Published November 2-17, 2021
I just watched the first episode of “Foundation” on Apple TV. I get an AMP-enabled email asking me a couple of questions about what happened – with an atomic reward for answering the Qs.
The full-page ad from Samsung about their new foldable phone has a QR code which promises me a discount if I watch a 2-minute video showing all its great features.
Indigo connects all my past travels and offers me faster onboarding or the extra legroom seats without me even asking for it – because I am their Best customer.
Amazon offers me free use of their new Kindle for a week with 10 of my new books preloaded. Can they trust me to return if I don’t buy? They have 10+ years of my shopping history – isn’t that enough to build trust?
My iPad’s Safari knows my morning routine. I browse the same 10 sites. Can it open up a new window and have those sites pre-opened?
Swiggy’s app has a “Jain food” mode – they know me by now!
Tata Sky calls me and asks me why I did not renew my subscription after having been a customer for 10 years.
My bank stops sending me all those loan offerings – they finally realise seeing my bank balance that I do not need any money from them.
Business Standard copies the beautifully crafted “FirstFT” email so that I actually open and read it.
SonyLiv realises I have been watching all those Poirot and Marple episodes and hides the ones I have watched so I can easily find the ones I still need to watch.
Ajio realises that it was my wife who had used my email ID while ordering a couple years ago and stops sending me all the “women dresses” offers.
Flipkart offers me an incentive to click through to their page to see the personalised offers they have curated for me as part of their Big Billion Days sale.
Internet Chess Club stops sending me emails after realising that I have not clicked on their emails for ten years.
Kitab Khana emails me an excerpt from a new book that just got published.
Quattro asks me for my mobile number as soon as I enter and if I am alone, checks if I want to repeat the same quesadilla I always eat when I dine by myself.
Pepsodent’s toothpaste has a QR code that offers me a 10-day series of Ems (short emails) on dental care.
Croma starts sending me emails with info on new gadgets. (They only send me invoices after purchase and the last time I bought something was in April 2019.)
HDFC Bank credit card division sends me a nice consolidated email of all my expenses in the past quarter – nicely categorised by brand and vertical, tells me my outstanding points, and makes redemption trivial.
Indian Express personalises their home page knowing that I only generally read the headlines and op-eds.
Penguin has a QR code on their books with an incentive for me to answer three questions about my interests so they can build a hotline to me and keep me updated on new books in those categories. (If the book is part of a series, they can let me know when the next one releases.)
Gmail realises its “primary inbox” status is under threat from WhatsApp and offers micro-rewards for opening brand emails.
None of the above happens today. Every one of the suggestions is possible today. Don’t you wish brands actually did them? And if they did, would you not (in some of the cases) actually engage more with those brands and spend more with them?
For brands, it is in these ideas that lie the secrets of scaling up their businesses and creating exponential forever profitable growth in the coming Martech era.
I have discussed the broad theme of creating profitable customers in B2C companies in many of my past writings. It may seem repetitive writing about it again, but each time there are new ideas which make the narrative better. In this series, I will dig deeper into atomic rewards, how to create great experiences for the best, what to do with the long (“lossy”) tail and how to improve new acquisition. A simple customer segmentation framework I had used last year will guide us: Best-Rest-Test-Next.
Let’s start by looking back at the world of advertising. In the beginning, the rise of mass media (print, radio, TV, outdoor) coincided with the growth of advertising. It was all about building the brand. Media platforms aggregated audiences, and brands targeted them as a cohort. This worked fine until the Internet came along with its promise of targeting and tracking for customer acquisition. This led to the rise of performance marketing and adtech.
The past two decades have been the golden period of the Adtech Era. The platforms, Google and Facebook, have seen their market cap grow immensely on the back of creating an easy point-and-click approach to targeting ads and acquiring new customers. Every business wants a continuing pipeline for conversion, and the tech platforms have done this amazingly well. Aided by the big ad agencies, the duo sucks away an increasing percentage of revenues from companies hungry for growth. New customer acquisition has never been easier, thanks to Google and Facebook. As VCs, PEs and public markets have rewarded growth over profits, companies have channelled resources for new customer acquisition. Google’s stock price is up 10X in the past decade, and despite various diversifications, targeted and contextual ads remain its primary revenue driver. Facebook has used acquisitions like Instagram and WhatsApp to cement its leadership position, and its stock price is up 3X in the past 5 years.
While advertising remains the lifeblood of the Internet business model, it is starting to fray. The New York Times wrote recently:
More than 20 years ago, the internet drove an upheaval in the advertising industry. It eviscerated newspapers and magazines that had relied on selling classified and print ads, and threatened to dethrone television advertising as the prime way for marketers to reach large audiences.
Instead, brands splashed their ads across websites, with their promotions often tailored to people’s specific interests. Those digital ads powered the growth of Facebook, Google and Twitter, which offered their search and social networking services to people without charge. But in exchange, people were tracked from site to site by technologies such as “cookies,” and their personal data was used to target them with relevant marketing.
