Solving eCommerce’s Fifth Funnel Friction: Identifying Unknown Shoppers – Part 1
Written by
Rajesh Jain
Rajesh Jain

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Solving eCommerce’s Fifth Funnel Friction: Identifying Unknown Shoppers – Part 1

Published : November 3, 2023 | Updated : May 07, 2024

Elusive Profits

The issue of poor profitability has crippled eCommerce businesses. The problem primarily arises from an over-reliance on acquiring new customers and an inability to capitalize on the lifetime value of existing ones. The result is a staggering $200 billion in AdWaste, half of the $400 billion spent on Adtech each year siphoned from the P&Ls of eCommerce companies. Discover game-changing eCommerce growth strategies to redefine profitability and secure a brighter future for your business.

eCommerce firms and Martech vendors must reduce this wastage of capital, which would help augment profits and enhance business valuations.

A 30% reduction in ad expenditure of $400 billion could see an additional $120 billion return to brands. A modest earnings multiplier of 15 could result in a monumental increase in the collective valuation of eCommerce companies to $1.8 trillion. However, the necessary budgetary realignment of Adtech and Martech spending has yet to materialize. Why is this so?

Marketers have failed to comprehend the four funnel frictions that chip away at profitability:

  • Attention Recession
  • Red Journeys
  • Dormancy and Churn
  • Adtech AdWaste

Even if marketers acknowledge the four funnel frictions, solutions elude them. As a result, they resort to tried-and-tested methods to drive revenue growth – continuously replenishing the top of the funnel with new customers, irrespective of the acquisition cost.

Marketers believe profitability falls under the purview of the CEO and CFO, not the CMO. In their defense, the solutions to the four funnel frictions (Inbox Commerce, Green Journeys, Reactivation Progency, and Near-Zero Acquisition Cost) are not apparent. These solutions amalgamate novel ideas and innovations, some unproven, such as:

  • Email 2.0 with AMP
  • Atomic Rewards 
  • Digital Twins in a Mirror World powered by Generative AI
  • Velvet Rope Marketing 
  • Best Customer Genome 
  • Adtech-style Performance Pricing 
  • Earned Growth as a performance metric

Most global firms grapple with slowing demand and struggle to lead customers (their clients’ marketing departments) toward sustainable growth. This results in AdWaste, forcing CEOs to cut costs elsewhere, compromising customer experiences.

eCommerce businesses also struggle with a fifth friction – the inability to establish relationships with unregistered website visitors, marketplace buyers, and physical store shoppers. Physical store shoppers became increasingly common as the pandemic-induced online shopping surge receded. The failure to create a direct, digital relationship with customers hampers the brand’s ability to reconnect with them during future shopping instances. This escalates transaction costs and further squeezes profits.

In this series, I will discuss the frictions and their solutions. Overcoming these frictions can help power profitability and fuel sales growth while trimming marketing expenses. This is critical in unlocking exponential forever growth, culminating in a ‘profit monopoly’ (Profipoly) – the most formidable business moat an eCommerce business aspires for.

Four Frictions, Four Solutions

In my other articles, I have already discussed how the profitability of eCommerce companies suffers due to an over-reliance on the acquisition of new customers. A disproportionately high focus on expanding the customer base overshadows the potential to maximize value from existing customers. Many inefficiencies that I call ‘funnel frictions’ hinder progress at every stage, from customer acquisition and conversion to retention and loyalty.

The four funnel frictions are

  • Attention Recession 
  • Red Journeys 
  • Dormancy and Churn 
  • Adtech AdWaste

These can be addressed by optimizing the ‘good fractions’ leading to profitable growth and creating a profipoly.

Attention Recession

Attention Recession occurs because customers are bombarded with marketing communications, leading to declining engagement with promotional messages. To bolster the 1/100 good fraction, eCommerce companies must adopt Inbox Commerce via email shops. This would transform emails from communication tools to virtual shops, captivating customer attention and moving the conversation funnel closer to where their attention resides.

Red Journeys

Red Journeys refers to customers disengaging with brand properties (website, app) thanks to irrelevant content. The 1/33 good fraction can be boosted by adopting Green Journeys via iDarpan. iDarpan is a tool that predicts the next best action for each customer. Personalizing interactions allows brands to ensure relevant content and experiences, reduce drop-offs, and boost engagements and transactions.

Dormancy and Churn

The third friction is caused by Dormancy and Churn, where customers become inactive or switch to other brands. The 1/3 good fraction can be improved by partnering with a Reactivation Progency to re-engage dormant customers. Progeny leverages data enrichment and targeted content to recapture dormant customers at a fraction of the cost of acquiring new ones.

Adtech AdWaste

Adtech AdWaste is caused by ineffective spending on customer acquisition, thanks to wrong acquisition and misguided reacquisition. The 1/2 good fraction can be increased by utilizing the Near-Zero Acquisition Cost strategy. This strategy emphasizes reactivation over reacquisition, robust referral programs focused on Best Customers, and acquiring lookalikes using the Best Customer Genome (BCG). This approach reduces wasteful marketing spends, improving the bottom line.

Good Fraction
Attention Recession
Low opens and CTRs thanks to information overload and non-personalized messages. 
Inbox Commerce 
Email 2.0; Email Shops (AMP); Engaging Footers (Atomic Rewards); Hotlines; WhatsApp Shops 
All (Best, Rest, Test) Special Focus on Best 
Red Journeys 
Poor customer experience leading to drop-offs and disengagements from brand properties 
Green Journeys for Next Best Action 
Digital Twins powered by iDarpan, Large Customer model, and Generative AI SHUVAM; VRM; Best Customer Genome; CLV; Unistack, Unichannel; Search, Browse, Recs; Omnichannel Personalization; Earned Growth 
All Special focus on Rest and Test Customers 
Dormancy and Churn 
Existing customers become inactive or switch to other brands. Brands then target them for expensive reacquisition
Reactivation Progency 
Email (AMP); Data Enrichment; Microns with targeted content; Atomic Rewards Partner, which combines product and agency Adtech-style Performance Pricing
Left and Test
Adtech AdWaste 
Inefficient marketing spends on customer acquisition 
Near-Zero Acquisition Cost 
Reactivation instead of reacquisition Referrals from Best Customers BCG-influenced acquisition 

Addressing these four frictions is critical for eCommerce brands that aspire to become a Profipoly. eCommerce brands can create enduring and profitable businesses by pivoting to profitability with Inbox Commerce and Reactivation Progency, curbing AdWaste, and cultivating Green Journeys.

This lays the groundwork to discuss the fifth friction (Identify Gap) and the solution (Anon-to-Known). The biggest winners of the future will be those who are closest to their customers. This makes it vital to identify anonymous shoppers, build direct relationships, and create more personalized and efficient marketing.

Continued in Part 2

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