The Profipoly Quest

Published February 23-March 7, 2024

Change is Coming

Change is on the horizon for marketing. The rise of digital in the past two decades led to the rapid growth of companies like Google and Meta (formerly, Facebook) and created trillions of dollars in wealth for their shareholders on the back of advertising spending which is now close to $500 billion annually. As I have written in previous essays, half of that spend is wasted on wrong acquisition and reacquisition. This spending costs digital businesses heavily because it reduces their profitability. The belief until now has been that they have little or no choice: their past, present and future customers are online, and they need to go to where their attention is. Breakthroughs in tech and thinking can become the harbingers of change and transform profitability for digital businesses plagued by high CAC (customer acquisition costs) and low CLV (customer lifetime value). The profitless age in digital will give way to the profipoly (profits monopoly) era, where businesses for the first time can dream of exponential forever profitable growth. To bring this new world to life, businesses and marketers will have to change.

For the past two decades, the primary focus has been on new customer acquisition. Digital advertising made it very easy. With cost per click (CPC), all marketers had to do was to set a budget and the ad platforms would deliver the appropriate volume of traffic to their websites and apps. This was tangible and measurable – much more so than spending for “eyeballs” in print, TV, radio or outdoor. Auctions made the whole process competitive and ensured FOMO (fear of missing out). For a long time, easy availability of investor money fuelled this rise in unit costs and aggregate spending. Marketing’s job was easy: get a budget from the CEO, find an agency partner, spend for clicks, and show rapid sales growth. Everyone else was doing it so this had to be the only way. Businesses paid the price for this “growth-at-all-costs” mindset through their profits, but making money was not the KPI for marketing departments. Besides, what was the alternative?

The reality is that optimising CAC (customer acquisition cost) is a relatively straightforward task compared to maximising CLV (customer lifetime value). A staggering 80-90% of digital marketing budgets are channelled towards customer acquisition, with limited options for optimisation due to the competitive nature of auction-based advertising. In contrast, enhancing CLV demands hard work — gathering data, segmenting audiences, crafting customer journeys, and executing targeted campaigns. While CPC strategies yield immediate revenue, CRM and customer retention strategies are long-term investments. In a business landscape where short-term results are often prioritised, the preference for immediate gains over long-term value is understandable. This skewed focus towards new customer acquisition often comes at the expense of existing customer experience, as humorously reflected in a popular adapted meme that highlights the current state of marketing.

There is finally a silver lining. New ideas and innovations are emerging, offering businesses an opportunity to shift their focus. This new paradigm can help a digital business move not just from being profitless to profitable, but also lay the foundation for building a profipoly. In this series, I will illustrate how businesses can embark on this transformative journey, akin to an Indiana Jones-esque quest for sustained profits.

Quests

There is something fascinating about a “quest”. Defined as “a long and arduous search for something that is hard to find”, the quest is what has captured the imagination of people and changed the course of human events. These quests range from exploratory and scientific endeavors to spiritual and mythical pursuits. Wikipedia writes: “A quest is a journey toward a specific mission or a goal. It serves as a plot device in mythology and fiction: a difficult journey towards a goal, often symbolic or allegorical. Tales of quests figure prominently in the folklore of every nation and ethnic culture. In literature, the object of a quest requires great exertion on the part of the hero, who must overcome many obstacles, typically including much travel. The aspect of travel allows the storyteller to showcase exotic locations and cultures (an objective of the narrative, not of the character). The object of a quest may also have supernatural properties, often leading the protagonist into other worlds and dimensions. The moral of a quest tale often centers on the changed character of the hero.”

I asked ChatGPT and Claude to list out some famous quests through history.

Alexander the Great’s Quest for Global Conquest: Alexander the Great embarked on a quest to conquer the known world, extending his empire from Greece to Egypt and into Asia, profoundly influencing the cultural and political landscape of the ancient world.
Marco Polo’s Journey to the East: The Venetian merchant Marco Polo’s quest to Asia in the 13th century opened up the East to Europe. His travels, documented in “The Travels of Marco Polo,” were among the earliest European accounts of the cultures and customs of Asia.
Columbus’ Voyage to the New World: Christopher Columbus’ quest to find a westward route to Asia led to the accidental discovery of the Americas in 1492, drastically altering global trade and geopolitics.
Magellan’s Circumnavigation of the Earth: Ferdinand Magellan’s expedition (1519-1522), although he did not survive the entire journey, was the first to circumnavigate the globe, proving that the Earth is round and much larger than previously thought.
Darwin’s Voyage on the HMS Beagle: Charles Darwin’s journey on the HMS Beagle (1831-1836) was pivotal in the development of the theory of evolution. His observations, particularly in the Galápagos Islands, led to groundbreaking insights on natural selection.
Race to the South Pole: The early 20th-century race to reach the South Pole was a dramatic quest for exploration. Norwegian explorer Roald Amundsen and British explorer Robert Falcon Scott led competing expeditions, with Amundsen reaching the pole first in December 1911.
Edmund Hillary and Tenzing Norgay’s Ascent of Mount Everest (1953): This was the first confirmed ascent of the world’s highest peak. Their successful climb marked a significant achievement in mountaineering and exploration.
The Apollo Moon Landing: The quest to land a human on the moon was a part of the space race during the Cold War. The successful Apollo 11 mission in 1969, which saw Neil Armstrong and Buzz Aldrin walk on the moon, was a monumental achievement in human exploration.
Deep Sea Challenge by Jacques Piccard and Don Walsh (1960): Jacques Piccard and Don Walsh piloted the bathyscaphe Trieste to the deepest known part of the world’s oceans, the Mariana Trench, setting a record for the deepest dive that stood for decades.
Human Genome Project: An extensive scientific endeavour to map all the genes of the human genome. Completed in 2003, it has vastly increased our understanding of genetics and paved the way for advances in medicine and biotechnology.
Hubble Space Telescope Launch (1990): Since its launch, the Hubble Space Telescope has provided some of the most detailed images of distant galaxies, contributing immensely to our understanding of the universe, including the rate of its expansion.
CRISPR-Cas9 Genome Editing Revolution: The development and application of CRISPR-Cas9 for genome editing have revolutionised the fields of genetics and biotechnology, with vast potential implications for medicine, agriculture, and biology.