Now that system, which ballooned into a $350 billion digital ad industry, is being dismantled. Driven by online privacy fears, Apple and Google have started revamping the rules around online data collection. Apple, citing the mantra of privacy, has rolled out tools that block marketers from tracking people. Google, which depends on digital ads, is trying to have it both ways by reinventing the system so it can continue aiming ads at people without exploiting access to their personal data.
Customer acquisition costs are rising rapidly with the fast flow of capital to startups and growing D2C disruptors. The pushback on tracking is making less information available for advertisers to target customers. Some online businesses are also exploring subscriptions as an alternate revenue model to advertising.
Coming Martech Era
The adtech era’s exponential growth will slow in the coming years. Brands will realise that they need to think beyond acquisition. Retention, sustaining relationships for a lifetime, offering rewards for transactions and upstream attention and engagement, maximising revenue and profits, driving referrals – this is what companies should be doing. This is hard work, and what the real focus for CMOs should be. But there is no Google-Facebook equivalent to do it for them. The result is a leaky bucket – as existing customers become inactive or churn (targeted by other businesses via – you guessed it – Google and Facebook), businesses get trapped into a “doom loop of spending”. More and more monies get poured into reacquisition to keep their growth going. As long as investors are not asking for profits, this works fine. At some point, the tide will turn and there will be a demand for profitable growth. It is then that CMOs will be forced to pay attention to their existing customers. That will be the start of what I call the Martech era.
The Martech era will be characterised by a focus on 4Rs: retention, rewards, reactivation, and referrals. It will need marketers to think about segmentation based on customer lifetime value. Marketers will need to combine tech, data and analytical skills to make the most of all the demographic, behavioural and transactional data that will flow into a Customer Data Platform (CDP). They will need to integrate different tech solutions together to get a unified view of the customer. What will matter is not just a one-time acquisition but the customer journey, with the right nudges at the right time to ensure timely transactions. AI will assist the marketer at every stage but the questions and creativity will need to come from the marketer. Art and science is what will make martech work like magic.
This will need a new bag of tricks for marketers. It will be much more than just saying, “Oh – that’s what our CRM department does.” The Martech era is in fact the second coming of CRM. Only this time, marketers will be armed with much more data and have a wider arsenal of tools to create myriad magical moments for their customers, rather than just one-time offers. The way marketers have prioritised and perfected ad spending for new customer retention is what they will need to do with existing customers. As of today, most CMOs have a limited focus on this because adtech sucks away 80-90% of budgets and attention of marketers. In the years to come, in a world where the profitable pool of customers for a category is finite, marketers will need to switch time and money to martech to drive customer communications, engagement and experience and ensure they grow profitable customers who stay with them forever. Martech done right will help them optimise their adtech spends, create the space for profits, and lay the foundation for winning the customer moments that will drive exponential forever profitable growth.
What the Martech era will do is enable brands to scale businesses fast – leading to exponential forever profitable growth forever. Let’s unpack each of these four words, in reverse.
Growth: because the Total Addressable Market (TAM) is large, and others are hungry. Without growth, there is only stagnation and eventual irrelevance. As customer habits change, accelerated by the pandemic, new brands without the baggage of legacy are redefining customer reach and relationships. Digital first brands are unencumbered with the physical world distribution limitations and are able to reach customers independent of geography. The world is, quite literally, the market, and the opportunities are infinite; new products, new markets, new categories (organic or acquisitions) constantly beckon.
Profitable: because investor money to burn will soon run out. While losses in the early years may be acceptable, investor patience will wear thin given the options their capital has. Too much capital for too long also creates bad habits which are then difficult to get rid of. Profits also give the business the freedom to focus on expansion and acquisitions, rather than being in a constant fund-raising mode to fund day-to-day operations. Founders and CEOs must therefore chart a path to profitability, because profits are the only sustainable way to build an enduring, great business.
Forever: because it is now possible to build recurring revenues (subscriptions) that can last a long time. With customer identities known and digital helping in continuous engagement, the inflow of data can help brands anticipate the future needs of customers and be there for them at the moment of desire. New-age brands are being valued like SaaS companies – with double digit multiples on revenues. The belief is that these brands will not only expand their product portfolio over time, but also build lifetime relationships with their customers.
Exponential: because we are living through an inflexion point in disruption, and low and slow growth is no longer acceptable. High beats low, and fast beats slow. Exponential is the expectation because the opportunities are infinite. Just as SaaS companies can sell via the Internet to businesses globally, consumer companies can also now attract buyers anywhere in the world – either through marketplaces or directly. These winners are then valued highly, giving them a currency to acquire less nimble rivals to drive consolidation, and capital to deploy in R&D for rapid expansion.
A business which succeeds in the Martech era will create in its category a profits monopoly – “profipoly”. This will be the ultimate competitive advantage and moat in tomorrow’s world. It is what companies like Google, Facebook, Amazon and Apple have done extraordinarily well – by sucking out the profits from their industries, they deprive competitors the oxygen needed for growth. Consumer businesses have an opportunity to do the same in the Martech era.
We will discuss five secrets of scaling to become exponential forever profitable growth businesses: a new customer segmentation methodology (Best-Rest-Test-Next), the 4 Rs mindset (retention, rewards, reactivation, and referrals), full stack, progency, and rebudgeting. But first, let us understand the tech trends that are the disruption drivers.
