How SMS Text Marketing can Increase Lifetime Customer Value, with Osa Gaius

91% of customers are interested in signing up for texts. 70% of people check their messages within five minutes of receiving them. And Americans are checking their phones an average of every ten minutes. So how can e-commerce leverage the use of SMS and texting to give customers the best possible experience?

Osa Gaius is the founder and CEO of Parrot, an end-to-end payment solution that leverages SMS to drive easy checkout and a higher frequency of recurring purchases.

Today’s episode of Deal Closers is hosted by Izach Porter, brought to you by WebsiteClosers.com, and is produced by Earfluence.

Transcript

Izach Porter: All right. You’re listening to the Deal Closers Podcast, brought to you by websiteclosers.com. A show about how to build your eCommerce business to be profitable, scalable, and one day even sellable. I’m Izach Porter, and on the show today we’re talking about text marketing, how we can use text marketing to increase order size, drive lifetime value, give our customers a VIP experience, reduce cart abandonment, and ultimately drive the enterprise value for your eCommerce business. 

Here are some stats for you. Americans check their phones and average of 47 times per day. I think I probably check mine two or three times that amount. 91% of customers are interested in signing up for texts. 70% of people check their messages within five minutes of receiving them. So how can e-commerce leverage the use of our phones and give customers the best possible experience? Let’s bring in our guests today, the CEO and founder of Parrot, Osa Gaius. Hey, Osa how’s it going?

Osa Gaius: It’s going well, great to be here, Izach, thank you for having us on the podcast.

Izach: Yeah. Thanks for, thanks for being here. Excited to talk with you. Spent, you know, we spent some time checking out Parrot, checking out the platform and, you know, one of the things we’ve been doing with the podcast is this series on technology for e-commerce stores that not only helps the, the owners and the founders with their business, but, but can drive the value of the business itself.

I wanna talk to you about text marketing, but before we get into that, you wrote an article on LinkedIn called why I quit my $275,000 job to focus on mobile payments. let’s, let’s just talk about that story. I, I was really interested in the article. It resonated a lot with me personally., you know, what, what was your family’s reaction to that decision and kind of quitting your job and just kind of give us a little bit of that backstory, if you would.

Osa: Yeah. Yeah. You know, so for me, you know, came to the us as a kid. My parents are immigrants. I’m first generation, studied computer science and then worked as an engineer at various places., one being MailChimp in Atlanta, and then of course, BlackRock, which is the last place I worked. And so while working there making a ton of money, primarily managing engineers and writing a lot of software.

And I sort of had a moment where I went back to Nigeria and I saw people there transacting over text, like buying and shopping directly over text messages with businesses. And I said, this is gonna be the future of texting in America. I’m gonna go build that. But as part of I had to quit my job until my parents was quitting my job.

Um, and I think for them, although they were supportive, it was very scary, right, because they had worked through whole lives to kind of make sure that I had a, you know, an American career with a stable job at an investment bank. And here I was trying to figure out a way to go build. Software right on my own, texting. I think it was hard, but I think it was definitely the right choice, in retrospect, but that was a hard moment as an entrepreneur.

Izach: Oh, for sure. Yeah. You kind of work your whole career to get to a place. And then you decide, you know, you have an experience like that, where you see an opportunity and you have to make a decision to pivot and so, you know, kudos to you for having the, the, the courage and the, the dedication to go forward with that and, and build what, what you’ve built.

So getting back into a little bit of your experience, you were the, the lead software engineer at MailChimp up until 2019. And we had sent out some questions prior to this, this interview, for questions that we should, we should ask you on the show, and you said asked the question, why will email marketing die out? So let let’s talk about that. Why do you think email marketing will die out?

Osa: Yeah. I mean, I, I think it’s controversial to talk about email marketing dying out nowadays when people are still seeing 10%, 20% open rates at best. But, you know, I think some of the brands that really struggle with email marketing today are, are really getting sub 10% open rates. And what that means for a brand, you know, in terms of raw numbers, is if you send an email message about something you have in your store, that’s new or something, that’s exciting about your business.

Only 10 out of a hundred people are ever gonna open that email. Now you talk about your click through rates and, and maybe that’s a little better. Your conversion rates. You know, be, be even lower than that, but what we’re seeing is that people don’t open emails and they don’t click emails at the same rate that they did 10 years ago.

So for brands, they have to ask themselves a question if only 10 out of a hundred people will open that email. Should I even send it? And we’re meeting a lot of brands who are saying, no, I’m actually not gonna send that email because I know very few people are gonna read it. And I know that even lower amounts of people are actually gonna convert. So I’m not gonna send the email. 

So I don’t think it’s that people are gonna stop sending emails or that businesses will stop sending emails to consumers or that even as part of our work will, will stop emailing. But I do think that the, the days where you could spray and pray email market, a large list of people that you bought from somewhere online is, is not going to work because people just don’t treat email as the, as the same way that they used to 10 years ago.

Right. And I think part of that is the phone really taken over commerce. But I think a large part of it too, is a lot of consumers are saying I don’t wanna be marketed to over. I’m not gonna open it. If you wanna market to me market, to me on Instagram or on a different channel where I’m expecting to see an ad. I shouldn’t be seeing an ad in my email inbox where I’m primarily doing work.

Izach: Right. Or, you know, in my, in my case, I’ve got six or seven email addresses. I’ve got one I, I use just for when I sign up for stuff at stores, I know they’re gonna be sending out email marketing. It just, it goes into an email that I very rarely check., and so it’s not an effective way to get in touch with me, for sure. So I, I think that’s a good transition to Parrot. So tell, tell us about what Parrot does.

