; those making a single visit, and those making multiple visits to your site… To turn this recognition into a relationship with the shopper, you need to give them a reason to identify themselves to you.”
Chemiz Katz identifies three types of online anonymity: not logged in, cookie blockers, and those who have opted out of tracking. He adds: “Your shoppers might be anonymous, but they still leave behind a veritable treasure trove of non-PII data—not just location and pages viewed, but also data such as their network speed, the number of tabs they have open and browser extensions they have installed. While it would be difficult to use these seemingly minor data points in a rule-based system, machine learning can be used to find correlations and identify patterns of shopper behavior. As you collect more data, you will be able to classify shoppers into segments based on these signals and predict their on-site behavior.”
Retail Dive: “An anonymous shopper can be a new visitor to a retail site or even a returning user. But unless they log into an existing account that declares their identity, the retailer won’t know they have an account holder visiting their site. “On any given site, approximately 90% of the traffic is anonymous,” according to Debjani Deb, CEO of ZineOne. “You have to have a solution that enables value-add to that population that focuses on results rather than identification.”…A better way of addressing anonymous shoppers in light of today’s privacy restrictions is to use in-session marketing as a new way of thinking and strategy…In-session marketing applies real-time marketing tactics to address all active users on your retail site by synthesizing their micro-behaviors.”
Braze: “Up to 86% of them may be anonymous users—that is, users who view your website or app without logging into an account. That’s according to a Braze study of over 100 popular retail and eCommerce apps conducted between November 2019 and February 2021. Of the 2.5 billion active users we observed, we found that only 14% were known users. The thing is, these anonymous users aren’t just browsing and bouncing. Often, they’re taking action and spending money. In fact, we found that nearly all web users (92%) are anonymous and 12% of users who make purchases are unknown users. Not only that, anonymous users are 58% more likely to make a purchase within their first week of visiting a company’s website or using their app than known users. The upshot? Ignore these key customers at your peril.”
Dynamic Yield: “The average website sees 97% to 98% of anonymous visitors, i.e. people who have never given you their email address. These could be first-time visitors to your site, or even returning visitors who are still not part of your CRM… Through various techniques like cookie-matching, browsing activity tracking, reverse IP identification, data onboarding, and contextual targeting, brands can fill in the blanks in their anonymous visitor profiles and reduce the amount of truly unknown users… As you collect more data over the course of multiple visits and actions, you can facilitate more relevant and timely personalization. Over time, by connecting, matching, and syncing the contextual data outlined above to anonymous visitor IDs, that large bucket of “unknown unknowns” becomes smaller and smaller.”
To summarise: the majority of site traffic for ecommerce brands comes from anonymous visitors, constituting as much as 80-90% of all site visits. This presents a significant challenge for businesses looking to build direct relationships with consumers. This is also the case with in-store traffic where only those signed up to a loyalty program or who self-identify are known. Brands must thus have a plan to shrink the number of truly anonymous users.
5
Solution Ideas
I asked ChatGPT for possible solutions to the “Identity Gap” frictions for each of the shopper types. Here are the recommendations.
[ChatGPT]
Identifying Anonymous Online Shoppers
- Incentivized Registration: Encourage visitors to register or sign up by offering incentives such as discounts, special offers, or access to exclusive content.
- Progressive Profiling: Instead of asking for all the information at once, gather data about the visitor over multiple sessions/interactions, making the data sharing less intrusive and more acceptable for the visitor.
- Behavioral Tracking and Analytics: Use cookies, machine learning, and AI to analyze browsing behavior, click patterns, and other non-PII data to build visitor profiles over time.
Identifying Anonymous In-Store Shoppers
- Loyalty Programs: Implement a loyalty program that encourages shoppers to sign up to earn points, discounts, or other rewards, which in turn helps identify the customer.
- In-Store Wi-Fi: Offer free in-store Wi-Fi that requires a simple registration process. This allows for the collection of some customer data while providing a value-add service.
- Digital Receipts: Instead of or in addition to physical receipts, offer to email receipts to customers. This gives you an opportunity to collect email addresses and connect in-store purchases with online profiles.
