In the earlier Part 1 and Part 2, I put forth the concept, theory, and metrics. I also explained the profit killers and the strategies to convert them into profit creators. In this concluding part, I explain the PxL methodology and offer a glimpse into the future of the transformed eCommerce P&L.
The PxL methodology
The ProfitXL (PxL) framework focuses on three categories of customers: the top 20% Best Customers, the 80% Rest Customers, and then the Next Customers. This is a categorization which can work across eCommerce companies. Key to this is segmenting customers by their lifetime value.
Best Customers:
The eCommerce business’s marketing team must focus on these customers. They can drive 60% of revenues and 200% of profits. A dedicated team (SBU) must be created to look at how to create differentiated experiences for these customers. Every friction point that prevents completion of a transaction for these customers must be eliminated.
If only a limited quantity of a new product is available, that product must be first offered to the Best Customers. Velvet Rope Marketing (VRM) is a strategy that emphasizes creating highly personalized and exclusive experiences for a company’s top-tier customers. It’s akin to giving these customers a VIP pass that allows them access to perks, privileges, and experiences not available to the majority of customers.
Rest Customers:
These are customers, who, while they generate some revenue could negatively impact profitability because of the marketing and servicing costs. This is where a brand should consider outsourcing management of these customers to a ‘Progency’ (product-led agency) whose focus should be to activate them, engage with them, and get them to create carts ready for checkout using the breakthrough innovation of Email Shops.
Here’s an excerpt from what I had written about ‘Email 2.0: The Rise of the New Super App.’
“What Email 2.0 does is convert every email into a mini-app. So, while there may not be a single app with access to multiple services, the email inbox with support for AMP can provide a gateway to every conceivable service. Every brand can build its own mini-app in the emails they send. From search to browsing to chat, from cart management to making payments, from tracking deliveries to providing feedback – the possibilities of Email 2.0 are endless. AMP makes static emails come to life – thus elevating the power and potential of the inbox. The biggest boon is for eCommerce companies: by bringing the conversion funnel closer to the customer, it reduces friction and increases transactions.”
The Progency should be given the list of users (email IDs) and incentivized on transactions or cart value created by these users.
Next Customers:
This is where the biggest AdWaste is happening. Marketers are overspending on new customers because they are not focused on building deep relationships with existing customers. Marketers need to think of themselves as Chief Profitability Officers rather than as collection agents for Big Adtech. Referrals combined with Best Customer Genome-influenced targeted acquisition can bring down CAC substantially and free up 50% of marketing budgets to move to EBIDTA.
This then is the PxL plan: create 3 teams to focus on each of the Best-Rest-Next segments. The one-word missions for the three teams: Maximize (Best Customers), Energize (Rest Customers), Minimize (Next Customers).
Done right, there is no reason why eCommerce companies should not be able to drive an additional 10% upside on revenue (and gross margin), and a halving of spending on new customer acquisition costs. This will address the twin problems of low conversions and rising CAC, thus having a multiplier impact on EBIDTA, supersizing profits, and transforming the brand’s P&L.
Tomorrow’s world
Let me introduce Arun and Jeni. Arun is a consumer and Jeni is a marketing manager at A1 Books. Let’s look at the impact the PxL program will have on their lives. We will assume Arun is one of the Rest Customers of A1 Books and Jeni has outsourced to Progency the work of ‘energizing’ Arun and making him transact. Let’s look at a few days in Arun’s life as he goes from a dormant customer to doing a purchase on A1 Books’ website.
Arun opens his Gmail inbox on his mobile and sees something interesting amongst the dozens of emails that stream in through the day. He notices the µ in the subject of the email – he has not seen that before. (The µ is the Atomic Rewards, which is explained in my other posts.)
And the subject line is enticing too: “Open this for a never before email experience.” It is from A1 Books – a brand he has not interacted with in a long time because he was tired of seeing posters telling him to click through for great deals.
He opens the A1 Books email – and is it different! There is a search box right at the top – he hasn’t seen that before in an email. There is a quiz about books – how can he resist that! He starts with the quiz, answering the three questions that come one after another right in the email. And he notices the µ count increase as he answers correctly. Quite an experience – answering a quiz right inside the email.
Arun scrolls down further. There is a list of ten bestsellers with an ‘Add to Cart’ option for each book. He likes a couple and adds them to the cart – which is being created as he watches right inside the email. He then notices something interesting – the list of books has changed – they are now recommendations based on the two items he has added to cart. Wow, this is cool, thinks Arun.
He adds another book to his cart, and then remembers the title of a book a friend had recommended to him. He scrolls up to the search box, types in the name, and gets the book info right below – once again, all in the email. He adds it to the cart, which has now expanded to four books.
This is so exciting, feels Arun. He can search, browse, play, add to cart – all inside the email, without having to click through to the website or open the app. And what is even more thrilling is how the email evolves as he does his cart additions – he starts to think of it as a ‘living email’.
He then decides it is time to checkout – it’s the first time in many years he will be buying something from A1 Books. He sees two options – go to the website to checkout or pay inside the email. He takes up the second option – he wants to see what all can be done within the email.
Right below his cart, a form opens up for him to enter his address, which he does. He is then asked for his credit card details which he enters (a message assures him of the security). And he is done! A message tells him that he will receive another email which will let him track the delivery right inside the email once again.
A few days later, Arun gets an email from A1 Books telling him about the delivery of his books, with a request for rating the service (in return for 20 µ). It also asks him for his preferences in books – all he has to do is to just tap on the categories he likes. Three taps, and he is done! So quick, so frictionless. He is delighted with the entire experience.
Jeni, the marketing manager at A1 Books, gets an alert that yet another customer has moved from the ‘dormant’ category to ‘active.’ She hopes Arun will become a Best Customer soon! It has just been a few weeks since she went live with the Progency and Email Shops for the Rest Customers and she is already seeing a sharp spike in revenues from customers who hadn’t come to A1 Books in months or even years. She is already planning her own use of Email Shops for her Best Customers.