The last few years have been defined by two successful quests: mRNA vaccines for Covid and Generative AI. The swift creation and deployment of mRNA vaccines against Covid-19 revolutionised vaccine development, drastically reducing timelines and demonstrating high efficacy. The pursuit of Generative AI focuses on developing advanced algorithms that can create content, from text to images, mimicking human creativity. This quest offers vast potential for innovation across various industries.

We too have our own quests. In my journey, each decade has been marked by its own quest. In the 1990s, it was about achieving my first success as an entrepreneur. The 2000s were about trying to apply technology for good at a mass-level in India; I failed in all these efforts. The 2010s were dedicated to trying to alter India’s growth trajectory and championing the classical liberalism principles — individual freedom, limited government, property rights, rule of law, and free trade. While political change was achieved, the realisation of mass flourishing remains a distant goal. In the 2020s, my focus has shifted to digital marketing. The quest for profitable growth for digital businesses might seem small and insignificant, but as I will explain, it is one which impacts each one of us and has far-reaching consequences.

Profi-quest

At first glance, the quest for sustainable profitable growth in digital businesses may seem like a specialised pursuit – primarily of interest to entrepreneurs, CEOs, and marketers. However, the implications of this quest extend far beyond boardrooms and balance sheets, profoundly impacting society in several pivotal ways.

Much like history’s seminal expeditions, overcoming profitability roadblocks for digital commerce carries sweeping ripple effects across industries. When Columbus stumbled upon the Americas seeking a new trade route to India, he didn’t just change the course of exploration but also initiated a global shift in trade and culture. Similarly, attaining profitability in digital businesses is not just about financial gains; it drives technological innovations that can redefine our lifestyle and work. As digital companies invest in R&D to boost efficiencies and reduce waste, they pioneer advances that revolutionize how we live, work, and communicate. Efforts to reduce the waste in digital advertising and eliminate friction points in customer journeys can lead to more personalised and efficient experiences, giving end customers more value for their money.

In today’s world, digital profits have become highly concentrated in a few tech companies. This concentration highlights a disparity: the ad sellers make money, the arms sellers (cloud vendors) generate profits, and the access sellers (marketplaces) also benefit. But the actual sellers are often left with the crumbs and mostly losses.

Although the Profipoly quest appears focused on marketing metrics, its implications span well beyond. Just as the voyages of Magellan or the Apollo Moon missions were about more than just exploration, finding solutions to expand digital commerce profitability is about more than just business success. It carries society-wide significance. Unlocking sustainable growth for the “makers” can inspire worldwide progress across sectors.

A few additional points help put this in context:

Like explorers venturing into the unknown, the Profipoly quest represents marketing’s ambitious journey – aiming for exponential profit goals that, while challenging, promise transformative rewards.
The interplay between CAC and CLV, long a complex puzzle in the business world, is akin to an elusive treasure. Positioning Profipoly as the key to this mystery adds an element of intrigue and challenge.
Aligning Profipoly with the universal aspiration for sustainable, profitable growth elevates it from a marketing objective to a fundamental business goal, akin to a holy grail sought across industries.
The pursuit of outsized profitable growth parallels the timeless human adventures for discovery and achievement, underscoring the enduring nature of this quest.

While not life-risking such as climbing Everest, the Profipoly quest is profound in its purpose of solving an elemental business need. This journey, while not fraught with physical dangers, involves navigating the complex and ever-evolving landscape of digital marketing and business strategy. With the right storytelling and messaging, I certainly believe it can be credibly framed as a legendary adventure for the ages! The key is connecting viscerally to those layers of human meaning and mythology. The time for bold action is now – for marketing trailblazers to forge a path towards prosperity. The rewards promise to be monumental. So, let us embark on a modern odyssey in the digital age. Let the Profipoly quest commence!