Trends – 1
Before we go deeper into unravelling the secrets of forever high profitable growth, let us step back to understand the trends that are shaping tomorrow’s world.
Digital Customer = *Tech: The rise of the digital customer began with the Internet a quarter century ago, the smartphone and high speed networks drove it forward, and the pandemic accelerated it. With the customer’s digital devices being the window to the world, every business has to become digital by adopting tech. Traditional businesses have to transform, while new businesses can natively architect themselves around tech. Thus, everything from agri to education, health to insurance, finance to food now carries the “tech” suffix.
Linear to Exponential: With massive capital available thanks to surging liquidity, there is a land grab out there. In India, every day of 2021 has seen an average of $100 million flowing into startups and growing businesses from VCs, PEs and public market investors. This is driving a change in expectations: growth by itself is not enough, what is demanded is exponential growth.
Adtech to Martech: As we discussed earlier, acquisition at any cost will give way to retention and cross-sell. This is being driven by two factors: the changes being made by Google and Apple in their data tracking policies to give primacy to privacy – Google phasing out cookies in the near future, and Apple’s privacy framework being rolled out in its new software releases. These changes, combined with plentiful capital, is leading to an escalation of customer acquisition costs. Brands will thus need to focus on leveraging the base they have, sell more to them, and use alternate methods to generate new customers (influencers and referrals).
Broadcast to Conversations: The world of push messaging has been primarily one-way – SMS, email, push notifications. Clicks have been the call-to-action. The messaging apps and channels are getting a makeover. Innovations in push messaging platforms are now giving rise to greater interaction and more conversations, mirroring the customer demand for interactivity. SMS via telcos is giving way to SMS over IP, RCS is on the rise, Email is getting AMP, and WhatsApp is opening up to businesses. Chatbots can power the first-level of engagement for commerce and support. All of this engagement is now powered by fine-grained customer data.
Data to differentiate Experiences: The digital interactions between the brand and the customer led to the generation of massive first-party data. Storage and computing costs have fallen over the years to make it affordable to create data lakes, data warehouses and customer data platforms. This enables marketers to get a unified customer view. AI can then work its magic – and marketer and machine can together create omnichannel hyper-personalised experiences for customers, providing a second level of competitive advantage beyond the actual products.
Trends – 2
Marketplaces and Influencers: The physical world has malls, the online world has marketplaces. Both serve the same function: aggregate buyers and sellers together, making discovery and shopping easier. Marketplaces like Flipkart and Amazon make it possible for sellers to reach customers anywhere in India or even the world. Their one-stop shopping formula has made them the starting point for any and every product that consumers desire. This drives the flywheel: more buyers means more sellers which in turn attracts more buyers. The power and clout of marketplaces is also leading some sellers to consider alternative go-to-market strategies: setting up their own direct-to-consumer properties (website, apps) and leveraging the growing community of influencers on social media platforms like Instagram to reach potential buyers. Influencers with large follower bases now have the clout to drive sales of niche products as profitably as the large marketplaces.
Rise of Phygital: A new word in every seller’s lexicon is “phygital” – the marriage of physical and digital. This is happening on multiple tracks. First, D2C brands are now realising they need a Main Street presence since a majority of spending is still taking place in the non-digital world and they need the enhanced brand building that the visibility of touch-and-feel stores provides. Second, the offline brands are also going digital to ensure a reach beyond the local footprint a store provides. Third, many products are bought through intermediaries who persuade end customers. The intermediaries have the relationships and are now being digitally empowered with real-time data and guidance to become more effective in the endgame.
Even as CxOs grapple with all these changes in the competitive landscape around them, there are two additional trends which have a big impact on their actions.
Attention Recession: In a book (The Soul of the New Consumer) published two decades ago, David Lewis wrote about the three scarcities motivating the new consumer: the lack of time, attention, and trust. Of these, the lack of attention is becoming even bigger and getting compounded by the communications being sent by brands – customers are being trained to ignore brand messages. Attention is upstream of engagement, which is upstream of transactions. Without attention, there is no sales. CxOs need to worry about attention recession and need a solution.
Talent Crunch: With ever business going digital, the demand for talent has skyrocketed. Tenures at companies, especially in tech and marketing, are becoming shorter. This is happening even as martech solutions proliferate. The talent crunch will force founders and CEOs to become smarter about the way they do their business – trust machines more to do the job, and rely on agencies rather than just internal staff. The new age martech agency will be more of a “progency” (product-led agency) which will blend cutting-edge martech platforms with creative talent to deliver specific outcomes on retention and growth – just like the adtech agencies have done on acquisition.
Taken together, these trends are creating a new world for brand-customer engagement. The old is making way for the new, the traditional is giving way to the modern. The relentless forces of innovation unleashed by the Internet continue their “creative destruction” leading to new and better ways to buy and sell. Success in this coming Martech era needs new frameworks and mindsets, starting with segmenting customers into Best-Rest-Test-Next and focusing on the 4 Rs (retention, rewards, reactivation, and referrals).
