Tripwire Marketing: From Bankruptcy to Over 1 Million Dollars in Profits in One Year
In 2015, 9-figure apparel retailer Karmaloop.com filed for bankruptcy. The company had been bleeding cash, losing six figures per month.
That summer a private equity fund acquired the assets of the company. They brought me in as CMO.
Within a year-and-a-half the PE fund sold the company to a strategic buyer.
That’s a rapid turnaround.
Many factors contributed to it. The merch team brought back several key products. The CEO cut costs.
On the marketing side, I attribute our success to one thing: using data to effectively model out our customer behavior, and then develop the appropriate communication to improve it.
My primary weapon in this effort? Tripwire marketing.
In this article, I explain what I mean by tripwire marketing: what it is and how we used it as part of a high-ROI marketing program. My hope is you can model some of our approach at your own business.
What is tripwire marketing?
Tripwire marketing involves three steps:
- Modeling desired customer behavior,
- Flagging deviations from that behavior (i.e., the “tripwires”), and then
- Focusing your marketing time and energy on correcting those deviations.
Take a simple example. Every Friday I work out at Slow Burn Fitness on the Upper West Side of Manhattan.
That’s my “standard behavior.” This is Step #1.
After several months of this, I stop. Maybe I found another gym or just got too jacked (less likely) or just got too lazy (more likely).
There’s my deviation. This is Step #2.
I’ve just “tripped a wire”: Slow Burn notices that I’m not coming in anymore. They send me a “Come back and your next workout is on us!” coupon. This is Step #3.
I receive the coupon, feel guilty, and start hitting the gym again.
Simple, right? Yes, simple and effective as I will explain below.
(NB: Notice this “tripwire marketing” is different from the “tripwire offer” popular in internet marketing circles. That latter term is used to describe an initial offer that generates enough revenue to offset the cost of acquiring a customer. It’s not what I am talking about here.)
Why use tripwire marketing?
Tripwire marketing is the highest-ROI marketing you can do
The primary reason to use tripwire marketing is because it works. It represents the highest-ROI marketing you can perform.
Because when you use it, you are spending your time and effort at the point of greatest impact.
Too many online businesses embrace a “let’s market to everybody” approach. Consequently, these businesses often end up spending considerable marketing dollars on converting customers who would have bought anyway.
Marketing where you don’t have to is called a subsidy cost. It’s one of the biggest hidden costs for any business.
Classic online examples of subsidy costs include everything from the initial popup discounts employed by almost every consumer brand and even Adwords spend on branded keywords.
If instead of spending on everybody, we only spent on those few who needed a “push”, our marketing would be much, much more profitable.
Tripwire marketing allows us to skirt customer lifetime value calculations
Quick: what’s your customer lifetime value (LTV)?
What do you mean you don’t know? Haven’t you used this “simple” calculation to figure it out?
What’s your customer lifetime anyway? What if your customers go away and come back again, is that one or two lifetimes?
If you run a new business or business with different customer segments that behave differently (i.e., most businesses), these are tough questions.
There’s often no universal answer.
The beauty of focusing in on relative customer behavior (i.e., tripwires) instead of absolute customer behavior (i.e., LTVs) is that you can get started on maximizing profits today. Not whenever you get around to building out that robust LTV model or implementing your big data solution.
Today, you can look at some basic historical customer data and start setting tripwires:
- If your best customers buy every thirty days and then stop … bring them back!
- If your average new customers visit five times before purchasing and you’ve got a new cohort visiting seven / eight / nine times … give that cohort an incentive to get off the fence!
- If your new free trial users typically use three core features before upgrading to paid and you’ve got some trials that haven’t used any features … push a webinar on them explaining your core features!
In each case, without knowing absolute lifetimes you would still be taking action to increase overall customer LTVs.
Tripwire marketing makes that possible.
Tripwire marketing conserves your resources
One of the definitions of entrepreneurship is doing more with limited resources.
Whether that resource is your team’s time or marketing dollars or your attention–you only have a limited amount.
So ideally you’d only want to employ your resources at the point of maximum impact, right?
Well those points are your tripwires.
Say you have 1000 customers and $ 1000 to spend on customer retention and loyalty.
- You could spend $ 1 per customer, or
- you could spend $ 10 per customer on the 100 customers most likely to churn.
The second option is always more effective than the first.
Tripwire marketing helps you to identify those 100 customers most likely to churn through changes in their behavior.
Tripwire marketing allows you to automate your marketing
We love marketing automation. It allows us to do more with less, “lock-in” campaigns that print cash for us while we sleep.
