Mystery Of the Missing Profits – Part 4
Written by
Rajesh Jain
Rajesh Jain
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Mystery Of the Missing Profits – Part 4

Published : December 1, 2023 | Updated : May 23, 2024

In the third part of this series, I talked about digital follies and how they lead to businesses handing over profits to emerging players. I also discussed breakthroughs at crucial moments in human history, paving the way for exponential progress. In this part, I will discuss eBreakthroughs and the three primary funnel frictions (ToFu, MoFu, and BoFu).

eBreakthroughs

Profits have become an elusive goal for Digital/B2C/D2C/eCommerce brands, similar to telecom’s last-mile problem. While there is profit to be made, it is sidestepping these brands. Their critical oversight and neglect of existing customers have led to stagnated revenue growth and escalating customer acquisition costs. This combination hinders profitability and stifles innovation and growth potential.

However, there is hope. A slew of innovations can potentially transform eCommerce P&Ls. Let’s take a closer look at these ‘eBreakthroughs’ and how they can become an antidote to past ‘eFollies.’

Email 2.0: (powered by AMP); email shops, engaging footers

Enhanced by AMP, Email 2.0 goes beyond plain text and images, offering interactive and dynamic content directly within email. This includes apps in email allowing direct transactions and email footers that capture user interest, making it a potent tool for commerce.

Inbox Commerce: conversion closest to customer

Inbox commerce leverages email inboxes to facilitate direct commerce interactions. This minimizes friction between the marketing message and conversion action, placing transactions where customers frequently engage.

Martech 2.0: Unistack and Unichannel

The Martech landscape focuses on unified platforms (Unistack) that bring together all tech components. Additionally, the Unichannel approach erases boundaries between different communication channels by ensuring a seamless customer experience across all touchpoints.

Digital Twin: large customer model, mirror world, virtual you

This helps predict preferences, ensure personalization, and understand customer paths in the ‘Mirror World.’ Digital Twin technology creates a replica of the customer by drawing on their data and behavior (along with data from lookalikes among Best customers) to predict the next action on the buying journey.

Velvet Rope Marketing: Customer Lifetime Value (CLV), Best Customer Genome (BCG)

This strategy maximizes revenue from high-value customers. Businesses can create premium experiences to foster loyalty and higher spending by calculating CLV and identifying the characteristics of Best customers (their ‘genome’)

Atomic Rewards/Loyalty 2.0: tokens for gamifying micro-actions

The next generation of loyalty programs transcends transactions and focuses on micro-incentives for actions that are upstream and downstream of transactions. By gamifying small actions, Atomic Rewards gamifies continuous customer engagement.

Progency: product-led/problem-solving/profit-driven agency

A Progency functions as an extension of the marketing team to deliver outcomes. It is rewarded based on performance, making it a business partner rather than a service provider. Reactivating dormant customers is an example of a task suited for a Progency.

Earned growth: the north star metric

Earned growth focuses on organic sales growth derived from customer advocacy and loyalty. Instead of just acquiring growth through marketing spending, it emphasizes the value of existing customers and referrals.

Every CXO is a Chief Profitability Officer

Gone are the days when profitability was the domain of the CEO and CFO. The modern business landscape sees every C-suite executive, whether in marketing, operations, or technology, play a role in driving profitability. The shared responsibility ensures a company-wide focus on the bottom line.

These breakthroughs and innovations can help brands fix the five profit-killing funnel frictions.

Fixing funnel frictions

“Friction exists in several forms and has a significant yet underestimated impact on profits. These frictions have created inefficiencies in online and offline businesses, impeding customer engagement and diluting brand value. ‘Funnel frictions’ are the silent assassins of profits. From unidentified customers slipping through the cracks to inefficient ad spending, these frictions create hurdles in establishing customer relationships. This leads to disjointed customer experiences, increased costs, low conversion rates, and profit erosion. The ability to address these frictions is not just about improving customer experiences but also about securing the brand’s bottom line.”

ToFu, MoFu, and BoFu

The three primary funnel frictions (ToFu – top, MoFu – middle, BoFu – bottom) reduce the efficacy of transactions from customers. The BTF (below the funnel) friction occurs due to existing customers becoming inactive. Meanwhile, the ATF (above the funnel) is caused by waste in acquisition.