CAC and CLV

I was recently meeting with the CEO of a large eCommerce company in India. I began the meeting by asking him what the top business challenges were. The answer: CAC and CLV. He explained, “Our acquisition costs through Google and Meta are rising rapidly. And our CLV growth remains a challenge. This is squeezing profitability. How can you help us bring down CAC and improve CLV?” This is the core challenge for every digital business: reducing acquisition costs and increasing lifetime value.

CAC and CLV are two crucial metrics used by B2C (Business-to-Consumer) and D2C (Direct-to-Consumer) companies to measure and optimise their marketing and sales strategies.

Customer Acquisition Cost (CAC): This is the total cost of acquiring a new customer. It includes all marketing and sales expenses over a specific period, divided by the number of new customers acquired in that period. For B2C/D2C companies, this might include the costs of digital advertising, promotions, and the salaries of marketing and sales teams. A lower CAC means the company is acquiring customers more efficiently, which is desirable for profitability. Linked to CAC is ROAS (Return on Ad Spend), which helps measure the effectiveness of advertising expenditures in relation to the revenue generated from these efforts.
Customer Lifetime Value (CLV): This metric estimates the total revenue a business can expect from a single customer throughout their relationship with the company. It considers factors like average purchase value, purchase frequency, and customer retention rate. For B2C/D2C companies, a higher CLV suggests that customers are more valuable over time, indicating successful customer retention and upselling strategies.

In essence, while CAC focuses on the cost of attracting customers, CLV is about the value they bring over their lifetime. The relationship between these two metrics is critical; ideally, CLV should be significantly higher than CAC for a business to be sustainable and profitable. This balance is essential for B2C/D2C companies to grow effectively and ensure long-term success.

This challenge in digital marketing is similar to an investor’s strategy in the stock market: the goal is to ‘buy low and sell high.’ In this context, acquiring customers is akin to buying stocks. The initial investment (CAC) is made in the hope that the asset (the customer) will yield a return over time (CLV). However, just as in the stock market, the critical factor is not just the purchase but the eventual sale, or in marketing terms, the retention and nurturing of the customer.

If the retention efforts are inadequate, it’s like a stock’s value plummeting below its purchase price, resulting in losses. For many digital businesses, this mismatch – investing heavily in acquisition without a proportional return from the customers – leads to financial shortfall. It’s as if the ‘selling price’ (revenue generated from the customer) fails to surpass the ‘buying price’ (the cost of acquiring the customer), causing a net loss. To avoid this, businesses must not only focus on acquiring customers efficiently but also ensure that the lifetime value of these customers exceeds the acquisition cost, mirroring a successful investment strategy where the sale price exceeds the purchase cost, securing profits.

Hi CAC, Low CLV

The problem B2C/D2C businesses face is that the rising cost of acquisition is sucking away more and more of the marketing budget, leaving very little for retention. From my conversations with marketers, about 80% or more is spent on new customer acquisition, with the rest split between digital branding and campaigns for retention. Since most digital acquisition is being done via a competitive bidding mechanism on adtech platforms, the room for optimisation is limited. Acquisition is also typically outsourced to agencies and paid for on a cost per click (CPC) or cost per action (CPA) basis. All of this makes it easy and measurable, and therefore prone to overspending.

I was meeting with a marketer recently who spends tens of millions of dollars a year on digital ad platforms. I said, “You have been in business 7 years. Almost every valuable paying customer out there knows your brand. And yet you keep paying for new customers. Are these really “good customers”? How many of them are “wrong acquisition” – clicks which never result in a conversion? How many of them are “reacquisition” – customers who churned who are now being retargeted? My estimate is that at least half of the spend is wasted across these two categories.” The marketer admitted that they don’t track these two metrics. “We are so focused on growth and the easiest way to deliver growth is via a continuous pipeline of new customers.”

Working with existing customers to maximise their lifetime value by increasing AOV (average order value) and purchase frequency is hard work. It needs investing in martech platforms, training internal teams on these tools and then doing segmentation, journey creation, campaigns across multiple channels, analysing the results from campaigns, and fine-tuning messaging. This is so much more complex than just paying for clicks. Or giving discounts for purchases. Little wonder than that digital businesses are plagued with the CAC-CLV mismatch.

Marketers also have very little wiggle room. The martech vendors do not work on performance: they want their MRR (monthly recurring revenue) based on MAU (monthly active users). New features keep getting added and prices keep rising, even though the actual utilisation of the platforms is low. The teams working on the martech side of the business see the excitement and money on the adtech side and are eager to move there. Engagement channels have also not evolved much through the years – except for RCS and WhatsApp, both of which are more effective at the bottom of the funnel because of their high pricing. Email, the best-performing channel in Western markets, has seen open and click rates fall. Push notifications delivery rates are declining because of a change in default opt-in to opt-out. Marketers thus have very few levers to bring customers back to their properties, and even after getting them there, the funnel frictions are many.

