eCommerce businesses struggle to boost profits and attain profitability due to several external and internal factors. External factors such as competitive pressure, limited product diversity, pricing mistakes, slow delivery times, supply chains, and excessive returns can undermine success and profitability. Meanwhile, internal inefficiencies – what I call ‘funnel frictions’ – hamper progress at every stage, from customer acquisition and conversion to retention, repeat purchases, and loyalty.
This series will focus on these funnel frictions. Addressing them can help brands boost their profits, a strategy I call ProfitXL or simply PxL. However, to construct a profit monopoly (Profipoly), it is crucial to resolve all these issues. A Profipoly gives brands a competitive advantage by monopolizing profitability and draining the competitors’ chances of survival.
Historically, there have been several non-government Profipolies. Over a century ago, Standard Oil reigned in the US until the government dismantled it. In the ’60s and ’70s, IBM dominated computing, while AT&T was the Profipolist in telecom in the US until US regulators broke it up.
Several others persisted after these Profipolies until technological advancements or strategic blunders curtailed their dominance. Microsoft and Intel, colloquially known as Wintel, dominated the computer industry throughout the 1980s and 1990s, cornering 110% of industry profits. This meant a 10% loss for other players in the industry!
Nokia with a 40% share in the mobile phone industry was another Profipoly, eventually surpassed by Apple. In Adtech, Google and Facebook have established a profitable duopoly, leaving little room for competitors. In finance, Visa and MasterCard reign supreme when it comes to payment processing. Meanwhile, Amazon rules the eCommerce space, reinvesting its cash flows to increase its market share further.
LVMH has created a plethora of luxury brands, allowing it to corner a large portion of the market’s profits, mirroring a Profipoly. At the same time, De Beers maintains a hold on the diamond trade. In India, Indigo Airlines holds 60% of the market share and has continued its growth by expanding routes, leading to several competitors shutting down.
The four funnel frictions
The four funnel frictions have a significant impact on profitability in eCommerce. These ‘friction fractions’ pose several challenges for brands.
- 1/100: Clickthrough rate on messages sent, primarily due to Attention Recession.
- 1/33: Conversion rate on website/app sessions stifled by ‘red journeys.’
- 1/3: Active customers whittled down by dormancy and churn.
- 1/2: Fruitful new customer acquisition, with the remaining spending becoming Adwaste.
Unless brands create strategies to overcome these hurdles, they will struggle to achieve exponential forever profitable growth, let alone create a Profipoly. In this series, I will discuss four practical solutions to these problems: Inbox Commerce, Green Journeys (with iDarpan), Reactivation Progency, and Near-Zero Acquisition Costs – all concepts I have previously discussed.
It’s time to craft these solutions into a comprehensive strategy. Not only will this transition the focus from Adtech (acquiring new customers) to Martech (retaining and growing existing customers), but it will also bring about the progression from Martech 1.0 (isolated point solutions) to Martech 2.0 (full stack approach). Resolving these funnel frictions can help brands build a Profipoly and an enduring eCommerce business.
I have written several essays about how brands and marketers can improve profits, create a Profipoly, and achieve exponential forever profitable growth. Here are a few excerpts:
Best Customers and Velvet Rope Marketing
“By creating a double moat of getting the industry’s best customers and maximizing revenues, creating a Profipoly becomes possible. This can cut off the oxygen required by the competition.”
The coming martech era: Driving exponential forever profitable growth
“Profits are important because they deprive the competition of the oxygen required to grow. Profit in any category is finite and a zero-sum game. Customers cannot keep purchasing the same product from multiple sellers. By maximizing profits and then monopolizing them, brands create a flywheel leading to a Profipoly. This acts as a double moat in the coming Martech era.
The most profitable customers are retained, maximizing lifetime revenues. Competitors are also denied the oxygen of growth capital in the form of profits. The Profipoly is the endgame, but it also works as the beginning. This is because profits can power expansion into new categories, organically or via acquisitions. Creating a Profipoly is the secret behind creating a model capable of powering the ‘rinse and repeat’ of exponential forever profitable growth.”
Crafting profits: a new marketing paradigm
“Marketers must realize that customers are more than just numbers and metrics. They have needs for which they are willing to pay with time and money. The non-monetary assets of customers (attention, data, network, voice) are as valuable as their ability to spend money. In the past, marketers were unable to capitalize on these assets.
However, innovations such as Email 2.0 enable the creation of hotlines, helping marketers and customers build a win-win relationship and exchange, building a profits pipeline. A new marketing era is upon us – one that delivers exponential forever profitable brand growth.”
Digital marketing and its discontents and disruptions
“Without profits, brands will constantly be challenged to deliver the right value to customers. For too long, marketers have entrusted their customer relationships to Big Adtech. While this worked well initially, it became like an irresistible drug that marketers could not resist. It has also proven detrimental to the profitability of a business. This needs to change.
Earned Growth (a metric based on revenue growth from existing customers and new customers coming via referrals) should be the North Star Metric for marketers. Email 2.0, Loyalty 2.0, Martech, and Velvet Rope Marketing 2.0 are the four horsemen that will lead marketers to exponential forever profitable growth.”
Profit-centric marketing: start with Email 2.0 and Loyalty 2.0
“Email 2.0 and Loyalty 2.0 are the first steps towards profit-centric marketing. They will also need to be augmented by Martech 2.0 and Adtech 2.0. This framework will transform bottom lines and create loyal customers. Without profits and returning customers, no business can survive for long. New marketing ideas like Email 2.0, Loyalty 2.0, Martech 2.0, and Adtech 2.0 are disruptive innovations. They can be anchors for success and create exponential forever profitable growth and eventually, Profipolies.”
Solving the $200 billion AdWaste problem
“Hotlines, not optimized ads, are the future of digital marketing and the crux of the new brand-customer relationship. $200 billion spent on customers instead of Big AdTech will make marketers profit makers and profit multipliers. It will also result in happy customers and take marketing back to its roots: bring back existing customers and ensure they get their family and friends without the crutches of digital intermediaries.
Hotlines offer increased conversions and a substantial increase in brand profits thanks to increased revenues without a concomitant cost increase.”
Stop loss: The power of attention messaging
“Velvet Rope Marketing focuses on the most valuable customers. These are the top 20% who can deliver 60% of revenues and 200% of profits. Combining Attention Messaging with Velvet Rope Marketing can create the foundation for a profit monopoly (Profipoly). Deep customer engagement and the continuous attention of Best Customers are the best possible moats a brand can create.”
Continued in Part 2