In this Market Movers interview, Al Lalani, Co-Founder of Annex Cloud, chats with Rajesh Jain, Founder of Netcore about changing from a push for acquisition to a retention-driven loyalty program. Rajesh offers advice to marketers on what areas should be focused on to aid in a company’s success in these unsure times. He also shares his approach to building a continually profitable machine through his “Next, Best, Rest” system.
Welcome to Annex Cloud Market Movers where we bring in market luminaries experts to help us with the current times. We've done some amazing shows, but today I'm very, very excited to welcome Rajesh Jain. Rajesh is the founder of Netcore, which is Asia's largest marketing tech provider. Rajesh, welcome to the discussion.
Great to be with you Al.
Awesome. Rajesh, if you can talk a little bit about yourself and Netcore, you've got a very, very past, and you've been in this industry for a very, very long time. I won't do it justice. So if you can explain to people what Netcore is, what you've done in general and a little bit about the content and things you share.
Sure. I'm basically a tech entrepreneur, serial tech entrepreneur. I set up India's first internet portal, way back about 25 years ago. And then I sold the business to Sify for a hundred million dollars during the first dot-com boom, we are seeing another one right now in the eCommerce space. And after that, I started Netcore.
So after multiple pivots through its 20-year journey, Netcore has grown to be Asia's largest digital marketing and marketing tech firm, so emails, SMSs, a full marketing stack. And through these years, I also spent some time, trying to transform India, trying to becoming a political and prosperity entrepreneur. Some part of it worked out well, some didn't, but that was a different detour.
I'm now back into Netcore, pretty much full time and working to grow internationally, India, Southeast Asia, Middle East, and Africa, we already have a presence. Our next focus is really how to grow in the U.S. market.
Wonderful and great to have you here. And so I think my first thing is, I know you write a lot on your blog. For people that don't follow Rajesh, you can go to rajeshjain.com. On your blog, actually you talk a lot about customer lifetime value and net predicted revenue. Now as a marketer, as a former marketer and as someone who talks to marketers a lot, most marketers, if you ask them their metrics, most digital marketers that is, they will easily say out, here's how much traffic I get if they're online, here's how much conversion rate I have, whichever channels they get from, and here's how much average spend or average order value my customers get.
Those are metrics that can very quickly give out, but if you ask them, what's your customer lifetime value, what's your customer lifetime value for your best customers, and how does that tail off, and what is your net predicted revenue from this customer cohort? Most marketers, I don't think will have a great answer. Why is that?
I think everyone's just focused on the present, that's number one. Second is, very few companies actually have all of the data and analytical tools. And to do CLV calculation, it's not difficult, but they don't give it as much thought.
So, there are multiple ways by which CLV can be calculated. And many companies I've seen, tend to use a very simplistic model of calculating CLV. Let us take the average of transactions over the past few months, or maybe a couple of years, and then they don't know what to do with the CLV. So when you get a flawed CLV, you're not able to then segment your customers right. And that's where the first challenge lies.
The second is, when you don't calculate CLV right, you also don't have a forward-looking right estimate of what the customers that you have will actually generate in future revenue. So, the key really lies in how do we think about the customer lifetime value? It's a forward-looking metric, it's a predictive metric, that's number one. And second is, how do we use the right data science tools to essentially do the calculation right? And those are then the building blocks for calculating NPR and then doing the segmentation right.
And that makes sense. And one of the things that I think you wrote about that I found very fascinating, which you shared an article from the Harvard Business Review, which took this concept, which they called CBCV, which is Corporate Based Valuation, essentially for a company or Customer-Based Corporate Valuation. And what that was essentially was, they looked at an example of revolving clothing, which went public last year and was valued after going public, which popped by another 100% almost or 90% and got to four to five times their revenue as their valuation. And as an apparel company, that's unheard of.
For software, we hear about this all the time, but for apparel, that's unheard of. And the apparel that, that Harvard Business Review article that I felt was very interesting drew, was their customer corporate valuation for that company was based on the customer revenue they were generating, which was very similar to how retained revenue is and how much they spend.