As a result, marketers find themselves trapped between the business objective of rapid growth and the reality of attention recession and funnel frictions with existing customers. The only logical solution: open the spigot even wider for new acquisitions. Result: a vicious cycle of higher CAC, lower CLV, and elusive profits. (But marketers worry only about growth, not profits.)

Point Counterpoint

I put forth my arguments about CAC and CLV to ChatGPT and Claude, and asked both the same two questions: What are 2-3 points which can strengthen my argument? What are 2-3 points which can counter what I have written? This way, we get a more complete picture.

ChatGPT

To further strengthen your argument regarding the challenges B2C/D2C businesses face with high Customer Acquisition Cost (CAC) and low Customer Lifetime Value (CLV), consider adding the following points:

The Impact of Market Saturation: In many digital markets, saturation is becoming increasingly prevalent. As more businesses enter the digital space, competition intensifies, driving up the cost of customer acquisition. The heightened competition also means customers have more options, which can lead to lower brand loyalty and CLV. Highlighting market saturation can underscore why acquisition costs are rising and customer loyalty is diminishing.
Short-Term vs. Long-Term Strategy Misalignment: Often, there is a strategic disconnect between short-term growth objectives and long-term customer value maximization. Many digital businesses prioritize immediate growth, measured in terms of new customer acquisition, over the long-term value of customer retention and relationship building. This short-term focus can lead to a cycle of high acquisition costs and low lifetime value, as investments in customer relationships and retention are deprioritized.
Underinvestment in Customer Experience and Service: Another critical factor contributing to low CLV is the underinvestment in customer experience and service. After the initial acquisition, if the customer experience is poor or if there is a lack of effective customer service and support, customer satisfaction and loyalty decrease. Enhancing the customer experience throughout their journey is crucial for increasing CLV but is often neglected in favor of acquisition-focused strategies.

To provide a balanced view, it’s important to consider potential counterarguments to the challenges of high CAC and low CLV in B2C/D2C businesses. Here are a few:

The Value of Customer Acquisition in Emerging Markets: In rapidly growing or emerging markets, a strong focus on customer acquisition can be justifiable. In these scenarios, capturing market share quickly can be crucial for long-term success. High CAC may be seen as an investment in establishing a strong market presence, which could lead to higher CLV in the future as the market matures.
Technological Advancements in Targeting and Personalization: Advances in data analytics and AI have significantly improved the ability of businesses to target potential customers more accurately, potentially reducing wasteful spending. Enhanced targeting and personalization can lead to more efficient customer acquisition strategies, making high CAC more justifiable and effective.
The Evolving Nature of Customer Loyalty: Some might argue that the traditional concept of customer loyalty is evolving, especially among younger demographics. With the abundance of choices and the ease of switching between brands, the focus on continuous acquisition might be a response to changing consumer behaviors. In this context, investing in acquisition could be more aligned with current market realities than efforts to increase CLV through traditional retention strategies.

Claude

Here are some additional arguments to bolster your stance:

Personalization and loyalty efforts require deep customer intimacy and trust to execute effectively. But most brands over-index on reaching transactional sales targets rather than nurturing emotional connections. Short-term revenue myopia overrides long-term CLV thinking.
Platform accountability around measurement, viewability and compliance remains a massive blindspot. Fraud, bots and other sources of waste don’t surface clearly to marketers in dashboard metrics. So excessive CAC appears artificially “efficient”.
Innovation across engagement channels has indeed stagnated compared to advertising. RCS and messaging can’t offset declining email open rates. Push fatigue is real. Without richer omnichannel experiences, CLV can’t keep pace with CAC.

Here are some potential counterarguments to address:

Targeting and segmentation capabilities on advertising platforms allow brands to fine-tune messages to high-value customer cohorts. This powers greater campaign efficiency over time.
Multi-touch attribution, while still evolving, should provide more clarity on waste drivers across channels, supporting better resource allocation decisions.
Regulations around data privacy and transparency will compel platforms to double down on quality, safety and performance. Market forces should curb excessive CAC eventually.

To Lo CAC and Hi CLV

The good news for marketers and B2C/D2C brands is that changes are coming in the form of new ideas and innovations. These changes offer the promise of converting the vicious cycle of increasing CAC and decreasing CLV into lower CAC and higher CLV, thus enabling the transformation from profitless (no profits or less profits) to becoming profitable and then powering ahead to becoming a profipoly. The next marketing revolution, centred about profitable growth, is coming!

Before I get to my thinking, I decided to ask ChatGPT and Claude. Here are the responses.

ChatGPT

Customer Acquisition and Targeting:

Enhanced Targeting and Segmentation: Utilize data analytics for precise targeting.
Content Marketing: Develop valuable content to attract customers.
Social Media Engagement: Engage customers on social platforms.
SEO and Organic Traffic: Invest in SEO for higher organic reach.
Retargeting Campaigns: Re-engage visitors who didn’t convert.
Influencer Partnerships: Collaborate with influencers to increase visibility.
Performance Marketing: Focus on measurable marketing channels.
Local Marketing Strategies: Leverage local SEO and community involvement.