Most B2C bands already do customer segmentation but it is very rudimentary. Segmentation is generally done on customer activity – number of transactions in a specified time or activity on the website or app. What brands need to do is start using customer lifetime value (CLV) as a way to segment existing customers into three buckets: Best, Rest and Test. The fourth segment is Next – for future customers.
The Best customers are the top 20% or so customers who account for 60% of revenue and over 100% of the profits. They have a very strong brand affinity and will have very good top-of-mind recall for the brand. They need much more than loyalty – they need an experience which befits royalty. It is what I think of as “Velvet Rope Marketing”.
The Rest customers are the next 50% or so. They will account for about 30% of revenue and some incremental profits. The focus with them needs to be identifying the ones who can become tomorrow’s Best customers. For each customer in this bucket, a “twin” needs to be identified in the Best category: a customer with similar characteristics who is ahead in the customer journey. The building block for this is decoding the Best Customer Genome (BCG). This way, the “next best action” can be correctly defined for every customer, incentivised by “Atomic Rewards”.
The Test customers comprise the bottom 30%. They account for 10% of revenue but cause losses for the brand after the cost of acquisition and servicing is factored in. These customers have made a purchase or two but not become regular or even infrequent buyers. They are inactive and in the red zone of churn. They have little or no attraction towards the brand. They perhaps came for a specific purpose and then went away. Brands keep trying to engage with them via push messages which they ignore. A different strategy needs to be considered. CMOs should not waste their time on these customers, and instead outsource engagement to a new class of martech specialists. It is what I call the “Red Ventures Model”.
There is a fourth segment – the Next customers. These are the future customers the brand is acquiring via the adtech spends. There is room for significant optimisation here. By leveraging the data of the Best customers, brands can improve their acquisition process, and reduce the wastage that typically happens. As most CMOs have seen, only a fraction of the leads result in activations, and most app downloaders tend to uninstall fairly quickly. This is the huge leakage that needs to be plugged. This is what drains away the profits of the business and passes them on to Google and Facebook. An excessive focus on indiscriminate acquisition just ends up making CMOs as collection agents for Big Tech!
A smart strategy for CMOs is to consider four internal teams. The two most important are the ones focused on the Best and Rest customers. The other two oversee outsourced agencies: a martech agency for Test customers, and an adtech agency for Next customers. This will mean a big shift from the current structure where the Best, Rest and Test teams are all clubbed together under “Growth” and first-party data does not flow to the adtech team (and agency) to rationalise spending. The singular goal of the two internal teams will be on the 4 Rs of Martech: retention, rewards, reactivation, and referrals.
Marketers have grown up with the 4Ps of marketing: product, price, place, and promotion. 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.
It is these relationships which will drive revenues, but not all revenues are equal. Offer me a 50% discount for ordering a pizza via the delivery app, and I will do it. The question is: what happens after the discount is withdrawn? If I don’t use the app as often, then the revenue realised was actually a transfer of cash to me! Of course, the hope is that if I do the same ordering a few times, I will form a habit and then the discounts can be weaned away. Customers are much smarter as brands who have burnt through investor money offering discounts have realised. Revenues need repeatability – almost subscription-like. Only then will they become drivers for sustainable profits.
To build relationships, drive revenues, and grow profitable customers for life in the digital data-driven world, marketers need to bring a sharp focus on the 4 Rs: retention, rewards, reactivation, and referrals. Let’s discuss each one of them.
Retention is the key, else what’s the point of acquisition. Relationships lead to retention. Existing customers need to be retained, but which ones? Does it make sense to keep giving offers to the long tail who do not become regular buyers at the right price points? This is where brands need to calculate the customer lifetime value, and then determine who are the customers that must be retained. Retention of the right customers means ensuring zero churn in the Best customer cohort.
Rewards is not a new idea. Many brands have loyalty programs. But all existing rewards programs are linked to transactions and the spending of money by the customer. What is being missed is that attention and engagement are upstream of transactions, and need an equal focus. There is no nudge, no incentive to push customers along the journey. This is where the idea of “atomic rewards” comes in – incentivise customers for their time, because their attention is upstream of every action. These rewards can help nurture good habits – opening a brand message, clicking on the link for more info, filling in a survey form, watching a product video, agreeing to a trial. Atomic rewards can help marketers get the desired customer behaviour and thus accelerate the eventual transaction. A rupee spent per customer per month on rewards can avoid the need to spend Rs 100 should the customer churn.
Reactivation is the missing link in the customer engagement chain. The reality is that customers do become inactive. They start ignoring brand messages and are as good as lost. But the brand still has a hotline to them in the form of an email address, a mobile number or a still installed app. How can this connection be used to reactivate the customer? Instead of a laundry list of offers, perhaps some interesting content can ignite interest. Instead of treating the customer as part of a big segment, a narrowcast message based on specific affinities could do the trick. Reactivation is hard, so allowing customers to become dormant should be avoided. But it is still cheaper than reacquisition which entails using Google-Facebook and spending many times more.
