All types of ecommerce entities in the Indian market today are faced with the twin challenges of scaling cost-effective customer acquisition and maintaining a healthy and contribution-positive repeat rate.
Whether it is a horizontal multi-category business, a niche vertical site, a low-margin marketplace entity or a high-margin inventory-led player all are constantly balancing total costs of operations [including marketing costs] with the margins that they are making, while trying to step-jump trial and sustain repeat transaction frequency.
In a hyper-competitive market with limited differentiation among the various offerings, often discounting is used to drive top-lines and this practice further eats into the revenues. While some players have developed a few features that would differentiate them – like superior and faster delivery, easier onsite navigation, minor variations in supply, additional selection, more upfront and efficient buyer protection programs etc., most still continue to look the same and frequently the only differentiation is the price/discount on offer on that day. This factor is true irrespective of the scale [of buyers/revenue etc.] achieved – whether it is hundreds of million USD [large-horizontal] or a few tens of millions INR [small-vertical].
Most ‘marketing’ efforts also look like clones of each other with a high focus on search-driven digital channels and this translates into a bidding-war that drives up cost of customer acquisition [CAC]. Players that have taken to offline or mass channels have achieved higher awareness and have managed to create certain ‘brand’ appeal, but this approach obviously comes with a high entry and commitment costs and the ROI is often long-term and not accurately measurable/attributable.
In this background some of the important metrics that demand side professionals deliver-to are CAC and CLV [Customer Lifetime Value], both these concepts are in common usage in the industry and being able to establish a healthy equation [CLV = X multiple of CAC, X> 3…] is the holy grail that most firms are searching for, scale players trying to establish sustainability and profitability or smaller entities wanting to attract capital for their next phase of growth.
So, here are a few thoughts that may help in moving towards that goal [gleaned through observation and experience].Practitioners are aware of them at various levels but they don’t necessarily follow-through into implementation because they end up – managing too many metrics, meet too many goals, serve too many customer segments, compromise on practical challenges, follow the herd etc.
1) Differentiate [Differentiate, Differentiate] –There are many opportunities for this – right from your basic offering: which categories you play in, to who you chose to serve: all the segmentation gyan is actually effective, what is your proposition: this can be supply driven or experience-based, how you communicate: your brand persona [obviously it has to be in synch-with the previous 3 factors] etc. If you notice, I’ve kept ‘price’ out of this, some players will have the scale/resources/cost-structure-revenue-business-operational-model to build a business that is differentiated on price but those are a few and far between. For the rest, occupying specific planks and serving particular markets/segments will form the cornerstone of their identity and their ability to deliver meaningful and sustainable value to the consumer.
2) Align – It is this factor [strength of alignment of marketing messages and levers and consumer decision-drivers] that influences the ‘conversion’ metrics in any marketing funnel. This requires a clear understanding of the consumer decision states – from the stage of feeling the need/want to – the active search process to – the moment of truth to – all the parameters that influence purchase-outcome. All the marketing channels/levers [inbound/outbound/mass/direct etc.] should therefore be built on this nuanced understanding of the ‘consumer states’. Each lever or channel [social, PR, buzz, emails, search, mass media, tele-marketing etc.] addresses a particular stage of the consumers’ decision journey –starting with stated/unstated needs to awareness of options to consideration to trial to preference to loyalty.
Without getting into gory details, evaluating each lever and the aligning it with the various stages it influences naturally and providing the right incentive [message] to match the consumer motivation at that stage will lead to most conversions. I find that this is the most muddled part in marketing programs – a mis-match of levers/messages and consumer-motivations – it leads sub-optimal marketing programs and to wrong metrics being pursued etc. [e.g. measuring or trying to measure transactions from a mass media campaign or a social engagement initiative].
