NM Live: Klaviyo’s Big CRM Launch & Why Direct Mail is a Retail Growth Hack

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Welcome to Nerd Marketing, an original podcast for eCommerce operators and marketers looking to level up. Drew Sanocki and Michael Epstein will bring you actionable strategies from their decades of running eight and nine figure brands, along with interviews and insights from the leaders of some of the most successful brands in the world.

Drew Sanocki

How you doing, Mike?

Michael Epstein

Good Drew. How are you?

Drew Sanocki

Good. I'm a little tired because I was out late last night.

Michael Epstein

Yeah, I think you were walking the red carpet last night to the VIP Klaviyo CRM announcement event, you?

Drew Sanocki

I was at the big event in New York last night, growing down with AB, our investor, by the way, at PostPilot, Andrew Bielecki, the CEO. It's good to see him. And Adil, their new CPO, their new chief product officer who's an old friend was great to see him too. And I was really just it was a great event. Then they rolled out the red carpet. It was sort of like, you know, the old Apple keynotes where Steve Jobs stands up and, you know, he's on that black stage with the two screens. They had the same kind of thing. AB talked and then a deal talked about this new launch and they brought up some top brands and top partners and did a demo. And then in the next room over, was down in Chelsea, the next room over they had just a great spread, you know, sushi and all this stuff so you could mingle and eat. So it was a lot of fun. But what they announced was what they're calling their CRM built for B2C, the only CRM built for B2C. And essentially what they did is that they built a unified data platform in Klaviyo, which they probably already had. And then they used that platform to power three things and potentially more coming. But number one, analytics, analytics dashboards, analytics about your customers, analytics about your products and catalog. Number two, service. You can pop up a tool on the front end that can answer questions for your customers about the products, about fulfillment, about whatever is in the data platform. And then the marketing pillar is the third piece. It's more sort of like automated and advice around campaigns to set up and when you should send those campaigns and what should go in campaigns. So marketing services and analytics are all powered by the data platform. It was a big launch. I was sending you some screenshots, you know, taking photos and sending you throughout. I guess it's going to be as easy as toggling on a switch in the backend of Klaviyo. And then anybody who has Klaviyo can get this live on their site pretty soon. So that was it. Have you, have you read about this thing?

Michael Epstein

I did. And my first reaction was, okay, we know that Klaviyo's have had this CDP product for some time. Many of us on the operating side have been using Klaviyo almost like our CRM going back forever, right? It's like where we house and trigger a lot of that, those campaigns using RFM and we tag things and we cat, we, try and consume as much data around our Klaviyo customer profiles as possible. So this makes a lot of sense to me that this is sort of the natural evolution of those pieces of Klaviyo. And now they're really combining it into this more robust platform. I think the surprise to me was the service element of it. That was the piece that I definitely didn't see coming. What were your thoughts on that?

Drew Sanocki

Okay. That was really interesting. I mean, it's like a bot that pops up on the product page, call it. There's common, you could ask questions about the product and it sort of had this FAQ functionality in there. But then because Klaviyo is tapping into the Shopify fulfillment data, you can ask like, where is my order? I need to return this. You can do a lot of that sort of stuff through it too. And that's where I was thinking, wow, is Klaviyo going after Gorgias here? I saw that, and it was like, this is help desk software.

Michael Epstein

Yeah, that's really interesting. I mean, know, know, Klaviyo is a public company now. They're thinking about how to expand their TAM. They started moving outside of Shopify with restaurants and other integrations. And that was another sort of moment with that announcement of like, okay, this might be part of their TAM expansion strategy too. We're going into gorgeous territory. What are the other, what are the other ecosystem functions or tools that you felt they were starting to encroach upon.

Drew Sanocki

Yeah. I mean, if you think of those three pillars, marketing, service and analytics, the marketing piece was very, it was sort of, you know, let's develop some audiences, let's develop some automated campaigns. And there you're talking about, you know, Repeat used to do this and something like Orita, which we just had a webinar with last week does some of that, you know, like here's the audiences that you should push into. Service we talked about because that looks very much like something that would go up against Gorgias or any number of help desk solutions, analytics to me, I mean, in many ways looked like a lot of the old Google Analytics reporting. It was like funnel reporting. There's like your acquisition campaigns and the customers that come in, they do a little bit more on the customer profiling side. Like, this is your champion or your whale and these guys are your bad customers, good customers, bad customers. And do they become better over time? And then they got a lot of the stuff that we have in the PostPilot app, the stuff we give away for free. So, you know, first product purchase, common purchase pass through the site, intra-purchase latencies, know, by product A today and what do you buy in 30 days? What is the customer buying in 30 days? That's all in the analytics piece. So it's huge. I think as you let off this segment saying like, we've used Klaviyo as the CRM forever. I think Klaviyo finally realized this and they just adopted the name, you know, and in fact, Jake Cohen there was telling me like, Hey, we had to do a lot of brainstorming about what we're going to call this before we landed on the CRM. And I was just like, well, you know, you could have asked me. We always used you guys as a CRM. So they're embracing it. It's going to be really interesting to see where they take it going forward. I mean, a lot of this stuff is powered by AI and, you know, are they going to be going after these different categories? But exciting events and really cool products.