Funnel
Friction
Good Fraction
Solution
Customers
ATF (Above The Funnel)Adtech Adwaste
Inefficient marketing spends on customer acquisition.
Waste; Wrong acquisition and reacquisition
1/2
Near-zero acquisition cost
Reacquisition → Reactivation
Referrals from Best Customers
BCG-influenced acquisition
Next
ToFuIdentity Gap
Unknown/Anonymous shoppers
1/10
Anon-to-Known
Email 2.0, AMP, Atomic Rewards, Gamification, Micro-Newsletters
All, including Next
MoFuAttention Recession
Low opens and CTRs due to information overload and non-personalized messages
1/100
Inbox Commerce
Email 2.0; Email shops (AMP); Engaging Footers, WhatsApp shops
All (Best, Rest, Test) Special focus on Best
BoFuRed Journeys
Poor customer experiences leading to drop-offs and disagreements on brand-owned properties.
1/33
Green Journeys for Next Best Action
Large customer Model and Digital Twins Velvet Rope Marketing; CLV; Best Customer Genome Martech 2.0; Unistack, Unichannel, search, browse, Recs Omnichannel personalization; Earned Growth.
All with special focus on Rest and Test.
BTF (Below The Funnel)Dormancy and Churn
Existing customers become inactive or are lost and are then retargeted for expensive reacquisition.
1/3
Reactivation Progency
Email (AMP); Data enrichment; Microns Atomic Rewards (Loyalty 2.0) Partner which combines product and agency Adtech-style performance pricing
Left and Test

ToFu (Top of Funnel) – from identity gap to anon-to-known conversion

  • Challenge: Transitioning anonymous site visitors into identifiable leads.
  • Solution: Crafting strategies to prompt visitors to voluntarily share personal details such as email and phone numbers, creating a deeper relationship in subsequent funnel stages.
  • Breakthrough: Email 2.0, Atomic Rewards.

MoFu (Middle of Funnel) – alleviating attention recession through Inbox Commerce

  • Challenge: Sustain engagement in a digital environment with shrinking attention spans.
  • Solution: Harness the capabilities of Email 2.0 and incorporate features such as Microns, Email Shops, and Engaging Footers to elevate inbox interactions. Facilitate end-to-end user experiences, from product searches to payments, without leaving the inbox. This can be supplemented by Atomic Rewards, encouraging customers to share data.
  • Breakthroughs: Email 2.0, Inbox Commerce, Atomic Rewards.

BoFu (Bottom of Funnel) – transition from red to green journeys

  • Challenge: Cater to potential buyers who expect streamlined purchase paths on websites and apps.
  • Solution: Deploy Martech 2.0 and create Digital Twins using the Large Customer Model, anticipating and suggesting appropriate next actions. Implement Velvet Rope Marketing, offering exclusive perks to high-value customers. This increases their loyalty and, in turn, overall profitability.
  • Breakthrough: Martech 2.0, Digital Twin, VRM

BTF (Below the Funnel) – counteracting dormancy and churn with reactivation via Progency

  • Challenge: Maintain a connection with customers post-purchase and address the inevitable lapse into inactivity.
  • Solution: Avoid the trap of pricey Adtech strategies for retargeting. Instead, revitalize dormant customers by engaging a Progency that focuses on revitalizing relationships with Best Customers, ensuring their journey with the brand continues.
  • Breakthrough: Progency, Email 2.0, Atomic Rewards

ATF (Above the Funnel) – cutting adtech Adwaste to achieve near-zero acquisition cost

  • Challenge: Acquiring new customers with as low CAC as possible.
  • Solution: Reduce AdWaste from misguided acquisition and reacquisition efforts. This can be done through reacquisition, referrals, and using Best Customer Genome for targeted lookalikes.
  • Breakthroughs: Martech 2.0, Email 2.0, Progency.

This must be combined with two mindset shifts: The first focuses on Earned Growth as the lodestar. Second, every CXO must don the hat of a Chief Profitability Officer, driving profitability at every decision point.

These solutions may appear self-evident and should have been implemented earlier. However, they are ignored by marketers who instead pour money into new acquisitions at the cost of bettering relationships with existing customers. The question that arises is: Why should we expect a paradigm shift now?

If you have not read the earlier parts, you can start with part 1 of this series here.

Continued in Part 5

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Written By: Rajesh Jain
Rajesh Jain
Founder and Group MD, Netcore Cloud