Customer Retention and Loyalty:

Email Marketing: Use targeted email campaigns for engagement.
Customer Loyalty Programs: Reward repeat purchases.
Community Building: Foster a sense of belonging around the brand.
Customer Feedback and Continuous Improvement: Act on customer feedback.
Subscription Models: Introduce subscription services.
User-Generated Content: Encourage content creation by customers.
Customer Education and Workshops: Offer educational content related to products.

Sales Optimization and Conversion:

Optimized Sales Funnels: Streamline the customer journey.
Cross-Selling and Upselling: Increase the value of purchases.
Mobile Optimization: Ensure platforms are mobile-friendly.
AI and Automation: Implement AI for personalized recommendations and efficiency.

Strategic Partnerships and Brand Building:

Referral Programs: Implement programs for word-of-mouth marketing.
Collaborations and Partnerships: Partner with other brands for broader reach.

Testing and Adaptation:

Test and Learn Approach: Experiment and analyze for continuous improvement.

Claude

Lowering CAC

Measurement hygiene – rigorous tracking to identify bad bots, poor viewability placements etc. contributing to waste
Testing and left – focus ad budget on re-engaging churned high-value customers
Next-in-line targeting – identify potential high-value prospects similar to existing customers for tighter focus
Multi-touch attribution – properly attribute value of each channel and reallocate budgets accordingly
Contextual ads – ads that blend organically into relevant content environments work better than interruptive formats
Creative testing – Systematically test ad copy, visual assets for optimal engagement before scaling
Diversified mix – Expand channels like OOH, audio, native content beyond just the big digital platforms
In-housing expertise – Reduce agency layer costs and get closer to customer data

Increasing CLV

Email journeys – Map out lifecycle, behavioral, and event based campaigns in sophisticated ways
Omnichannel orchestration – Unified messaging and experiences across channels and devices
Customer intelligence – Layer transactional data with demographic, media data for richer profiles
Churn prediction – Identify at-risk customers based on predictive analytics to enable targeted retention
Referral programs – Turn highly satisfied existing customers into brand advocates and evangelists
Loyalty programs – Elevate beyond discount programs into emotional connections with privileged access etc.
Waste-free funnels – Identify and fix broken journeys, payment failures, confusing UX that create friction
Subscriptions – Offer flexible automated delivery models that drive higher consistency in order values
Clienteling teams – High-touch VIP servicing approaches to make top customers feel uniquely valued
In-platform marketing – Communicate directly with customers natively via marketplaces, social channels etc.

Good ideas all, but none will move the needle the way we want. For that we need to think breakthroughs, rather than BAU (business as usual).

My ideas

Since I have written extensively on new ideas in marketing over the past four years, I decided to ask ChatGPT to list my ideas based on a query to my custom GPT. Here is what I got.

Customer Acquisition and Segmentation:

BCG-Influenced Acquisition: Targeting new customers similar to the brand’s best customers for efficient acquisition.
Near-Zero CAC for New Customers: Leveraging customer referrals and Best Customer Genome-guided tactics for cost-effective new customer acquisition.
Optimising Customer Segmentation: Utilizing the BRTLNG framework for more targeted customer engagement strategies.

Customer Retention and Engagement:

Reactivating Dormant Customers: Engaging inactive customers through owned channels like email, rather than costly adtech retargeting.
Micro-Incentives and Referrals: Enhancing customer engagement and referrals through micro-incentives and engaging footers.
Email 2.0 for Improved Engagement: Using Email 2.0 to create a more dynamic and interactive communication channel.

Profitability and Performance Enhancement:

Netcore Progency as a Catalyst: Implementing performance-based models to drive profitability margins.
Martech 2.0 Strategy: Focusing on increasing sales from existing customers while reducing marketing costs.
Performance-Based Profit Uplift: Sharing gains with martech partners for a substantial increase in profit margins.

Technological and Innovative Solutions:

iDarpan for Customer Experience: Utilizing advanced concepts like digital twins to enhance customer experiences.
Consumer Intelligence Tools: Investing in advanced analytics tools for deeper insights into consumer behavior.
Integration of Martech and CPaaS Channels: Combining martech products with CPaaS channels for seamless customer engagement.

Strategic Marketing and Business Model Innovation:

Profipoly (Profit Monopoly) Strategy: Focusing on profitable growth strategies to create a profits monopoly.
Martech Platform Optimization: Transforming traditional marketing approaches to focus on long-term profitability partnerships.

[Rajesh] A few ideas have been missed (eg. Velvet Rope Marketing, Inbox Commerce), but overall, it is a good start. These slides offer a good perspective of my thinking.

My essays elaborate on the ideas mentioned.

Let us work towards structuring these ideas in a more marketer-friendly manner.

Marketing Mistakes

There are four mistakes marketing departments have made which have impacted profitability for their businesses.