Michael Epstein

Yeah, Moiz Ali had one take on this that, you know, in 10 years, does Klaviyo become a new Shopify, which is particularly interesting because Shopify is a fairly significant shareholder, I believe, in Klaviyo. But, you know, at some point, it feels like these big public behemoths all started encroaching on each other's territory because they have to, they've got to, you know, they've got to continue to expand their TAM. So I mean, obviously way too early to make any calls, but did you get like an inkling that that might be where they're going?

Drew Sanocki

That didn't, I mean, no, it didn't come up at all. I mean,but on the flip side, nor did they talk a whole lot about Shopify. It was not a Shopify like, they didn't even mention Shopify, you know? Um, it's almost like they were, they were platform agnostic, you know, um, Shopify didn't come up and to Moiz’s point, you know, um, I guess they could slap a card on this thing someday but certainly the marketing service and analytics, these three pieces that they're doing, Shopify could do just as easily. So does Shopify eventually go in that direction? That would be kind of interesting to see.

Michael Epstein

Yeah. Did they give any indication on how it changes pricing? Cause we know Klaviyo pricing structure has been a very hot topic recently.

Drew Sanocki

They didn't, you know, there's, I'm seeing it right on their site now, kind of messing around, but they didn't really get into how it's going to change up pricing.

Michael Epstein

Well, I think we will find out, but we know Klaviyo is all about building out that ecosystem, building out more tools and capabilities as extensions of their own product and within their general ecosystem. So I think this makes a lot of sense. And yeah, it was great that you got to see it in person.

Drew Sanocki

Yeah, it was a fun, fun event.

All right, Mike, given our background in M&A and PE, we like to always, I always appreciate these DTC acquisitions that happen. We had two in the last week. Aura Bora beverage brand got acquired by Next in Natural on February 19th for 50 to 60 million. was a majority stake deal for Next in Natural. The other one was Alani Nu acquired by Celsius Holdings a day later, February 20th for 1.8 billion. So 50 million and 1.8 billion. I have tried Aura Bora, we know those guys. I have not tried Alani Nu, you?

Michael Epstein

My kids actually love their bars. So I think they're more known for their drinks, but they also have protein bars. My kids love them, them for lunch and they're good. I've tried them. They're one of the better ones I've had.

Drew Sanocki

Yeah, I've tried to tell, I mean, I've had Celsius too, the Celsius drink. But really interesting because you've got two beverage brands, very different exit outcomes.

Michael Epstein

Yeah, you got reportedly 50, 60 million. And that was an interesting one because Paul, one of the founders of Aura Bora, did an interview and it was pretty transparent with their situation and why they thought that this was the right path forward. They raised, what was it, 22 million, I think. They were doing about 15 in the top line, most of it through retail. They were in like 11,000 doors and yeah, it's, this tough time. If you're in that space, if you raise a decent amount, you don't have a clear sort of line of sight to the big exit. Or, you're in that a $15 million revenue run rate is not massive in the beverage space. So you're not going to get the market for subsequent funding rounds is very tight if you're in that space. And so you're in a little bit of this no man's land, right? Like, where do you go? Because you need funding to grow, but you're not really gonna get funding based on the current environment and at your, you know, with the current run rate and sort of current characteristics of the business. So I think acquisition in this case makes a lot of sense because it's sort of the only viable path forward. And the fact that they were able to get an acquisition and I don't know, know, 50 to 60 million on raising 22 is like, you know, certainly not I think what they were shooting for, but not bad, whereas other folks have no positive exit opportunities right now. But then you contrast that with Alani Nu they were doing 600 million in revenue up 80%. And 1.8 billion. What's your take there, Drew?