And most of us love “triggered emails” because these represent a core part of marketing automation: automation triggered when our visitors or customers do something like abandon a cart.
Well, you can also automate tripwire marketing campaigns.
With tripwire marketing, it’s not so much user behavior triggering a response as much as it’s the deviation from a customer model triggering a response.
It’s often the absence of activity that serves as a trigger.
And you can automate these triggers with your CRM or email software. At Karmaloop, after an initial few months of testing, we were able to “lock-in” our top tripwire campaigns using email (Klaviyo), on-site messaging (Justuno), and even dynamic Facebook custom audiences.
This automation ultimately creates a marketing machine based on a fair amount of intellectual property (i.e., learnings about your own customers). This puts you in an ideal position when your goal is, you know, beating your competition. Or raising money. Or selling your business.
Case Study: tripwire marketing at Karmaloop
Enough theory. Here’s how I used tripwire marketing at Karmaloop to pivot the business.
Our problem: too many unprofitable one-time buyers
Tasked with turning around the company, my first step was to build out a customer model for what profitable, high-LTV behavior looked like.
My rationale: The more I could encourage this behavior, the more profitable we would become.
I created two simple segments: “whales” and “minnows.”
The whales were my multi-buyers. They had lower basket sizes. They rarely returned product. They represented a profitable, high-LTV segment.
The minnows were my “one-and-dones.” They bought once, ever. That item was probably a low average order value item. They returned a lot. And once I took customer acquisition costs into account, this segment was unprofitable and negative-LTV.
Karmaloop’s primary issue was we had too many minnows, not enough whales. This simple pull from Google Analytics shows the proportion of each:
Note here that my whale segment (defined as multiple purchases over a certain amount of time), albeit only 1.3% of our total sessions, still contributed 43% of the revenue during this period.
As a good data-driven marketer, you should be thinking: how can I get more of these whales?
The solution: model out multi-buyer behavior
Whales rock. All our profits came from that segment. So I needed more of them.
Let’s review the tripwire marketing steps:
- Model desired customer behavior,
- Flag deviations from that behavior (i.e., the “tripwires”), and then
- Focus marketing time and energy on correcting those deviations.
To model out whale behavior, I ran a simple query on about ten years of order data. It looked like this:
- Select all my multi-buyers (my whales), and then
- Calculate the average number of days between their first and second purchase.
I wanted to know how long an average whale took to make his second purchase.
The time between purchases is called the “intra-purchase latency,” so in this case I was after the “second-purchase latency” for my whales.
The result of this query was this histogram:
This chart displays the distribution of whale second-purchase latencies. The X-axis shows the number of days between the first and second purchase. The Y-axis tells me how many customers I had that took that many days to reorder.
The green bars are what I am after: the time between first and second purchases.
My primary take-away? If my customers were going to order twice, 80% of them made that second order within thirty days of their first order.
Bingo. I had my desired customer model (Step #1).
And I had a decent tripwire at thirty days (Step #2).
Now all I needed was the what: what to communicate to those one-time buyers customers who busted through my thirty day tripwire without a second order …
Our simple tripwire second-purchase campaign
You have to let your customer dictate your marketing content.
At Karmaloop, my multi-buyer analysis said: if a new customer comes in and buys on day 0, and if he hasn’t bought again within thirty days, he is becoming less and less likely to ever become a whale.
Conversely, before that thirty day tripwire, he is still likely to rebuy and become a whale.
This simple observation had two implications for my marketing:
- Before thirty days after initial purchase → customer still likely to reorder → market full-margin product to him
- After thirty days after initial purchase → customer less and less likely to reorder → give away margin as incentives
Karmaloop had been doing neither.
In blind pursuit of revenue, the company was “all discounts all the time,” and as such many customers within thirty days of their first orders were getting significant (30%, 40%) discounts off a second purchase.
As should be obvious now, this represented a massive subsidy cost. It was margin dollars we had been giving away when many of these new buyers would have come back to buy anyway.
So my first action as CMO? No discounts for the first thirty days after initial purchase.
When should we employ discounting? Only after thirty days if the customer has not yet reordered. Moreover, as the likelihood of reordering goes down with time for each day after day thirty, I could increase the magnitude of my offer with the number of days that pass.
My resulting tripwire campaign looked like this:
- For the first thirty days after initial purchase, we pushed full-margin products to the customer.
- At thirty days after an initial order without a second purchase, the customer received a 10% off coupon.
