PxL: Transforming eCommerce P&Ls – Part 2
Written by
Rajesh Jain
Rajesh Jain

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PxL: Transforming eCommerce P&Ls – Part 2

Published : September 29, 2023

In Part 1 of this series, I explained the concept, theory, and metrics of PxL.  I spoke about how most eCommerce journeys suffer from broken experiences and the critical need to beautify every broken profit-killing customer experience to create a Profipoly (profits monopoly).

This part details the profit killers and the strategies to convert them into profit creators.

I asked ChatGPT for the top 5 profit killers for eCommerce brands:

1. High customer acquisition costs

Acquiring new customers is often much more expensive than retaining existing ones. If an eCommerce company is heavily reliant on paid advertising or other costly acquisition methods and doesn’t balance things with strong customer retention strategies, this can quickly eat into profits.

2. Cart abandonment

When shoppers add products to their cart but do not complete the purchase, this is a missed sales opportunity. Cart abandonment can be caused by many factors, such as unexpected shipping costs, a complicated checkout process, or a lack of payment options.

3. High return rates

Returns are a fact of life in eCommerce but a high return rate can be a major profit killer. This is particularly true in industries like fashion, where return rates can be very high. The cost of processing returns, including shipping, restocking, and customer service can quickly add up.

4. Poor inventory management

Both overstocking and understocking can be costly. If a company has too much inventory, it risks having to sell it at a discount or even write it off entirely. On the other hand, if it doesn’t have enough inventory, it risks losing sales and damaging customer relationships.

5. Low conversion rates

If an eCommerce company is successful in driving traffic to its site but unsuccessful in converting it into sales, this can be a major profit killer. Low conversion rates can be caused by many factors, including poor website design, uncompetitive pricing, or a lack of customer trust.

Here is my take on the profit killers for eCommerce brands (excluding returns and inventory management)

Customer acquisition, retention, and engagement

  • Not making creating a ‘profits monopoly’ (Profipoly) as a stated goal for all teams
  • Not switching focus from new customers to existing customers
  • Not thinking beyond the buzzwords of engagement and retention
  • Not measuring AdWaste and making marketing accountable for wrong acquisition and reacquisition
  • Not doing reactivation (and focusing instead on reacquisition)
  • Not identifying Best Customers correctly; or not segmenting right
  • Not measuring against net predicted revenue (based on CLV)
  • Not creating differentiated experiences for Best Customers
  • Not leveraging the full potential of referrals – especially from Best Customers
  • Not using Best Customer Genome to target new acquisitions
  • Not using micro-incentives (Atomic Rewards) to solve attention recession and data poverty

Data management and utilization

  • Not creating a unified customer view and leaving customer data siloed
  • Not matching product catalog with unified customer data to drive right recommendations
  • No measuring and improving Earned Growth, and not making it the new North Star Metric
  • Not doing a customer-base audit (as recommended in Peter Fader’s book)
  • Not tracking what different customer segments do outside the brand’s properties

eCommerce technology and innovation

  • Not having a good search solution
  • Not applying recommendations in all channels
  • Not enriching product catalog with AI (and relying only on humans for descriptions)
  • Not moving conversion funnel closer to customers (e.g., AMP in Email, Inbox Commerce)
  • Not using the full power of new 2-way interactive channels (WhatsApp, RCS)
  • Not unifying channels and staying omnichannel/multi-channel
  • Not using conversational search to help customers refine search results
  • Not using STO (send time optimization) for sending messages
  • Not using Generative AI for content generation

There are 5 key interventions which can help brands convert profit killing moments into profit creators

1. Addressing dormant users

The 60-70% dormant users in the brand’s email list represent significant potential for reactivation. These are the customers who have previously engaged with the brand but haven’t opened emails in many months. Often, brands try to reacquire these customers through costly adtech platforms, but could reactivation via email be a more cost-effective solution?

By identifying why these users became dormant (by tracking their cohort-level activity across the Internet) and tailoring email marketing strategy accordingly, brands could reactivate a substantial portion of these users and realize substantial savings.

2. Engaging non-openers

With as many as 90% of users not opening emails, there’s a massive opportunity to increase engagement rate. What strategies could entice these users to open emails from the brand? Doubling the 10% open rate could lead to a proportionate increase in transactions.

Consider the use of gamification in the email subject line through Atomic Rewards (Mu) to pique interest and drive engagement.

3. Incentivizing non-clickers

The percentage of non-clickers in emails is similarly high, hovering around 90% for most brands. What would motivate these users to click through? This is where innovative solutions like inbox commerce via AMP-powered email shops could revolutionize the clickthrough rate.

By providing a direct, seamless path to create a cart and where possible purchase within the email itself, brands can significantly increase their conversion rate.

4. Improving website and app engagement

On the brand’s eCommerce website and app, better search results and personalized product recommendations could encourage more users to add items to their cart. Considering that only a third of those who view products add something to their cart, improving this figure could substantially increase sales.

Brands should invest in AI-ML solutions to refine your search capabilities and create hyper-personalized recommendations for each user.

5. Reducing cart abandonment

High cart abandonment rates, often around 60-70%, are a major obstacle for many eCommerce brands. Can the use of AMP emails fast-track transactions and reduce these abandonment rates? By including tailored recommendations based on browsing and interest history, or triggering emails based on merchandising events like new arrivals, price drops, back in stock and category affinity, brands could motivate more users to complete their transactions.

Every stage of the customer journey offers opportunities for optimization. Any missed action can act as a profit killer, forcing eCommerce brands to invest heavily in new acquisitions when they already have existing customers ripe for re-engagement. Brands could be spending up to a quarter of their gross margin on marketing.

By creating differentiated experiences for their most loyal and profitable customers (Velvet Rope Marketing) and leveraging referrals more effectively, eCommerce companies can significantly reduce marketing spend and increase customer loyalty.

How do we solve some of these problems and transform eCommerce P&Ls? This is where the PxL methodology can be applied to boost brand profitability.

Continued in Part 3

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