Drew Sanocki

Yeah, I mean, I think it's funny that you've got a three to four X sales multiple for Aura Bora. I did the math right. And about a two to three X for Alani Nu it's lower multiple. But it's funny because on the 19th, everybody was saying, well, you know, there's so much less money in there and capital on out in VC. VCs have pulled out and you know, there's not going to be, the big exits are hard, and like literally the next day the steel goes through for two billion. You know, I think it just shows you can still as a DTC brand, you can still fetch a big exit in a tight market. I mean, in this case, the scale really matters. Right. So as you mentioned for a number of reasons, like Aura Bora didn't get that scale. They remained sort of a niche player. Next and Natural hopes to get them that scale. But for whatever reason, Elani knew it unlocked that scale. $600 million in revenue, growing crazy fast. 80 % they're in Target, they're in Walmart. So they got some key distribution there. And the deal itself was really interesting to me. So 1.0 roughly 1.3 billion in cash. 500 million in stock and then 25 million earn out. Like if you get here's 1.3 billion, but you're going to have to work for the other 25 million. Did you notice that in the deal notes?

Michael Epstein

I was thinking the same thing. Yeah.I totally did. It's like, let me go through these couch cushions in a year or two and see if we can, if we got any extra laying around for you.

Drew Sanocki

What is that?I mean, the only thing I could think of is like, is that maybe the 1.3 billion went to a different group than that, you know, and they had to incentivize some random person with the 25 million, you know, like this one guy or woman who joined late. We still need this guy. So, you know, he's got to work for 25 minutes because that seemed interesting. So, yeah, but why?

Michael Epstein

Yeah. Combination with Celsius seems to make a ton of sense. Celsius, obviously another rocket ship. So bringing in another high growth brand targeting a similar type of demographic, similar category. Man, combined entity is big. But supposedly Alani Nu was looking for a higher valuation at one point previously and did come off, you know, what they were.

Drew Sanocki

Yeah, two years ago they were on the market for three billion. Nobody hit that.

Michael Epstein

Yeah. So that's interesting. And I think one of the big takeaways here for brands, we've said it a lot. I think we're not stating, we're not telling people something they don't already see, valuations are not what they were a couple of years ago. Run a profitable business, continue to differentiate, continue to build moats and you can have an exit. It's still pretty decent, but temper your expectations.

Drew Sanocki

Yeah. And then, you know, if you, if you hit, if you have like extreme product market fit, then you've got asymmetric upside potential, you know, but if you stay lean and you don't raise a whole lot of money, and you've got a good cap table, you know, you can still get a life-changing amount for you, as a founder. So, yeah, congratulations to both those, both those brands. And, it's always fun to hear about what's going on.

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All right, Mike, an interesting new direct mail case study dropped this week for Sigmatic. You know, they made their name, I think, on mushroom coffee, mushroom drinks. They did something interesting with direct mail. So like a lot of DTC brands, they are seeing a lot of growth and expansion by going into traditional retail in their case, Whole Foods. Right. I think they've been in Whole Foods for a while. What they wanted to test is could they drive people to the store to purchase? And why would you want to do this?

Michael Epstein

Well, for so many reasons, shelf space is the whole name of the game in retail and velocity is what keeps you on the shelf. And if you don't drive velocity, I mean, that is the number one thing that a buyer in retail is measured on. The dollars per square foot in the category that they're representing. And if you don't drive velocity, you are not only not getting expanded into more of their doors, you're potentially just getting the boot. That product shows back up on your loading dock. You have to take it back and you're probably not getting back into that store anytime soon because it takes a long time for them to rethink this. So store velocity is so critical for these brands and we're constantly being asked, can we use direct mail to drive an increase in store velocity? And the answer is yes.

Drew Sanocki

Yeah. And I think in this case, the challenge always is like, you know, how do I assess success? Right. So, what we did in this case was, you know, four, Sigmatic, they needed to drive velocity in a Whole Foods in Texas. And so we essentially geo-fenced around that Whole Foods. We came up with a number of attributes that would predict a very good customer for them. I think we did a lookalike of their existing customers and maybe looked at some miles from a Whole Foods, like distance from a Whole Foods, household income, things like that.

Michael Epstein

Likelihood to buy at Whole Foods, visit Whole Foods multiple times per month. Like we have all of this data in our proprietary data set.