First, they have treated CAC and CLV as two isolated problems by creating separate siloed teams: one for acquisition, and another for retention (which may also be called CRM or loyalty). As we have discussed, the bulk of the digital marketing spend happens on new customers. The change that is needed is for retention to get prioritised and budgets to be more balanced. For businesses which have been around for a few years, the odds are that their outreach has covered a large portion of their target base. So, the new acquisitions being done would very likely have been customers in the past, meaning that acquisition is the result of a failed retention strategy.

Second, marketers have always thought of the promotional communications they are sending as “content”. The reality is that what their push messages via email, SMS, notifications, WhatsApp and RCS are actually “ads”. None of us like to view ads, hence there is always a content wrapper around ads. The push messages sent lack this content packaging. Little surprise then that most messages are ignored, limiting the ability of marketers to build hotlines to their existing customers.

Third, marketers have created islands of data of their existing customers rather than a unified customer view. In fact, they still know very little about their existing customers. A bank keeps sending me loan offers after having me as a customer for more than a decade despite me never having clicked on a loan offer. A food delivery service pushes great deals for food I have never ordered in the past many years. The list goes on. Perhaps some targeting journeys were set up years ago and no one has bothered to update them!

Fourth, marketers have made a fundamental error by not thinking profitability. Almost every marketers I have spoken to has said that their priority is growth. Marketers have not thought “business” – perhaps that is why few marketers become CEOs. From a recent story in Raconteur: “The companies on the FTSE 100 are an eclectic bunch. There are household names such as Tesco, Barclays and BT, alongside less well-known brands including chemicals firm Croda International and mining company Fresnillo. But if there’s one thing they have in common it’s that none of the people who lead these businesses used to head up the marketing function. A dive into the data on the backgrounds of these CEOs finds that, before taking on the top job, 32% were divisional directors, 14% CEOs and 12% COOs or CFOs. None were a CMO before and only two…have spent any time in the marketing department.”

To embark on a sustained profitability journey, marketers (and CEOs) need to consider integrating marketing teams and balance spending between acquisition and retention, enveloping promotional messages in engaging content to build effective communication channels, creating a unified view of customers, and prioritising profitability alongside growth. The good news is that there are many exciting new ideas and innovations which can enable them to change the status quo on CAC and CLV.

Email 2.0

Email is the oldest digital marketing channel. It is still the largest revenue contributor for many digital businesses, especially in Western markets. There has been very little innovation in email – with the changes mostly coming from Gmail on how it deals with incoming spam to ensure a cleaner inbox for consumers. There have also been some interesting new additions for marketers: AMP for interactive emails, BIMI, and Gmail annotations are a couple examples. What’s most exciting is what’s to come.

As I think about email’s future, my starting point is how to ensure that no email is ignored. Today, less than 10% of marketing mails are opened and only a small fraction of these are acted on. The only option available today after opening an email is a clickthrough to a landing page on a website or an app. This is the world of what I call Email 1.0.

Email 2.0 will transform engagement, conversion, and retention by enabling businesses to build hotlines with their customers. It will be powered by what I call the 4As: AMP, Atomic Rewards, AI, and Ads. Every email will come with a content wrapper: an incentive in the Subject and exciting content in the Footer to create an envelope which persuades consumers to open their emails. As I wrote earlier, what marketers are sending is an “ad”. Hence there is a need for something interesting to attract attention. The combination of AMP to ensure all the actions can be done inside the email itself and Atomic Rewards for gamification can work wonders for email open rates. [I discussed this in Solving the Email Open Problem. AI can help with content creation – both for the Body and the Footer. I have discussed ideas for the Footer in Dynamic Engaging Footers: Email 2.0’s Silver Bullet.

Another interesting idea is to have what I call “Action Ads” in email footers. These are AMP ads where the landing page is in the email itself, and thus no clickthrough is needed. These are ads unlike what we see today. They are built around 4 Ps: PII, push (messages), in-place actions, and payments (which can be done within the email). Ads in email could perhaps even make emails free. Both of these ideas are discussed in Reimagining Email Ads and Can B2C Email Become Free?

Think of Email 2.0 as a new channel for brand-customer engagement. Emerging markets have seen the emergence of WhatsApp. But one big limitation of WhatsApp is its price point; it costs 100-500 times the cost of an email. A marketer I spoke to recently told me, “Email is dead. We are shifting all our communications to WhatsApp.” I asked, “How many customers do you have?” She answered, “30 million.” I replied, “Can you afford to send a marketing message to all 30 million daily on WhatsApp?” Her silence was the answer. I explained, “WhatsApp is very good for bottom of funnel conversion. But it cannot replace email for mass promotional marketing. I know email response rates are low, but what if a new channel can come which combines WhatsApp’s effectiveness and email’s pricing? Or even better, for free.” Her face lit up and her question was, “When?”

Email 2.0 is coming. It can transform the EnCoRe (Engagement, Conversion, Retention) funnel. This will be the first pillar for the profipoly journey.

Progency

The second big idea after Email 2.0 is Progency (product-led agency). I have written multiple essays in the past few months about Progency:

I asked my custom GPT based on my marketing writings to summarise how Progency can play a pivotal role in the Profipoly journey.