- At 45 days, that customer received a 20% off coupon.
- At 60 days, that customer received a 30% off coupon.
If at any point the customer took one of those offers and ordered again, he would not receive subsequent offers.
This tiered discount strategy is called a “discount ladder.” Discount ladders are simple sequences in which the promotion amount increases over time along with the customers increasing unlikeliness to take that offer. You essentially give a customer just enough and not a penny more.
You don’t have to employ discounts in your discount ladder either. Any promotion will do as long as you increase the perceived value over time. Free gifts with purchase, additional features included, speedier shipping all work.
Initially I sent my offers via email. Here’s an example of what our ladder offer looked like:
We tested these tripwire offers via email first. Once we achieved a significant result, we moved the same offers into our on-site messaging, our Facebook custom audiences, even snail mail postcards.
When I rolled out my tripwire campaigns, I carved out a 10% control group that did not receive any offers. These campaigns are all about not creating incentives where the customers would do something anyway … so that control group allowed me to measure exactly what they would have done anyway.
Then I ran my tests for several months and measured the lift of the test group versus the control group in a simple Google Sheet like this:
There are two things I want to point out about the ROI calculation:
- First, there’s a line in there for “discounts.” Take them into account when calculating your ROI. This isn’t ROAS, this is ROI. Discounts represented a drag on our margin, and I wanted to capture (and minimize) that drag.
- Second, there’s a line in there for “control.” Be sure to include a control group. Without one you don’t actually know the true impact of your campaign.
(If you’d like a copy of this spreadsheet, there’s a link at the bottom of this post.)
In short, our tripwire campaigns killed it. Getting our discounting under control and using them more strategically to grow our whale segment flipped many of our customers from negative to positive LTV overnight.
As you can see in our results, one offer in particular, the 10% tier in my ladder, clocked in at over a 2,000% annual ROI.
Two thousand percent?? These numbers are not uncommon for tripwire marketing retention campaigns.
Why? Because most companies discount too much. They acquire new customers who would happily rebuy at full margin, then they send discounts to those customers.
That’s a marketing fail, and Karmaloop was no exception.
By withholding our discounts for thirty days, we allowed for more full-margin purchases. We greatly reduced this subsidy cost. And killed it with ROI.
Building a system
Once we mastered one tripwire marketing campaign around second purchase activity, we moved on to other key tripwires:
- A time to first purchase tripwire. We looked at the average time it took a new visitor to purchase a product. We engineered incentives for those visitors that took longer than this time to act.
- A time from email subscription to first purchase tripwire. We looked at the average time it took a new email subscriber to make his first purchase. We held off on promotional activity until after that tripwire.
- Category-first-purchased tripwires. Once we had our high-level tripwires in place, we spent time layering on actual purchase data to produce more advanced models. Customers who bought footwear first had different second-purchase latencies compared with customers who started out with apparel, for example.
Over time our sequences got more and more granular and ROI increased. I estimate that over the initial year we ran the business, we generated well in excess of one million dollars in profits via tripwire marketing alone.
That’s profits generated via the existing operation and customer base with no need to fundamentally change the business or plow more money into customer acquisition. THAT is why this is approach represents my top strategy for growing businesses that I work on.
I want to push back a bit on most of the marketing tips, tricks, and hacks you read about online.
Most of them are one-dimensional. Change this email subject line. Tweak this button color.
It’s not that these one-off tactics don’t work, it’s just that they lack strategic context of where they play in the desired customer journey.
They represent photos; you want the video.
Only by looking at existing customer behavior can you determine where the points of maximum impact are. This is where you should focus if you are time and cash strapped like most entrepreneurs.
At the margins. At the 20% that deliver 80% of the results.
In this post I wanted to lay out a sound data-driven marketing strategy to approach this 80/20: tripwire marketing.
I wanted to show how you can use this a simple way to increase customer profits in the short term, and I wanted to show you how I used them at Karmaloop to generate profits quickly.
If you are interested in the approach, I’ve got a Tripwire Marketing Kit for free download over at my blog, NerdMarketing.com. In it I include the following:
- A flow chart laying out how to employ a simple tripwire marketing second-purchase campaign,
- the Karmaloop marketing emails I used, and
- A marketing ROI spreadsheet you can use to measure impact.
You can download the kit here. I hope you find it helpful.
If you have any questions on this strategy, please comment below. Or reach out to me via my blog at NerdMarketing.com.
Editor’s note: find Drew Sanocki’s course on ecommerce at CXL Institute: Ecommerce Growth Masterclass.
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