Referrals are near zero-cost acquisition, and so it is a big mystery why most brands don’t do it. All a brand has to do is to ask its existing customers. They speak to their family and friends, and are probably going to be very willing to spread the word. A simple question on a sign-up or first transaction form which asks “Who suggested us to you?” can help marketers quantify and accelerate the referrals process. Word-of-mouth remains the most powerful marketing weapon and its one which is missing from the arsenal of most marketers. An atomic reward for referrals can create a low-cost alternative to the Google-Facebook spending.
The 4 Rs form the bedrock of the coming Martech era and should become part of a marketer’s new vocabulary. Just as marketers learnt how to make the best use of Google and Facebook, they will need mastery over these new methods for winning in the Martech era.
Thus far we have discussed the Martech era from the lens of the marketers. To delve deeper into the next secrets, we need to switch sides and look at the view from the customer side. Marketers need to walk in the shoes of their customers.
Customer Life – 1
Unopened messages. Undifferentiated experiences. Missed moments. Stalking ads. Sucked data. Interrupting calls. Such is the life of a modern day customer.
Our inboxes are full of messages that we ignored and yet keep receiving – messages that are identical to almost everyone else, even though the brand can track every click (and non-click). Even after we have been loyal with our shopping, the brand barely knows us – we get the same treatment as a first-time or one-time buyer. Brands miss so many moments where they can delight and surprise us – a little surprise in a large order, faster delivery, human assistance instead of a frustratingly dumb chatbot, less wait time when we call their toll-free number. Brands could perhaps learn that showing the same ad for the fifteenth time will not make us more likely to buy. Data – our precious identity, the oil of the 21st century – is taken away without as much as an acknowledgment; in fact, if they had asked nicely, we would perhaps have told them so much more. And those pesky calls keep coming, DnD be damned. Being a customer means being at the receiving end.
Brands have the power within them to change their engagement with us. And yet few do. Why? One answer can be laziness – they just don’t care. Each of us is a statistic, one among millions. Who cares whether we stay or leave? There is a pipeline waiting to be acquired. A second answer can be they lack the tools to behave better with us. But we know this is not true – communications and martech platforms have advanced sufficiently. A third answer is that the various internal departments do not speak or share data with each other. So customer support doesn’t know that I am a valuable customer, or I haven’t opened the app for the past 30 days and am likely to churn. Whatever the reasons, it is inexcusable for a modern day brand to not provide wow experiences for their customers – every one of them. Because a few of them are doing it. Why cannot others copy from the best?
Imagine a different world. Messages that come to us carry incentives to get us to pay attention. Brands where we are Best customers treat us like royalty – the way an airline’s First and Business class crew does. Brands plan our journeys and surprise us with amazing recommendations – of books and movies we are delighted to watch, of gadgets and appliances we didn’t know existed but are needed, of clothes that we can “try now and pay later” because they know we have never reneged on a commitment. Ads shown to us can perhaps become smarter – just because there is investor money to burn does not necessarily mean a brand needs to always outbid others. A “Preferences” page can ask us questions directly rather than intuit from the semi-random exploratory clicks we do. A search box that works and the products we browse can also provide rich insights on what we are looking to buy next. And those calls – maybe a better understanding of which channel we like to interact on can drive a better response; every push message can now be made interactive and conversational.
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”.
Customer Life – 2
As customers, we want more personalisation, greater relevance, less spam and the occasional surprises. We also want to engage with brands across channels. We are willing to share information with brands provided we get a better experience. We also want our loyalty to be rewarded. All this is not too much to ask for given the data that brands can now collect from us – every click and swipe is getting stored away somewhere in a database.
Yet, most brands fail in creating the “wow” experience. While they do have martech platforms, the point solutions most brands use end up creating data silos, raising integration costs, preventing the single customer view, and impeding the working of AI-ML. This creates the disconnect with their customers, and instead of “delight”, they end up making customers “delete.”
Some changes in the customer interaction journey can give customers what they want.
- Brands should reward customers for their attention and engagement with micro-incentives (“atomic rewards”). These work as nudges and add a touch of gamification and excitement to the buying process. The first place where these rewards need to get used are for push messages because that is the only way for brands to get customers back to their properties (website or app).
- Brands should offer a short daily content offering via email in the form of “Ems”. This helps with brand recall – increase mental availability of the brand.
- A digital twin can help customers along the journey by showcasing the most relevant product recommendations at each stage. This makes discovery better by suggesting what is the next product they should consider.
- Brands should offer their top customers differentiated experiences – think of this as “Velvet Rope Marketing”. For this, they need to be able to identify them online and in stores. This makes the best customers feel special and wanted.
- Brands should ask customers for more information which can help improve their recommendations. While algorithms can work well, customer interests change. In most cases, the search box on Google or Amazon is the starting point for our buying journey. Brands need to change that by improving the search experience on their own properties.
- Finally, brands should recognise the influence each customer has. Influencer marketing and social commerce are new ways of discovery and persuasion. A recognition of referrals done can result in rewards which will further encourage proactive word-of-mouth spread.
Many of these ideas have been covered in some of my earlier essays.