Identifying Shoppers on Marketplaces
- Branded Packaging and Inserts: Include promotional material, such as discount codes or invitations to join a loyalty program, within the packaging of products sold on marketplaces. This could incentivize marketplace shoppers to visit and shop directly from your website.
- Product Registration: Encourage customers to register the product on your website for warranty purposes or to receive product updates, thus identifying them.
- Post-Purchase Follow-up: While detailed customer data may not be available from marketplaces, basic information like name and address is. Use this for personalized direct mail marketing post-purchase, inviting customers to shop directly.
Identifying App Installers
- In-app Incentives: Encourage app users to register or sign in by providing in-app incentives such as unlocked features, premium content, or in-app currency.
- Push Notifications: Use push notifications to invite users to sign in or register, particularly when they engage with certain features.
- Social Media Integration: Enable registration or sign-in using social media accounts. This is not only convenient for users but also allows access to some of their public profile information.
Identifying Shoppers on Social Media Platforms
- Click-through Landing Pages: When promoting a product or service on social media, use a landing page that requires some form of registration (like an email address) to access more information or a special offer.
- Social Logins: Offer the option to sign up or log in using social media credentials. This makes the process easier for users while also allowing you access to their social media data.
- Interactive Content: Use polls, quizzes, or contests that require user participation and identification. Not only does this increase engagement, but it also provides an opportunity to collect user data.
Some additional ideas from ChatGPT not covered above include:
- Guest Checkout Conversion: While it’s important to offer a guest checkout option for a smooth shopping experience, use post-purchase prompts to encourage these shoppers to create an account. This could involve an offer to track their order, save their details for a faster checkout next time, or receive special offers.
- Data Enrichment: Brands can partner with third-party data providers to enrich their customer profiles and understand them better. Although this doesn’t directly help in identifying anonymous shoppers, it can significantly improve the precision of targeted marketing efforts, thus increasing the chances of customers identifying themselves.
- Cooperative Databases: Some businesses share anonymised customer data with other non-competitive businesses in a cooperative database. These databases can provide valuable insights and can be used to identify customers who shop across different platforms.
- Cookie Tracking & Analytics: Use cookies and other analytic tools to track user activity on your website. Although this doesn’t always directly identify individuals, it can provide valuable information about user behavior and preferences, which can be used to infer identities in some cases.
- Contests and Giveaways: Run contests and giveaways on your website or social media platforms that require users to register or provide contact information to participate.
[Rajesh] These are excellent suggestions for brands to use. But there is one idea which can transcend them all.
6
Anon-to-Known
The central premise of an eCommerce brand’s Identity Gap solution is to leverage Email 2.0 as a means of establishing an interactive hotline with customers. The initial step mirrors conventional tactics: offering rewards and incentives to coax anonymous shoppers into opting in, whether through a pop-up on a website or app, or a QR code in-store. However, this is no small feat, as shoppers are well aware that once they share their personal information, they’ll be inundated with brand emails. Brands therefore need to recalibrate their approach. Three strategies can prove beneficial in this regard as part of the Anon-to-Known solution.
Firstly, introducing “Atomic Rewards” as a universal brand currency to power gamification. Rather than offering a simple discount tied to a specific brand, these rewards manifest as points that can be accumulated and used for diverse purposes. For instance, Mu (the currency for Atomic Rewards) could be utilised to subscribe to GK quizzes, gain access to personalised content, or participate in sweepstakes. The key selling point is that Mu is a rewards currency that can be used for a wide array of non-monetary activities in the customer-brand relationship. [See Atomic Rewards: The Solution to Attention Recession, Loyalty 2.0: How Brands can Tokenise Customer Attention and Data, and Muniverse: A Brand New World.]
Secondly, the distribution of “Microns” (micro-newsletters; also called Ems) is a powerful way to provide valuable content. These succinct, information-rich emails enrich customers’ lives. They stand in stark contrast to the promotional emails customers have become accustomed to receiving. As explained in Microns and Brands: Made for Each Other, microns have the power to transform fleeting moments of interest into sustained relationships: “We all go through the moments where we find something interesting – an article we have read, a product we have searched for, a podcast we heard, a movie reco we saw, an interesting person we came across. These fleeting moments come – and go. Now imagine, if some of these moments can lead to (with our permission) a series of microns which serve as reminders over the next few hours or days.”
