ProfitXL To Profipoly: Solving the Four Funnel Frictions – Part 4
Written by
Rajesh Jain
Rajesh Jain

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ProfitXL To Profipoly: Solving the Four Funnel Frictions – Part 4

Published : December 15, 2023

In the third part of this series, we talked about how Inbox Commerce and Green Journeys can address Attention Recession and Red Journeys. In this part, we will discuss how Reactivation Progency and the strategy of Near-Zero Acquisition Cost can help address Dormancy and Churn and Adtech AdWaste, respectively.

1/3: Dormancy and Churn to Reactivation Progency

The third friction is about inactive or dormant users. Two out of three customers fall into this category, leaving only one active customer brands interact with. Some customers stop responding to brand messages because they find them irrelevant. Others may have churned despite being good customers at one point. Either way, it is a loss for the eCommerce brand because they spent resources to acquire the customer. 

I explained thus in one of my earlier articles on solving the customer reactivation problem: 

“They may have registered but not purchased or made some small purchases. However, marketers do not know enough about these customers. From a relationship standpoint, the segment is either dormant or dead. Brands push promotional emails and SMSes if the customer has shared their email or mobile number. However, nothing special is done for this cohort. 

Promotional emails contain periodic offers that hope to generate an action from the customer. However, after a point, the customer ignores these promotional emails. This happens to 85% of all brand emails. Worried about the impact on domain reputation because of low engagement, marketers stop sending emails. As a result, a relationship is broken and lost forever. 

Here’s the rub: It is entirely possible the brand’s acquisition programs retarget and try to reacquire the same customer.”

This also becomes one of the OR conundrums marketers face

“Marketers do a considerable amount of paid acquisition to grow their active customer base. Over time, many of these customers become dormant, putting marketers in a dilemma. Should they try to reactivate these customers through existing brand-owned push channels OR reacquire them through campaigns on paid media (Big Adtech)? Although the cost of using owned media is a fraction of paid media, most marketers opt for the latter. 

This is because they are unable to get the customer’s attention through push channels. As a result, reacquisition campaigns can adversely impact marketing budgets. 

The inactivity of existing channels is because marketers have failed to build better relationships with them. Push channels have been largely unchanged in their capabilities. As a result, marketers have been unable to get past the problems of Attention Recession and data poverty.

With 85-90% of the budget directed towards customer acquisition and retargeting inactive customers, the focus on existing customers is abysmally low. As a result, marketers get trapped in a feedback loop, reacquiring and retargeting existing customers on expensive paid media.”

Reactivation Progency

The solution to the problem of dormant customers lies in collaborating with a ‘Reactivation Progency.’ A Progency is a product-led agency operating on an Adtech-influenced performance pricing model. This approach leverages Martech to reactivate dormant customers and stop them from churning. It does this in several ways:

  • Leveraging existing opt-in permissions to send incentivized, interactive emails, increasing the likelihood of engagement.
  • Combining data enrichment with targeted content and offers for inactive customers.
  • Operating an ad-exchange program embedded in footers of non-competitive brands. These ads are interactive and engage the recipient effectively. Additionally, they are delivered to identified individuals, ensuring a personalized, targeted approach.

Rather than the ecommerce brand’s internal team, delegating this responsibility to a specialized partner is more beneficial. This allows a dedicated approach, fosters innovation, and lets the marketing team cultivate the highly profitable ‘Best’ customer base. 

I had talked about reactivation in ‘ProfitXL: Supersize profits with the SHUVAM framework.’ 

“Reactivation is a strategy to reduce CAC because the alternative could be expensive reacquisition. Existing customers become dormant for several reasons. These reasons include not finding what they were looking for, changing interests, or a lack of engagement in brand communications. Some inactive customers may also have churned away to different brands. 

Because there was a relationship between the brand and the customer, the brand may have some information (mobile number, email address) to reopen a conversation. Informative content can be an excellent way to awaken the dormant user base. AMP and Atomic Rewards can also be helpful for reactivation.” 

The answer to Dormancy and Churn lies in engaging a Reactivation Progency, a cost-effective alternative to reacquisition strategies. Leveraging Progency could lead to considerable savings in marketing expenditure and enhance profitability.

1/2: Adtech AdWaste to Near-Zero Acquisition Cost

Wasteful spending on new customer acquisition is a brand’s biggest profit killer. This is especially true when there are lower-cost alternatives. Adtech has made customer acquisition easy, leading to marketers becoming collection agents for Big Adtech. CEOs who demand the addition of new customers without realizing that each customer’s value is different must also be blamed. 

After 25 years of the internet, if brands have been around for 5 years, they would likely have reached out to every possible Best customer. The three frictions discussed earlier prevent eCommerce brands from maximizing the lifetime value of their Best customers. Instead of addressing this problem, brands go for new acquisitions, failing to maximize revenue from existing customers. 

This friction has a substantial financial impact on eCommerce brands. Only 1 out of every 2 customers acquired aligns with the brand’s desired customer profile. 50% of their Adtech expenditure is being squandered, a phenomenon I call ‘AdWaste.’ Marketing costs represent 25% of an eCommerce brand’s gross margin. Acquisition consumes 80% of this budget, meaning AdWaste potentially accounts for 10% of the gross margin. Brands must take measures to reduce AdWaste if they aspire to become Profipolies. 

Here is an excerpt from one of my articles on brand spending:

“As the founder of a B2C Martech company (Netcore), I often pondered why brands spend 80-90% of their marketing budget on Adtech (new customer acquisition) and only 10-20% on Martech (customer retention, engagement, and growth). The land grab for new customers has only one real winner: Big Adtech platforms. Yet, brands continue to ignore existing customers and burn cash while complaining about rising CAC costs. However, they fail to realize that half their spending is AdWaste thanks to retargeting, reacquisition, and wrong acquisition.” 

“Data suggests only a third of Adtech spending is effective, while another third goes to ‘bad’ spends where there is an immediate drop-off post click or app install. The remaining is allocated to reacquisition, retargeting dormant customers on Adtech platforms rather than reactivating them through channels such as email.”

Near-Zero Acquisition Cost

To mitigate AdWaste, brands must implement three strategies to reduce Customer Acquisition Cost (CAC) effectively. I’ve encapsulated these approaches under the term’ Near-Zero Acquisition Cost.’ These strategies include reactivating dormant customers rather than reacquiring them, encouraging customer referrals, and using a new approach to acquisition that targets customers resembling the Best Customer Genome (BCG). 

“Referrals leverage existing customers to bring in new customers through word-of-mouth or social networks, making CAC almost zero. Best customers referring others can be beneficial as they bring similar high-value customers. Simple techniques like adding a referrer field in a signup form, asking for referrals in the ‘Engaging Footer,’ and offering micro-incentives can increase referrals and profitability. 

BCG-influenced acquisition uses data about your Best customers to focus on their lookalikes and refine targeting new customers. Brands generally use data from all customers, acquiring wrong customer types that disengage quickly. Profiling tools can help identify potential future Best customers among Next customers. Once identified, these customers can be given superior experiences to foster a longer and mutually beneficial relationship.”

We can find the solution to Adtech AdWaste in the strategy of Near-Zero Acquisition Cost. This can be achieved through a three-pronged approach:

  • Reactivating dormant customers
  • Leveraging customer referrals
  • Employing BCG-guided acquisition strategies

Continued in Part 5

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