[ChatGPT]

At its core, Progency involves leveraging cutting-edge technology and deep domain expertise to deliver tailored solutions that enhance customer engagement and drive business growth. The transition from traditional marketing approaches to a more integrated, product-centric strategy is essential in navigating the competitive and ever-changing digital marketplace.

Enhancing Customer Engagement and Experience: The Profipoly journey is underpinned by a relentless focus on customer engagement and experience. Progency, with its blend of innovative products and marketing acumen, is ideally positioned to craft personalized customer journeys. By utilizing advanced analytics, AI, and machine learning, Progency can unlock deep customer insights, enabling brands to deliver highly targeted, contextually relevant interactions. This heightened level of engagement fosters customer loyalty, drives repeat business, and elevates customer lifetime value (CLV), key metrics in achieving a Profipoly.

Driving Efficiency and Reducing AdWaste: In the pursuit of Profipoly, efficiency in marketing spend and reducing AdWaste are critical. Progency, through its tech-enabled solutions, streamlines marketing efforts, ensuring that resources are allocated to the most effective channels and strategies. By minimizing reliance on costly and often inefficient adtech platforms, Progency helps brands achieve more with less, reducing customer acquisition costs (CAC) while maximizing return on investment (ROI).

Innovative Products as Growth Levers: Progency’s role extends beyond marketing. Its product-led focus means that innovation is at the forefront. Products designed with market needs and customer preferences in mind are more likely to succeed. Progency’s expertise in market analysis, combined with agile product development, ensures that brands can quickly adapt to market trends and customer demands, keeping them ahead of the competition.

Building a Sustainable Competitive Advantage: The ultimate goal of the Profipoly journey is to build a sustainable competitive advantage. Progency contributes to this by fostering a culture of continuous innovation and adaptation. By staying ahead of technological advancements and market trends, Progency ensures that brands remain relevant and competitive. This forward-thinking approach is crucial in building a Profipoly, where businesses not only lead in their respective industries but also set the standards for innovation and customer experience.

In conclusion, Progency plays an indispensable role in the Profipoly journey. By enhancing customer engagement, driving marketing efficiency, leveraging innovative products, and building a sustainable competitive advantage, Progency lays the foundation for businesses to achieve exponential growth and profitability. In an era where digital transformation is paramount, Progency’s blend of product innovation and marketing expertise is not just advantageous but essential for any brand aspiring to reach the zenith of a Profipoly.

[Rajesh] By pricing based on performance, Progency becomes a partner for the business. Unlike services-led agencies, Progency builds on the product foundation to deliver outcomes which can go beyond what internal marketing team or external agencies can do. Progency this is the second new and important pillar in the Profipoly journey.

More Ideas and Innovations

Email 2.0 and Progency are the two new and transformative ideas for digital businesses to guide them in their Profipoly journey. There are some additional ideas and innovations which can be very helpful.

BRTLNG framework: BRTLNG stands for Best, Rest, Test, Left, Next, and Guest customers. This segmentation framework is pivotal in understanding and strategising customer interactions. ‘Best’ refers to a brand’s most valuable customers who contribute significantly to revenue. ‘Rest’ denotes reliable customers who aren’t as high-spending as the Best but are still important. ‘Test’ represents customers who have become inactive. ‘Left’ are customers who’ve churned, requiring reactivation strategies. ‘Next’ customers are future prospects who arelikely to be acquired via adtech platforms, and ‘Guest’ are anonymous/unidentified users. Each segment demands distinct marketing strategies to optimise engagement and value extraction.

Marketing’s Power Law and Velvet Rope Marketing: Marketing’s Power Law acknowledges that a small fraction of customers often contributes disproportionately to profits. Velvet Rope Marketing is a strategy that aligns with this law. It involves creating exclusive, high-value experiences for the top-tier customers (‘Best’ in the BRTLNG framework). By offering them personalised services and privileges, a business can not only retain these crucial customers but also motivate others to aspire to this status, effectively driving engagement and loyalty across all segments.

AdWaste and EnCoRe Triad: AdWaste tracking is a critical aspect of the marketing philosophy, focusing on minimising inefficiencies and maximising ROI. Two questions to answer: What percentage of acquired prospects never interact / return? What percentage of acquired prospects were customers once? Together, they help track Marketing AdWaste. The EnCoRe Triad — Engagement, Conversion, and Retention — is tracks existing customers through the funnel. Frictions at each stage work as barriers for revenue generation. Together, AdWaste and EnCoRe impact CAC and CLV, respectively.

Unichannel and Unistack: Unichannel refers to the integration of various channels to deliver a seamless customer experience, ensuring consistent communication and branding across all touchpoints. Unistack is an integrated stack that ensures an integrated customer view, and aggregation of all data so AI engines can work their magic. It combines search, product discovery, journey orchestration, and personalisation.

Inbox Commerce: This is a method of integrating e-commerce capabilities directly into emails and WhatsApp messages to drive in-channel conversion. This approach transforms push messages into a direct sales avenue, offering customers the convenience of completing transactions within their inbox. By embedding product recommendations, shopping carts, and payment functionalities in emails, businesses can provide a seamless shopping experience, opening new avenues for customer engagement and revenue generation.