Taken together, these ideas – all doable today – can help improve the customer experience and ensure that brands protect their turf in a world where competition is always chasing their customers and churn is just a click away. Yet, in the obsession with new customer acquisition, brands and marketers are missing the most obvious profitable growth strategy – retention and cross-sell to the customers they already have. This is the mindset switch that’s needed. After all, a bird in hand is worth two in the bush! This brings us to the next three secrets: full stack, progency, and rebudgeting.
Help for Marketers
Adtech solutions have been simplified through the years, as Google and Facebook have become the dominant duopoly. Their platforms make it very easy for marketers to spend money and track the effectiveness of that spend. The result is that ad spending has become part of “cost of goods sold” – thus enabling brands to scale up spending for new customer acquisition. Acquisition budgets have had limits slashed as each new customer’s cost and RoI can be tracked. It is possible to pay not just based on a click but for a form fill, transaction or an app install. Digital agencies have facilitated this shift to performance marketing. The efficient supply chain for new customer acquisition gobbles up 80-90% of marketing spends.
Martech is a different world. Customer retention and growth is much harder. Converting the lead to first transaction, persuading the new customer to a second purchase, and then working to create loyalty to maximise lifetime spending – all of this is very hard work. It is also messier – with many point solutions solving lots of different problems. Data gets siloed and integration costs rise. The dream of a single customer view remains distant. And by the time someone in the marketing department gets it, attrition strikes and a new replacement begins the learning journey afresh. As a result, the martech side budgets have stayed small – a fraction of the adtech spends. It is so much easier to hand over money to an agency for a new acquisition than to get into the guts of retention and cross-selling.
And yet, the future success of brands will be determined not by new customer acquisition but by scaling retention and growth. In a world gone by, all one needed was branding and distribution. But the digital world is very different and demands granular actions. Few CMOs are ready for this – because the skill sets skew more digital than creative. Luckily, help is coming.
The first generation of martech solutions were point solutions – solving very specific problems. Marketers adopted these and got some help. But this created the baggage of fragmentation of customer data and spiraling spends on connectors to glue disparate systems together for the elusive unified customer view. The next generation of martech solutions are solving these problems by creating a full stack digital experience platform – transforming the trees into a forest.
The second level of assistance for marketers will come from the emergence of a new type of agency – the “progency” (product-led agency). The progency will build on proprietary martech platforms to provide the same performance-level outcomes that marketers are familiar and comfortable with. Such an agency will have deep knowledge of the martech platforms with skillsets encompassing analytics, software, machine learning, visualisation, and story-telling. The playground for such an agency is the vast pool of data that is generated by every customer action. The progency will drive specific business objectives along the customer journey: move the customer from the first to second transaction in 30 days, cross-sell a new category, reactivate a dormant customer, drive referrals from a best customer, and so on. Each will be measurable and thus can be compensated as a percentage of the benefit accruing to the brand. This will shift spending based on messaging units (emails or SMSes sent) and platform fees (based on monthly active users) to performance – just like the world of adtech. The compact with the progency: deliver tangible upside and get rewarded.
The full stack solution and progency will be the twin foundations marketers and CEOs need for their brand – leaving them with time and money to focus on other aspects of the business to create the “profipoly”.
Communications, Engagement and Product Experience have functioned as three distinct stacks. Companies are now using build-and-buy to expand their turf. The driving factor behind this is that all the solutions offered by the three stacks are targeted at the same end customer. This is giving rise to the Digital Experience Platform (DXP).
The DXP is expected to have the following features:
Omnichannel: it should be able to work across all the channels that customers are engaging on. Customers expect continuity in their interactions across channels, and also between the offline and online worlds.
Push Messages + Conversations: The earlier world of push messages sent via SMS and email is getting replaced with the rise of 2-way interactions. Texting in the US is on the rise because it is 2-way. (In India, TRAI has unfortunately restricted SMS to just being a 1-way broadcast channel, preventing recipients from replying and engaging with brands.) New channels like SMS over IP (SoIP), RCS and WhatsApp allow for rich media and interaction. In email, there is AMP. Chatbots and the linking of these channels to a martech automation system enables the interaction to go beyond the standard request-reply mode.
Email with Primary Inboxing: Email remains the channel with the best RoI. The focus in email is shifting from just sending to ensuring delivery into the primary inbox. This is necessitating multiple innovations: using standards like BIMI, DMARC and AMP, leveraging STO (send time optimisation) and SLO (subject line optimisation) to ensure greater relevance, and new ideas that I have written about in the past – Ems, which are short, identified, sequenced emails, and Microns, which are emails with rewards. The goal is to ensure an increase in opens and clicks.
Automation and Journeys: The DXP subsumes within it the key elements of martech automation, which enables customer segmentation and the creation of customer journeys which can cut across channels and time. This no-code solution ensures that once the rules are defined, customer engagement is simplified and continuous.
Next Best Action: What marketers need for each customer in the messages they send is the ideal next best action. This is best done by creating a “digital twin” – another customer who has a similar profile and is ahead in the customer journey. The right offers packaged together in the push messages help move the customer ahead in the buying journey.