And so in a software company, you focus on that subscription piece and revolve was very much like that in terms of their customer cohorts, thereby demanding backup evaluation. So I think just proving to your point, NPR and that predicted revenue is such an important metric, in terms of lifetime value calculation, which really has a big impact on your company's overall evaluation it seems like.
In fact, what people should do is actually read about the work by Peter Fader of Wharton. He's got two excellent books on customer-centricity. He's also the co-author of the article that you just mentioned in the Jan-Feb issue of HBR on CBCV. And I think the two books on customer-centricity talk a lot about Customer Lifetime Value, how to calculate it right because that's really the foundation of everything else that we can do when loyalty and retention, once you get the CLV right.
Perfect. So, now that we're thinking about getting the right mindset for marketers to think about the net rate predicted revenue and the Customer Lifetime Value, you have a methodology that you brought together to help customers think about bringing this together. And then you call it a VRM, which is Velvet Rope Marketing. Can you explain what that means in the context of CLV and how does it work?
So the framework that I like to use is really... Excuse me. The framework that I like to use is really the best customers, that's the top 20%. And then we have the other 80%, the long tail of customers, and then the next customer. So best, rest, and next.
Now the first step in this is really to collect all of the customer data, especially the transaction data, offline, online, whatever it is. And the other information about the customers that you can get through the app, on the website, et cetera. The first step is really how do we calculate CLV right as we spoke about.
Once you do the CLV calculation, then we are able to do the customer segmentation. So typically, businesses will find that the top 10, 20% of customers are generating disproportionate value, maybe 50, 60, 70% of revenue. And if they actually get down to calculating profitability, they may find that the profitability of these customers actually could exceed 100%, because there are many other customers in the long tail, who will be negative contribution because of the cost of acquisition and the cost of servicing.
So these customers, the best customers are very, very important for a business. Identifying these customers, retaining them, and then looking for the next customers who are like these customers, that becomes very, very important. So that's really the core of this idea around Velvet Rope Marketing, think of it like Red Carpet Marketing. Basically, how do you create an amazing experience for the best customers so they never want to leave your brand?
That's the key to growth and profitability, especially in these times. In a way we think about it, retention now is the new acquisition, given that it's harder to acquire new customers because marketing budgets are getting slashed. And your excellent point which you made in one of your recent presentations, that in 2008, a lot of customers actually joined or changed their brands. And that's even, therefore, more important that companies focus on their best customers at this point in time.
Absolutely 100%. And we will link to that post for 2008 in this video. Thank you for referencing that. One of the other things I will mention is one of the other discussions we did with Allie Carroll, she's the author of a book on this topic. She has a very same similar connotation. She calls it highly loyals, which is really your context of best customers. And so the best rest and next is an amazing context.
Carrying that forward, the best and rest is your existing customers. And you described that well, the next is important because your best customers can help you acquire your next customers. We call this context of internal loyalty and then advocacy. How can you turn your most loyal customers into advocates and help those advocates drive additional revenue through new customers that didn't know about you before, You talk a little bit about that in your stuff around referral marketing, can you explain this context of how we can acquire the next customers using the best and rest or the best?
So essentially, if you think about it, the best customers, they are the high spenders, and they will know people like them. And today because of social networks, our ability to reach people like ourselves is much greater than it was probably five or 10 years ago. And in some ways, referral marketing has not evolved as much. To account for the fact that the value of the best customers in getting more customers like them is significantly greater than what has happened. I think Annex Cloud is a pioneer of course, in referral marketing. But if you take the larger context out here, what is it that we can do by creating a specific program for referral marketing just for best customers.
And there are two interesting ideas which can be applied here. The first is that instead of just compensating customers for their reference, sometimes you just get a free ride or you get some points. Instead, if you give them a value dependent on the lifetime value of the customer they have referred, that makes it very exciting for them.
Second is if we allow them to create a multilevel tree-like MLM, and the other companies basically do. So now, if I refer Al and Al refer Amy, then I can get credit for the spend that Amy is doing. And suddenly the value of the referral program can get multiplied many times because now it's in my interest to actually become a great advocate for the brand because I'm getting something of the lifetime value of the spend. And these thoughts, become very important because the best customers again are disproportionately valuable. They can then get you more like them, and therefore you can create a profits flywheel using this idea of best customers begetting other best customers.
