eCommerce Rant 3 | Pareto's Law Word Of Mouth Marketing & Channel Marketers

eCommerce Rant 3 | Pareto's Law Word Of Mouth Marketing & Channel Marketers
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This week, I’m going in on the 80/20 “law”, Word of Mouth marketing, and channel-specific marketers. It’s time for another eCommerce rant!

1: Stop Abusing the 80/20 Rule in eCommerce

The Pareto Principle states that roughly 80% of consequences come from 20% of causes. It’s a powerful statement, and it’s widely applied across many facets of life and has somehow made its way into eCommerce with gusto.

“80% of your revenue is driven by 20% of your top customers” is one of the soundbites you will constantly see across LinkedIn and Twitter.

Except it’s not true. Not all the time, anyway.

Byron Sharp studied the Pareto Principle in-depth as it pertains to retail and called the 80/20 rule “The Heavy Buyer Fallacy”.

Sharp acknowledged that Pareto’s Law was prevalent but that it is more equal to 60/20, and that the bottom 80% of customers can make up nearly half the brand’s sales.

What does this mean when it comes to retention marketing?

It means that excessively focusing on your “top loyals” with exclusive programs and segmentation strategies could, in the long run, be incredibly damaging to your attempts to grab market share.

Note the word excessively here. I am not suggesting that you do not focus on rewarding and incentivising behaviour from your best customers, but rather not to do so while excluding your remaining customer base.

An example of this can be found in segmentation strategies, which I frequently audit inside accounts.

You go so granular that you miss out on targeting a lot of your customers with one of the most profitable channels at your disposal (email), due to the magical theory that these customers don’t warrant attention due to the disproportionate amount of revenue your top loyals will generate for you.

My proposal is simple: target the whole market with low-cost media, and go granular when it makes sense.

Yes, you can do both - but don’t do one at the expense of the other.

2: Optimising Word of Mouth Marketing is a Necessity

Customer acquisition is the lifeblood of any eCommerce business, but everybody knows the cost of ads is higher than ever across paid social.

What can you do to offset these costs?

Find creative ways to optimise Word of Mouth (WoM) marketing.

I recently conducted a Twitter thread stating that you should be aiming for 20% of customer acquisition to be coming from WoM via post-purchase surveys.

It’s an audacious goal, but one that is driven by necessity in light of market conditions.

If you’re able to get 1 out of every 5 customers coming from referrals, that will allow you to offset CAC and scale more profitably.

eCommerce Rant 3 | Pareto's Law Word Of Mouth Marketing & Channel Marketers | Magnet Monster

Anecdotally, I can say that the brands we work with that have at least 20% of sales attributed to WoM in post-purchase surveys such as KnoCommerce, are the more profitable businesses with better customer retention across the board.

And yes, I’ve said on several occasions that WoM marketing is not scalable, but that doesn’t mean I don’t believe you should try to optimise it.

WoM is a bi-product of acquisition, a great product and customer experience, and you should be relentlessly focused on all 3 in your business.

3: Channel metrics need to be tied into brand KPIs

One of my biggest gripes with email marketers is when they post Klaviyo screenshots on Twitter and claim that they’re crushing it for their clients due to a high revenue per recipient or email-attributed revenue.

Without context, these statistics mean nothing.

“Click rate” within a vacuum means nothing to a brand operator. What they will care about is the quality of traffic driven back to the website as well as returning customer revenue.

Next time it comes to reporting on channel-specific activity, it needs to be tied to macro goals for the brand. If it isn’t, you’re working in isolation, and not in harmony with the company initiatives and how the channel is feeding its long-term strategy.

It goes back to correct onboarding and measuring email marketing performance holistically based on the company vision.

If you can’t achieve this, then your strategy will always miss the mark and lose effectiveness.

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