CDP: one place to store all data: All the data collected from customers (demographic, behavioural, transactional) from online and offline needs to be stored into a single repository called the customer data platform. The CDP eliminates data silos that can otherwise get created across different departments. With the CDP, it now becomes possible to run models to calculate the CLV (customer lifetime value) and decode the Best Customer Genome (BCG).
Personalisation at scale (1:1): With all the data in a single store, it now becomes possible to do hyper personalisation, where each customer’s path is mapped based on past behaviour and similarities with other customers. The website or the app can take on a new look for each customer with unique recommendations.
Nudges & Walkthroughs: To complete the onsite or in-app customer experience, what is needed is guidance in the forms of nudges and contextual walkthroughs. This helps product managers ensure that the properties they control drive the right customer behaviour and eventual outcomes.
AI: Marketer + Machine: The soul behind tomorrow’s DXP will be AI-ML. With massive data becoming available, it is simply not possible for a marketer to imagine all possible scenarios. The marketer will be aided by the machine in the quest for the ultimate objective: maximising revenues and profits from an ever-increasing customer base.
Here is what Netcore’s full stack DXP looks like:
Progency – 1
The traditional agency model needs a revamp for the coming martech era. The pre-digital agencies, built for print and TV, were driven by creative and focused on branding. The digital agencies, built for Google and Facebook, added new skill sets like analytics and campaign optimisation, and focused on new customer acquisition. The next generation of agencies will be built atop proprietary digital experience platforms and will focus on customer retention, growth and reactivation. This new agency is what I call “progency” – product-led agency. Like the adtech agencies, it will charge based on performance. This will ensure measurement and accountability – two key tenets for outsourcing core activities.
The customer journey involves multiple stages: new customer acquisition (lead generation, onboarding), retention and cross-sell to ensure growth, reactivation of dormant customers, and driving referrals. The progency is ideal for focusing first on reactivation followed by referrals, and then on using first-party data to optimise new customer acquisition.
An agency which has used a “full stack” approach to revolutionise new customer acquisition is a secretive US company, Red Ventures. New York Times called it the “biggest digital media company you’ve never heard of.” Writes NYT:
[Red Ventures] is now leading a shift in that industry toward what is sometimes called “intent-based media” — a term for specialist sites that attract people who are already looking to spend money in a particular area (travel, tech, health) and guide them to their purchases, while taking a cut.
It’s a step away from the traditional advertising business toward directly selling you stuff. Red Ventures, for instance, plans to steer readers of Healthline to doctors or drugs found on another site it recently acquired, HealthGrades, which rates and refers doctors. Red Ventures will take a healthy commission on each referral.
… [L]ow-profile media companies [like Red Ventures] are riding a shift in technology as both Apple and regulators have eroded the dominance of the creepy advertising technology that allows companies to track you across websites. That has helped push the pendulum back toward the old-fashioned idea of connecting with readers seeking information relevant to their lives, whether it’s a Field & Stream article on the latest fly rods or a Healthline guide to Crohn’s disease treatments.
As Red Ventures’ own website puts it: “We simplify online experiences through premium content, consumer marketplaces and advice, strategic partnerships, AI-driven digital marketing, and world class intelligence/analytics.” Full stack – from content to customer data to call-centre to conversion.
An old article from 2015 in VentureBeat showcased the genesis of the Red Ventures model: “An East Coast Internet provider wants to do a paid search campaign on Google to bring in new customers. Red Ventures will build its own website for that search campaign, which will appear very high in Google’s search results. It will be designed by Red Ventures developers and run by its sales team. All the links and phone numbers on this website all lead back to Red Ventures. So, the brand itself doesn’t interact with potential customers. Of course, Red Ventures’ website is built to the brand’s specifications, but the customer acquisition responsibility is placed entirely in Red Ventures hands.” Since then, Red Ventures has simplified the acquisition process by acquiring many content brands.
So, how could the Red Ventures model for customer reactivation, referrals, and new acquisition?
Progency – 2
There are many elements that need to combine together to construct a progency:
Proprietary Platform: The uniqueness in the progency comes from its complete control of the full stack digital experience platform (DXP) – just like Red Ventures controls the acquisition platform via the ownership of the content sites. The DXP combines communications, engagement and experience into a single unified software structure. The entities which build the DXP have the best understanding of the DXP and are thus best positioned to partner for the progency. Most marketers tend to use limited functionalities of the DXP they buy because of internal limitations – talent churn, understanding issues, skill sets, and being too caught up in day-to-day operations. It will be easier for a SaaS company to add creative talent, then it will be for a creative entity to learn the insides of CPaaS and martech.
Multiple Skills: The progency needs to bring people with diverse skills together under one roof. Content creation, creative Imagineering, data analytics, software development, machine learning, visualisation, and story-telling – all need to combine to deliver on the promise of the progency.
Success-based Pricing: The progency must be driven by outcomes and therefore charge on the performance it delivers. This will make it easier for the marketer to outsource and measure. This replicates how marketers work with digital media companies for customer acquisition: cost per action.
So, what are the first use cases that marketers will be willing to outsource to the progency?