Drew Sanocki

Right. So you get, you know, loves mushroom coffee. You get like this big audience of people who live near the Whole Foods buy from are likely to buy four sigmatic at the Whole Foods and you drop them a promo, you know, and the promo says like, go buy it at this Whole Foods. This one in Austin, Texas on the left side of the road because you're going to get, you know, X percent off your first purchaser. So some deal on the new product. Right. And the way to test this is we chose a similar Whole Foods on the right side of the road that gets the same amount of traffic, typically foot traffic. And it's a way to sort of A-B test because unlike eCommerce and Shopify, these brick and mortar retailers often don't share a lot of the sales data and they don't share coupon redemption data, certainly in real time with the brands. Right.

Michael Epstein

And they certainly don't share the actual customer. So this is the question we get asked all the time. How do I, because for folks that have been in retail for years or decades, they sort of, they get it. Here's what information I'm going to be able to get from my retail partners. Here's how I have to think about marketing and attribution and budget allocation. Us DTC folks are used to knowing exactly who bought what when, you know, with what code from, know, from what location, where they come from, what channel, and you just don't get that in retail. Like you put up a billboard in front of Whole Foods. You don't know exactly how many people bought because of that billboard. put, run TV ads in a market. You don't know exactly what that did, in terms of driving increased velocity. So you have to look at some of these directional signals. And like you said, part one way to do that is do lift measure at the particular areas you're targeting against similar stores in similar areas or one geography against another geography. And that's what they did here. And what they found was they saw more than a hundred percent increase in velocity at the Whole Foods that we were targeting very, very specific geography proximity to that very specific Whole Foods. And they measure that against, as you said, other Whole Foods in the area, which only got about a 50 % lift. So it was very clear from that, that yes, this drove a significant incremental increase in velocity as a result of targeting that area with direct mail. And that was a huge unlock because again, if velocity is the name of the game, if they can drive velocity, it's not just that they get a return on that one specific campaign. This is like the key thing that we work with a lot of brands on. They need to demonstrate to the buyer if they want to get greater expansion and greater placement in stores that they can drive velocity. So it's not about maximizing the ROI on that one specific drop. What does that increase in velocity do to the greater business? As a result of demonstrating like that higher sell through. So if they go on to say, that's awesome, we now see that this sells through and we're gonna open up 300 more doors for you as a result of that, or we're gonna put you on an end cap as a result of that, think of that as your total ROI on the campaign. We would not have had these 300 more doors or 1,000 more doors or these other territories, we wouldn't have gotten this placement if we had not invested in driving velocity.

Drew Sanocki

You know, it reminds me of selling through Amazon, really, like when you launch a new product through Amazon, you used to have to game it, try to do a lot of promos and run ads to try to drive velocity of that one product, because then you increase your SEO, your organic listings on Amazon, which work for you into perpetuity, right? So it's the same game for brick and mortar. In the CPG brands we work with know this, you get a beta test in one store or two stores in the middle of like Iowa or Texas. And you have to demonstrate store velocity for like a period of weeks. And if you achieve the velocity threshold, they roll you out nationwide. And if you don't, you're out. So it's like ROAS doesn't matter on this campaign. This campaign's about like, I need to drive as many bodies into that store as possible to take those things off the shelf. And if I do that successfully, I'm going to hit the jackpot. So, you know, we call it a ShopDrop. Using direct mail is a great way to do it because you can geo fence. There are all sorts of attributes in these databases around like proximity and, and likelihood to buy from a brick and mortar retailer. And in this case, Four Sigmatic has a control group test where they show that it worked. So we're really excited for them and excited for this campaign. It worked really well.

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All right, Mike, we have a customer question here. It's a question we get from a lot of brands and that's, think, like why automate campaigns? And it's sort of, they say it in a different way. It's a little bit like, oh, I thought direct mail was what we use for seasonal promos, like for Black Friday, you know, which is a great time to use it. But I think what that misses is that there are real, you know, financial reasons to use direct mail throughout the year and automate a lot of campaigns. And I think the top reason is that direct mail as a channel is predictable and diversifies you off other channels. So, what do I mean by predictable? Like log on to X on any given day and you are going to see complaints about Meta. You know, it's going to be like Meta performance is up for us today. Meta performance went to zero today. I got locked out of my Meta account today. You know, and, if you were to look at your cost of meta, you know, and ROAS throughout the year, it kind of does this, right? It certainly goes up around Black Friday when it's a dynamic ad market. Everybody gets into the ad market and starts bidding up costs. The value prop of direct mail to me, probably one of the biggest is that it's predictable. If you get an ROI now, and that's because it's not a dynamic ad market, right? You've got a certain price for postage. It's the same now as it is over Thanksgiving, right? And you get an ROI to a certain customer segment or a ROAS, it's largely going to be the same today as it is throughout the year, right? So it's not that this will be your top performing channel. It may, you know, and in certain campaigns, you might have the world's greatest row as it's more that you are going to get predictability that you are going to have a baseline month in month out that drives the same number of customers either to purchase for the first time or for the 10th time. Right. So for me, I like thinking of direct mail as a natural compliment to email where if you automate these campaigns, you can automate retention campaigns, you can also automate acquisition campaigns, you're going to get a certain ROAS day in, day out that you can sort of take to the bank. And in a world where Facebook goes up and down, iOS 14 comes out, we got locked out of our account or like we no longer reach the inbox because of a Gmail change. You've got one channel in the background that's constantly cranking for you. So I think that's probably the biggest reason you'd want to use direct mail throughout the year and automate.