Digital Twins: This involves creating an accurate digital representation of every customer from various interactions and touchpoints. This allows for precise analysis and prediction of customer behaviours and next best actions.

Earned Growth: This metric focuses on organic expansion driven by customer loyalty and advocacy. It is growth achieved through word-of-mouth and customer referrals, as opposed to paid marketing efforts. This concept underlines the importance of creating exceptional customer experiences that lead to organic brand promotion by satisfied customers. Earned Growth is a testament to a brand’s ability to cultivate a loyal customer base that actively contributes to its growth through advocacy and recommendations.

Taken together, these ideas have the power to transform marketing outcomes.

Action

To restate the problem: digital businesses are faced with the twin challenges of high CAC and low CLV. What they need for sustained profitability is exactly the opposite. How can they make it happen?

I have discussed several ideas and innovations which can help digital businesses in their Profipoly quest: Email 2.0, Progency, BRTLNG framework, Marketing’s Power Law and Velvet Rope Marketing, AdWaste and EnCoRe Triad, Unichannel and Unistack, Inbox Commerce, Digital Twins, and Earned Growth.

The starting point needs to realise that the key to reducing CAC lies in increasing CLV. Here are 3 slides which discuss potential solutions.

At every stage, the business needs to consider whether the actions are best done internally through its marketing teams or can be given to a Progency with payouts determined by outcomes. See Solving Marketing’s Three Zeros Problems via Progency for more.

The slide below outlines the 30-60-90 day plan.

Conquest

The ideas outlined here can help digital businesses move from Profitless to Profitable to Profipoly. Here is how the progression can look like.

A few points to note:

CLV impact is seen in revenue rising faster than costs
CAC reduction is seen as the percentage of revenues spent on adtech keeps reducing
The spending between adtech and martech gets more balanced
Profitability of the business keeps growing – hopefully leading to a flywheel effect over time

The journey can be summarised this:

Hi CAC + Lo CLV = Profitless
Hi CLV + Lo CAC = Profitable (Note: I have put CLV first because that is the key to reducing CAC)
(Hi CLV + Lo CAC)ⁿ = Profipoly

This is the quest that marketers need to embark on: a journey where they stop focusing only on growth but also take up the onus of driving profitability. In short, the CMO needs to become the Chief Profits Officer. (And that leap could also what drives the CMO to the corner office of the CEO!)

ChatGPT summary

The essay posits a transformative approach to digital marketing, focusing on the symbiotic relationship between Customer Acquisition Cost (CAC) and Customer Lifetime Value (CLV). It critiques the traditional marketing strategies that prioritize growth at the expense of profitability, leading to a high CAC and low CLV. To combat this, the essay suggests innovative methods such as Email 2.0, which enriches customer engagement through interactive content, and Progency, a product-led agency model driving efficient growth.

The essay emphasizes the historical significance of quests and likens the pursuit of a balanced CAC and CLV to such legendary endeavors. It advocates for a reorientation of marketing practices, urging marketers to evolve beyond mere growth metrics and adopt a holistic view that integrates acquisition and retention strategies. By doing so, digital businesses can create a ‘profipoly’—a monopoly of profits—ensuring sustainable, profitable growth.

Key ideas include leveraging technology such as AI and AMP for personalized communication, using gamification to enhance email marketing, and creating a unified customer view to tailor experiences and offers. The essay also underscores the necessity for marketers to rethink their role, suggesting that a focus on profitability could pave their way to leadership positions within companies. Overall, it calls for a bold reimagining of digital marketing where efficiency, innovation, and strategic thinking lead to exponential profitability.

Claude summary

The essay discusses strategies for B2C/D2C companies to optimize their customer acquisition costs (CAC) and customer lifetime value (CLV) in order to achieve profitable and sustainable growth (dubbed “Profipoly”).

Key problems highlighted are high CAC due to factors like ad waste and steep discounts, along with low CLV because of poor retention rates and funnel frictions. This leads to a profitless state.

Solutions revolve around innovations like Email 2.0 to boost engagement, Progency partnerships to drive performance marketing, using the BRTLNG framework to segment audiences, implementing velvet rope marketing for VIP customers, reducing ad waste with better targeting/attribution, and unifying data and channels.

The 30/60/90 day action plan focuses first on measurement hygiene and testing to reduce CAC waste, along with email journey mapping and referral programs to increase CLV. Progency partnerships on at-risk retention and new prospect acquisition are also recommended.

The end goal is to reach a “flywheel effect” between high CLV and low CAC that creates exponential profitable growth over time – dubbed “Profipoly.” This sees CLV growth outpacing CAC reduction, leading to higher revenues, lower costs, and exponentially increasing profit margins.

The key is for marketing to drive profitability, not just growth. This could elevate the CMO to become the Chief Profits Officer and eventually CEO. The essay provides a blueprint for the “Profipoly Quest.”

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