Reactivation: One of the big leakages in marketing spends is when customers churn and then end up getting reacquired via the adtech platforms. My estimate is that a third of adtech budgets are being spent on reacquisition. This is because the overall profitable customer pool is finite and the fact that a customer had been acquired previously makes that same customer a target for reacquisition. The problem is with the churn – what actions can be taken prior to a customer becoming completely inactive? This is where the progency can work well – work on the “Test” customers and reactivate them by using push messaging, rewards, affinity-based content, the full stack DXP, and a touch of paid media if needed. The key point is that the progency takes complete responsibility for the dormant database and delivers activated customers at a lower price point than what reacquisition would cost.
Referrals: A similar approach can be taken to driving referrals. Most brands have missed out on the power of getting their Best customers to recommend others like them. Success with referrals brings down the overall cost of new customer acquisition. Referrals, like reactivation, is a contained activity – and does not interfere with the core retention functions of engagement and cross-sell.
New Acquisition: What has been missing in customer acquisition has been the use of first-party data from the most valuable customers. The Best Customer Genome can be used to construct the Ideal Customer Profile. This martech-to-adtech bridge can help drive better quality acquisition, leading to higher profitability down the line.
To summarise: the coming martech era needs a new type of agency to make the best use of the DXP and complement the marketer’s focus on the daily drive towards more transactions. By working at the edges for reactivation of the “lossy tail” (Test customers) and focusing on referrals and smarter new acquisition, the progency can be a very powerful partner to the marketing department in the quest for exponential forever profitable growth.
The big question is: where will the money for implementing all these new ideas come from? The answer: rebalancing the marketing budget.
Marketing budgets have been heavily skewed towards acquisition rather than retention. In India, 90% of the spends (Rs 25,000+ crore) goes to new acquisitions (80% of that going to Google and Facebook), and only a tenth of that is spent on customer retention and growth. With VC and PE inflows at $100 million a day into startups and *tech (star-tech) companies, the cost of new customer acquisition is increasing rapidly, especially since the overall pool of profitable customers in India is limited. To make matters worse, of the spends on acquisition, I believe that a third gets spent on reacquisition. So, the current spends look like this: New Acquisition 60%, Reacquisition 30%, Retention 10%. Few marketers are questioned for this lopsidedness because investors everywhere only care about growth. With easy money available in dollops, CMOs are happy funnelling incoming funds to Google and Facebook to deliver on the most important metric that everyone wants to know: growth.
This will change; it is inevitable. As liquidity dries up in the months (or years) to come, markets will demand profits. Not every CEO is Jeff Bezos, and not every company can be an Amazon – even though that may be the hope of every investor. CEOs will, very soon, be tasked with delivering profitable growth. If brands need to achieve the Holy Grail of exponential forever profitable growth, the only path to getting there is going to customer retention and growth.
This will require rebudgeting:
- New acquisition spends will need to be halved to 30% of the overall spend, and even this should be optimised to focus on acquiring more profitable customers
- Customer retention will need to come to the fore, with more talent and greater investments in technology. Retention must become an equal partner to new acquisition. The budget needs to go up from 10% to 30%.
- Of the remainder, half (20%) must be spent on atomic rewards to address the problem of attention recession. To get customers to pay attention, pay for attention. Push messages are the perfect places to begin rewarding customers since they are the only way to bring them back to the brand’s properties (website and app). These micro-incentives will help marketers drive the right behaviour among the right customers, as game developers have learnt through the years.
And the balance 20%? That is the surplus – the profits! It is what powers the future, laying the foundation of an enduring, great company rather than a company being built to sell. This is the sure shot to building a profits monopoly (“profipoly”).
We began with the objective of driving exponential forever profitable growth. The word “profitable” is important; without profits, the dependency deepens on an infinite pool of investor capital. While the times are good today, they will not last forever. Smart CEOs and CMOs need to start the groundwork today to lay the foundation for the coming Martech era and creating built to last profitable businesses which also can drive exponential and forever 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. A mobile phone bought from Flipkart is a mobile phone that will not be bought from Amazon.
In a world obsessed about growth, it may seem heresy to talk about profits. Maybe I am a bit old-fashioned, but I believe that a business needs to craft a path to profitability. In today’s world of cheap and seemingly infinite capital, profits in consumer tech (and enterprise tech) are not discussed in boardrooms. The only question is: what will it take for you to grow faster? The answer to that question can lead to habits and business practises which are not easily reversible when the tide turns. I had learnt this the hard way when I chased valuation rather than profitability many years ago. I strongly believe that the best businesses which endure and become great are the ones that can combine growth and profits. What the new world of digital is also enabling is faster growth (exponential, rather than linear) and ensuring that growth can last (become forever) with ensuring great experiences powered by data.
By using the secrets outlined here (smart segmentation, 4 Rs, full stack, progency and rebudgeting), brands can drive up the profitability in their business by ensuring the Best customers stay forever, the Rest customers are moved along the customer journey to become tomorrow’s Best, the Test customers are reactivated instead of being reacquired, and the Next customers come from referrals and a higher profitability pool of customers.
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.