Michael Epstein

Absolutely. I think that's a great point. I got asked this question yesterday actually by a brand. You know, what are the, what are the most successful brands doing? What does the program look like? And it's what you describe. Think of it like, like your email program in the sense that you always have these always on flows, right? They're just working for you in the background all the time. It's your, it's your welcome sequence. It's your win back flow. It's your abandoned cart flow. Those should always be on. You shouldn't send them once a month. You should send them once a quarter. They're just generating incremental revenue for you in the background and they're increasing your overall baseline revenue for your business. And so, yes, you should have that. And then you can supplement it with drops around tent pole events. So a new collection is launching, a new sale is going on, a Black Friday event. And you want to target a bigger audience around those specific tent pole events, like your email newsletter. Those are going out to a wider audience around specific events that you want to highlight, but always having those flows in the background is key. Why would you turn them off if they're just generating money for you while you sleep? So yes, predictability, ease of having that set and forget type flows in the background is what brands that are really successfully leveraging the channel are doing.

Drew Sanocki

Michael, can I ask you a question? A question that I get a lot. I already have these evergreen campaigns. Winbacks, anti churn, welcome sequences. I already have them automated in email and SMS. They're all automated in Klaviyo. Why do I need direct mail?

Michael Epstein

Drew, I would challenge you to go into your Klaviyo account and look at the open rates of those flows that you have. mean, maybe they're 20%. Maybe if you're killing it, they're 30%. That means the majority of folks are not actually actively engaging with that message. And it's even harder now because you just saw Apple Mail just is putting more, filtering more of those promotional messages into different folders so that you're less likely to see them. I mean, that's not changing. That's getting harder. You trigger these campaigns after that email has had a chance to do its thing and that person has not taken the action that you wanted them to take. So you got a welcome, you got a welcome sequence. That sequence is seven days long. If that person is not bought by day seven, they're becoming increasingly less likely to ever buy from you. So what do you do? You need to intervene and you trigger a card on day eight that says, you know, let's, let's go, let's get off the fence. It's time to buy. Same thing with your win back sequence. Same thing with your abandoned cart sequence. Once those channels have had time to work, it's a lower cost. So give it a chance. If it doesn't, you need to intervene and try and get that person to take that action because you are losing the possibility of them ever taking that action the more time that goes on. So that is why you will generate significant incremental revenue when you trigger direct mail after you've sent an email and that person has not taken that desired action.

Drew Sanocki

And I would say, you're talking also about subscribers who may not be opening. Like, not everybody subscribes or they often unsubscribe. So you've also got this wide swath of previous buyers who are not subscribed at all to email or SMS. And because direct, right, and direct mail, you don't need the opt-in, you could still message them, right? So I would say like in the average, if I look at, I've looked at hundreds of Klaviyo accounts, any one segment on average, know, one time buyers who haven't purchased in 30 days, five time buyers who haven't purchased in 60 days, any segment you choose, probably 10 % are actively opening your emails in that segment of the customers in that segment. And the other 90 % are either not opening or they're not subscribed or unsubscribed. So with direct mail, you're just getting that message to the other 90%. Almost always works.

Michael Epstein

Yeah, it works consistently.

Drew Sanocki

Awesome. Good question. Send your questions to us at michael@postpilot.com and we'll get him on the podcast. 

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Thanks for listening to Nerd Marketing. Don't forget to check out all of the other great episodes, some of which include interviews with ecommerce marketing masters working with Mr. Beast and Joe Rogan, plus Drew and Michael's experiences in private equity, advice from VC firms on what they look for in investments, and so much more. Like, share, subscribe, and tune in every week for a new episode.

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