More than just Product-Market

A few weeks ago, we wrote in this space that there is no such thing as a “bad” customer.

We’re revisiting that today, because we caught something earlier this week that said something like “it’s all about the right kind of customer.”

Our initial reaction was much like that of our previous post, and a few other explorations on the topic. (You can read those (linked above and here), as we’ll save you from our soapbox this morning.) And while our opinions on this topic still hold, we did consider an alternative. And that’s this:

Perhaps, given the economic realities of the DTC channel, the bad customer/right customer thing has a bit of merit. It does, after all, come down to financial reality: if you can’t turn a profit on a newly acquired customer’s first purchase, you need to niche down and find an overly loyal customer base.

Most wholesale CPG brands grow through moving a long tail of infrequent buyers to slightly more frequent buyers, not by building a customer base that skews heavily deep loyalty and compressed LTV metrics.

This, obviously, runs counter to growth strategies being deployed in DTC.

So, rather than sit here today and say “that’s wrong!”, we’ll point you to the Four Fits framework from Brian Balfour.

(To say one final thing about bad customers/right customers, though: Our belief is that the responsibility of being bad/right falls squarely with the brand, not the customer.)

Though primarily used as a growth framework for technology companies, there are valuable lessons in here for any company.

While Product Market Fit is a well-known concept, Balfour explores other fits that are also important to scaling a business to $100M in revenue. Critically here, for this topic, he suggests that Channel Model Fit is another key growth driver.

You can read Balfour’s exploration, but this concept cuts to the heart of why an obsession around compressing LTV exists in DTC today:

When you sell via retail, not landing three purchases in three months from customers may slow your velocity. Not great, but not the end of the world. There are a lot of infrequent customers who can pick up the slack and keep your product moving fast enough.

When you sell via DTC, though, not landing three purchases in three months could very well mean your losing money on each customer you acquire. Unless you’re well financed, that could accelerate an undesirable outcome.

It’s not so much that it’s required for a brand to be success; it’s that it’s required for the brand to be successful in a specific channel.

That’s worth considering.