In the first part of this series, I talked about how eCommerce businesses struggle to attain profitability and the impact of the four funnel frictions. I also discussed historical Profipolies and how brands and marketers can improve profits to create a profipoly. In this part, we will continue discussing profitability and the ways to improve it.
What would we do if we had to design an ideal business with no resource constraints? The goal would be to maximize profits, leaving no surpluses for competition to invest in and grow. Not all customers are profitable if we factor in acquisition and service costs.
The first objective would be identifying and acquiring the sector’s most profitable customers. The second would be to retain them forever and get 100% of their spending in that category.
This means providing them with the best possible experiences (Velvet Rope Marketing) and a loyalty program, ensuring the perks keep coming as they spend. The third objective is to turn customers into advocates, dramatically reducing acquisition costs for Next (Best) customers.
Best customers are likely to know other potential Best customers in their network. Incentivizing them to get more Best customers can create a constant supply of new customers with the same characteristics in terms of spending and profitability. If brands can repeat this process consistently, the flywheel kicks in. This is the secret to supernormal growth and profits.
The best businesses suck out the oxygen of growth from the competition and create a profit monopoly (Profipoly).
ProfitXL is built around five themes:
- One-way push channels becoming two-way conversational pathways, bridging the chasm between acquisition and conversion.
- Transitioning from point solutions on brand properties to a unified Martech stack.
- Identifying Best customers and creating differentiated experiences for them.
- Achieving near-zero CAC (customer acquisition cost) for new customers.
- Measuring growth based on repeat purchases from existing customers and revenue from referrals instead of paid marketing spends.
I call this ProfitXL’s SHUVAM framework: Story, Hotlines, Unistack, Velvet Rope Marketing (VRM), Acquisition (done right), and a new set of Metrics to measure progress. SHUVAM is the path for exponential forever profitable growth, and can help a brand create the ultimate endgame and moat in a business, a profits monopoly (Profipoly).
The ProfitXL mindset and SHUVAM strategy help marketers increase revenue, reduce spends, and improve shopping experiences. After nearly two decades of digging the AdWaste hole, marketers can ascend the profits mountain and reach the pinnacle of Profipoly.
Eliminating the profit killers in marketing is all about instilling a marketing strategy that can lead to enduring profitable growth, helping the brand create a Profipoly. ProfitXL is more than a single-point solution or a stack; it is a bigger idea forgotten by the marketing industry – one that can ensure existing customers come back for more and bring their friends and family.
ProfitXL is also about creating a highly disciplined process that can deliver 25% year-on-year growth for long periods while cutting spending on marketing by 50%. This can dramatically improve profitability.
PxL (transforming the P&L)
PxL advocates the following approach:
- Best customers: Remove friction in engagement, ensure omnichannel personalization and the ‘perfect’ next action by maximizing zero and first-party data.
- Rest customers: Build better hotlines using the push channels to reactivate them.
- Next customers: Get as close to zero CAC as possible by driving referrals, reactivating instead of acquiring customers, and using data from Best customers to target acquisition.
Most eCommerce journeys are fraught with broken experiences. PxL beautifies every broken profit-killing customer experience on brand properties and pushes channels to create a profipoly. PxL’s focus goes beyond retention and engagement. It directly improves the economic engine that drives sales growth, cuts wasteful spending, and drives profitability. At each step, the focus must be on frictionless and personalized experiences.
Email shops, combined with innovations such as Atomic Rewards, Full-stack Martech, AI-enriched product catalogs, and Progency can transform eCommerce businesses and their P&Ls.
Brands face three key challenges:
- Boosting the best: How to generate more sales from the top 20-30% of customers since they account for most transactions.
- Reactivating the rest: How to rebuild relationships with dormant customers as an alternative to retargeting them using Big Adtech platforms.
- Near-zero CAC for the Next customer: How to acquire new customers without breaking the bank and reducing AdWaste due to wrong acquisition and reacquisition.
Solving these challenges is vital to building an exponential forever-profitable growth business and creating a profits monopoly.
There are three profit killers in any B2C/D2C business. First, brands may not realize the potential of their app or website due to insufficient data collection on existing customers. This is due to isolated point solutions not sharing data, obstructing effective personalization. Additionally, an ineffective onsite search engine fails to show products loyal customers will likely purchase.
Second, push channels are often used as broadcast mediums and lack interactivity. The expectation is that the customer, intrigued by the message, will click through to the brand’s website or app. However, push channel open and clickthrough rates are generally low. Push messages are one of the most cost-effective ways to bring customers back to your platform. However, brands must resort to expensive campaigns or retargeting via Adtech platforms if the customer becomes unresponsive.
Third, a significant portion of the acquisition budget is squandered due to AdWaste. As a result, almost 50% of the advertising expenditure is ineffective. While optimization strategies for ad spending may seem an attractive solution, they only offer a 5-10% reduction. Retaining existing customers holds far more value than acquiring new customers. Studies have indicated that customer acquisition costs are five times higher than retention costs. A 5% increase in customer acquisition could increase profits by 25-95%. Transitioning to Martech 2.0 will transform profitability and customer experience.
Martech 2.0 increases sales while reducing marketing costs, leading to enhanced profitability. It focuses on bringing back existing customers and ensuring they get their friends. It lays the groundwork for exponential forever profitable growth, and eventually, a Profipoly, by building products that act as profit generators. This allows brands to establish a competitive edge and ultimately a profipoly.
Continued in Part 3