Great. And I think some of these concepts, I really like, which is in the direct sales/MLM space, they've used it for a very long time, but having that tree built under you and using that part, a lot of times we don't count that in the valuation of your best customers. We almost always neglected. We look at lifetime value, but we never consider the amount that they can get in terms of the next customer. So that's awesome.
And in terms of growth, as you think about it in the current age and in the current challenging times and where we are now and whichever part of the world people might be that are listening to this, it's certainly a challenging time and it will be for the foreseeable few months or even quarters. And so, what is your advice to marketers to think about as they think about the current times and thinking about where should we focus on from a marketing perspective?
And in traditional, I tell people the last decade was the decade of acquisition, which is, focus on the top of the funnel, get as many people as possible, maybe there's a leaky bucket, but the funnel so big, it doesn't matter. We'll keep going and pumping more in the funnel.
The new concept for me is, retention is a new acquisition now in the next few years where we focus on retention being the key metric. But what's your advice for marketers and how should they consider? Because in most marketer’s minds, they're focusing very much on acquisition consistently, but maybe that formula works, maybe it doesn't. What are your thoughts?
I think what marketers need to do at these times is first of all, like you said, focus on retention. And how do you focus on retention, which customers do you essentially make sure that you never lose, they don't turn away from you? And that is where the ideas of CLV and NPR start coming in, that if you can identify correctly the best customers, give them an amazing experience through technology, through a human interface, whichever way it is so they don't leave you. Because every industry really has a certain set of customers who are disproportionate contributors to profitability for those customers.
If you take Apple, what it did with the iPhone. It basically ensured a great product where it sucked away revenues and the profitability from the industry. Now, every company should be thinking like that, that if I can acquire the best customers in that industry, identify what their lifetime value is and therefore provide them common suited services, common suited product experience in there, that really becomes the foundation for building a continuous profitable machine in the business.
And these, I think in one or two years, are going to be very, very difficult for some companies, but for other companies who can implement these ideas around retention and loyalty right, I think it's time they're going to pull away big time and increase the gap between them and combat competition. So I think the key is, focus on best customers, focus on retaining them, and have a great foundation for the future.
Wonderful. And I'll leave it with that. I know one of the things that we found in our work is Zappos, which was very, very successful. And out of the last recession, during 2008, they were generating 75% of their revenue from existing customers. And we all know that their core focus was service and retaining those customers and keeping customers happy.
And that's how important it is even in the other surveys and analysis we've done. We've seen companies that focus on retention during these recessionary times in the past have come out significantly faster than others. So Rajesh, this is fantastic.
Thank you for spending the time with us today. As a parting thought, if people want to follow your work, because I know you write a lot of great content, where do they go to seek that out? And also, if you can tell people if they want to reach out to you or to Netcore, how can they reach you guys?
So they can go to my blog, Rajeshjain.com. I have an email ID there, or they can just email me at email@example.com.
Perfect, wonderful. Rajesh, thank you very much for joining us.
Thank you very much, Al.
Co-Founder, Annex Cloud
Since 2010, Annex Cloud has provided industry leading loyalty solutions to more than 250 leading brands and retailers, including Jenni Kayne, Hewlett-Packard, Bed Bath & Beyond, e.l.f. Cosmetics, Olympus, Sugarfina, Mizuno, MacKenzie-Childs, VF Corp., with the ability to engage tens of millions of their customers one-to-one at scale.
The Annex Cloud platform provides fully integrated Customer Loyalty, Referral Marketing, and User Generated Content (UGC) solutions that seamlessly work together to optimize the customer journey and deliver a unified customer experience that is designed to accelerate revenue growth, retain valuable customers, increase average order values (AOV) and drive repeat order frequency.
Netcore Solutions is a global marketing technology company that offers AI-powered marketing automation and analytics solutions. Netcore’s flagship product, Smartech, empowers modern marketers to map their customer journey to deliver exceptional 1:1 customer experiences.
To learn more about Netcore Co., visit https://netcore.co/