3) Measure the right-outcomes at the right time–Closely linked with the above point, but deserving a separate mention on its own. Marketing programs have to eventually drive transactions and revenue and being able to trace all marketing efforts to this final metric is the utopian ideal. But remember, different channels are addressing different points of the consumer journey and therefore intermediate metrics appropriate for each channel/decision-state need to be established. Keep in mind that there is lot of noise and non-controllable variables [competition etc.] when you are reaching out to the consumer across various open channels. And having channel-specific metrics linked to the input will help in understanding the changing ecosystem factors better than just tracking business level metrics for all marketing efforts. This approach will lead to faster and targeted feedback-correction-loops, thereby widening the metaphorical-funnel at the right-place and right-time.
4) Balance between Content-Driven & Owned/Earned Media and Paid Media – Jumping to more tactical elements, I think that the overall importance of inbound marketing efforts via search [not including paid-programs] and content-driven [inform/educate/entertain] marketing etc. are grossly underestimated against more obvious outbound efforts like emails etc. Even paid-search [whether text or contextual-display] while relevant still has conversions that are poorer than direct/organic channels in most cases [again ignoring price/promotion specific campaigns]. There is significant opportunity to re-balance the owned/paid/earned media weights in the favor of earned vs. paid. Often owned media ends up being nothing more than basic merchandising and brining in content rich elements will make big difference to improving conversions all of which go towards controlling the CACs, that we talked about earlier. Overall the right balance between will help in bringing down CAC not only by bringing input costs down but also improving conversions per interest generated. The trick is to figure ‘how to scale’ the earned/owned media to drive enough interest. [Concept Credit: David Skok]
5) Relationships – It is easy to think of consumers as nameless/faceless entities when they run into a few million. This thinking results in marketing programs that churn out email blasts and onsite merchandizing approaches that are generic in nature. I know that I am over-simplifying when I say that, the truth is most firms today have fairly sophisticated big-data driven customer segmentation in place. Often these are derived behaviorally – basis browse and buy behavior taking into account standard parameters such as – recentness of purchase, frequency, monetary value, dominant category of purchase, average purchase price, recent category of purchase, recently browsed, most browsed, other ‘similar’ buyers’ complementary purchases [also bought], supplementary products for items they have purchased [bought along with], demographic criteria etc.
The learning is in the ability to apportion weights [including keep or discard] to these criteria while crafting the messages and allocating incentives [e.g. higher incentive to a lapsed buyer]. Objectives of – increasing the frequency of purchase, moving buyers across categories/product-lines [cross-sell], up-sell in the same category, upgrade to premium services [an annual free-shipping program for example], all of which help in increasing the CLV are the specific outcomes we want from repeat buyer behavior. Given the plethora of variables and the complexity of their inter-relationships – I am in favor of supplementing these efforts with some simplification – personalization and opt-in. While machine-derived algorithmic merchandizing [basis browse] is personalization, actually seeking inputs on interest areas, design sensibilities etc. will help in becoming far sticker in the consumers’ day-to-day behavior. Similarly I think opting-in to email programs will help in enhancing engagement. This is where you being to develop one-on-one relationships with millions.
For a nascent and evolving ecommerce economy like India with many small and medium players seeking to make their mark implementing all of the above may seem tough, especially when we are struggling with enough and consistent base data to make our efforts completely analytical [and accurate]. Judgment and experience will continue to play a key role. There is as much art and science as you implement the elements of the above 5 steps. It is an exciting journey that will involve much learning and also much satisfaction as you gain insights and crack implementation that moves you closer in the search for the ecommerce holy-grail for your business.
(About Author: Kashyap Vadapalli is the Chief Marketing Officer & Head of New Business, Pepperfry.com, he has diverse and rich experience in Marketing, Sales and Business Strategy. Prior to joining Pepperfry, Kashyap was the Chief Marketing Officer of eBay India and has had prior stints at Google and Tata Interactive Systems in marketing and business development. He is an Electronics Engineer from Birla Institute of Technology, Ranchi and an MBA from IIM, Calcutta.)