Thirdly, these emails are built on AMP, making them interactive and bringing an app-like interface into the inbox. This negates the need for clicking through to a landing page and enables actions to be performed directly within the email. Everything from progressive profiling to NPS ratings, from search to chat, from carts to checkout, from ratings to referrals – the email inbox becomes the destination. [See AMP’s Magic: Coming Soon to Your Email Inbox, The Coming of Inbox Commerce, and Email Shops can Transform eCommerce.]
These three transformative strategies lay the groundwork for Email 2.0. The value they offer is what entices anonymous shoppers, both online and offline, to identify themselves to the brand. By fusing high-value content with micro-incentives aimed at influencing user behaviour, and combining that with email shops and engaging footers, Email 2.0 emerges as the new super app, offering salvation for brands grappling with the “Identity Gap” friction. Consider this as the email-powered Know Your Customer (eKYC) process. This seamless transition from anonymity to recognition is facilitated by Email 2.0, with Mu-incentivised and AMP-powered microns piquing the interest of unknown shoppers, encouraging them to share their personal identity to engage with brands in a win-win relationship.
7
Frictionless Future
In an increasingly competitive business environment, the profitability and sustainable growth of eCommerce brands are dictated by their ability to optimise customer journeys and reduce acquisition costs. To quote Nate Checketts: “Wholesale is profitable from day one. E-commerce takes longer. Some digital brands never reach profitability because they spend so much money on marketing to acquire customers.”
At the core of this is the concept of friction. It exists in various forms and has a significant, often underestimated, impact on profits. These frictions have created inefficiencies and roadblocks in online and offline businesses, impeding customer engagement and diluting brand value. ‘Funnel frictions’ in customer journeys are the silent assassin of profits. From unidentified customers slipping through the cracks to inefficient ad spending, these frictions create hurdles in establishing profitable relationships with consumers. They lead to disjointed customer experiences, increased costs, lower conversion rates, and ultimately, eroded profits. The ability to identify and address these frictions, therefore, is not just about improving customer experiences but also about securing a brand’s bottom line. In this series, I have elucidated on this often under-recognised challenge and provided an innovative roadmap to solve for these ‘funnel frictions’.
The proposed solutions to the five funnel frictions – Attention Recession, Red Journeys, Dormancy and Churn, Adtech AdWaste, and Identity Gap – are anchored in an in-depth understanding of the digital consumer journey and leverage the power of data and emerging technologies. They form an integrated approach, designed to tackle the root cause of these frictions, leading to not just incremental improvements but also structural shifts in the customer acquisition and retention process.
As part of this approach, brands need to rethink traditional practices and adopt Martech 2.0 strategies. The implementation of Inbox Commerce, Green Journeys, Reactivation Progency, Near-Zero Acquisition Cost, and Anon-to-Known can change the game. But to make this a reality, collaboration with Martech 2.0 vendors becomes crucial. The right partners can provide the necessary technological and strategic expertise to bring these solutions to life, ensuring that they are embedded seamlessly within existing workflows and processes.
Brands that are quick to recognise this opportunity can reap significant benefits. Not only can they cut through the noise of their respective verticals, but they can also create ‘profipolies’ – a state where competitive leadership and deep moats deliver high profitability. By delivering more efficient, personalised, and engaging customer experiences, these brands can create robust connections with their consumers, resulting in higher customer lifetime value and lower acquisition costs. They can turn anonymity into familiarity, inaction into engagement, and costs into investments, thereby unlocking exponential forever profitable growth.
However, the journey to this frictionless future requires a paradigm shift in thought and action. It calls for brands to be bold, to innovate, to disrupt, and to challenge the status quo. It involves embracing the transformative potential of data and technology while keeping customer value at the core of every decision. Above all, it requires a relentless commitment to removing frictions, creating seamless customer journeys, and making every interaction count.
In essence, the frictionless future is not just a goal but a strategic imperative for eCommerce brands. With the solutions proposed in this series, brands have the opportunity to turn friction into function, ushering in an era where every customer interaction is purposeful, every investment is fruitful, and every step taken leads to a profitable future. This is the promise of a frictionless future – a future where eCommerce brands don’t just survive but thrive. The question is, are eCommerce CEOs and CMOs ready to seize it?