Osa: Good question. So parrot is entirely focused on, on one thing, which is helping a merchant increase the lifetime value of their customer. And the way that we do that is by allowing that merchant to collect payment directly from the consumer over text. And so what that looks like in practice is a merchant let’s say, Nike, for instance, will send Izach texts saying. Here’s a t-shirt we think you’d like based on some recommendations or an AI, for instance, if you want it reply yes. And what Parrot will do is actually use in a bot, collect Izach’s credit card information and charge him directly on the spot, over text, and then send him a receipt back over text, so that Izach never has to go to a website or click a link.

He’s just texting with Nike back and forth about something he wants, and then when he actually wants it, he can say, yes, I want it, be charged to his car on file. You can kind of think of it as PayPal meets text messages, but ultimately it’s about making sure the merchant can increase the lifetime value of that customer over 12 and 18 months.

Izach: And so in that, in that example that you gave us, how did the merchant collect my number, how did they, how did they get my contact information to begin with?

Osa: Yeah. That’s something that the Parrot helps with. And, and the way we do that today is we will, if the merchant already has your email address, parrot will help the merchant send you an email and say, you know, here’s a discount or here’s an offer to collect your phone number for you securely or alternative you.

If you’re on the merchant’s website per can actually help you there on the website, put in your phone number and even attach your credit card directly on the merchant’s website. So that next time they need it. They’ve already got your card. They’ve already got your address. And also your phone number. All they’ve got to do is actually send you a text now from Parrot. 

And so we’ve got a bunch of ways to help merchants collect phone numbers and collect credit cards, but we always tell merchants, you know, start on your website, maybe start with your existing email list, try to collect those phone numbers and credit cards that way, and make, just start sending offers to people that are customized and make them feel very special.

And if they do feel special, they’ll say, yes, I. Give me the size and Parrot will handle the entire order using the Parrot AI.

Izach: Okay. And how do you see the efficacy of those efforts compared to email marketing or PPC or other paid traffic sources?

Osa: Yeah. What we’re seeing right now is a 40 X ROI or, or OAS for the campaigns we’re running for merchants., one interesting one is

Izach: You say 40, like four, zero X or four X?

Osa:, 40 40 X, so 40. So for every dollar merchant spends they’ll make $40. And that’s based on a campaign we did recently for actually a, a, a celebrity brand where

Izach: dude. That’s killer right now. Right? I mean, ROAS is down across the board on all channels that I’ve, that I’ve been tracking with our clients.

Osa: And, and what’s interesting about that is because we built payment into the experience so that now when we send you a text message, you don’t have to click on a link or go to our website and dig around. We just send you the product and you can say, yes, I want the product, or I want a different product.

The power of that, vis a vis even other ways of doing text marketing is that you really, as a, as a merchant, get to track how many people actually paid me with a credit card over text, as opposed to how many people clicked on a link and you went to a website. And so the ROAS tracking for us is much cleaner.

And as I mentioned, a celebrity brand, we did this for, they released something over taxed and within four hours they’d actually sold out and we had to stop selling because they had so much demand where people were like, this is so easy. I can reply yes on my phone, put my credit card and I’m done. Give it to me, give it to me, give it to me.

Izach: That that’s fantastic. So, I wanna bring this back to M and A for a minute because that’s, that’s, my focus is on helping businesses exit. And so there’s, there’s several value drivers here that we hit on with talking about this solution. So one of the biggest value drivers that we’re seeing right now in differentiators between brands that are getting either low multiples or high multiples is their ad spend is a as a portion of revenue, right?

So, so ROAS directly measures that, that metric, and, you know, it’s not, it’s not surprising that brands that have to spend a lot on advertising to generate a dollar of revenue are less valuable. So if you’ve got a way to, even if it represents a small portion of your sales, get, get a 40 X return that immediately increases enterprise value of that business.

And then the other major driver for moving the multiple on businesses higher is, is the lifetime value of, of customers. Let’s talk about LTV a little bit, how do you see LTV for brands that are using Parrot you know, kind of before and after. Is that something that you’ve tracked?

Osa: Yeah. Yeah. What we’re seeing, you know, for, for brands who use Parrot as a way to check people out, right, cause ultimately that’s what we’re trying to get the person to do is just check out as quickly as possible, is we’re able to lift their conversions by 20%. So if a merchant was getting a 15% conversion rate on their website or just over tax marketing, which again, traditionally was only going back to their website and they install Parrot as part of their merchant offering, they’re now getting 35% conversions.

Right, and for us, what’s interesting about tracking that is again, because parrot actually collects credit card information, we can track that, not just in terms of did we get someone to click on something and can we attribute the cookie back? No, it’s, it’s this charge happened on this card because this person was texting with Parrot or they used Parrot on the website.

And what’s exciting for us about kind of tracking LTV is when we can actually show that we can make money for merchant. We can go back to that merchant and say, what other ways can we help you make money? And so now merchants are thinking of us less as a, a marketing tool that they kind of use top of the funnel, or even mid funnel or retarget people, and really as a way to generate new sales as a new sales channel.

And so they’re finding that there’s new ways they can boost LTV that before they were like, oh, we don’t have a way to do this. We’re just gonna essentially lose out on that lifetime value. A good example of that would be one of our customers. They make baseball equipment, right now a lot of their LTV is being lost in that six-month post period, because a lot of customers credit cards just stop working or their card expires. 

And what parrot can help them do is actually text that consumer and say, hey, here’s a link to update your credit card, just click the link and putting in your credit card directly. Or you can actually text back to the same number and get help with actually updating your credit card from the brand.

And so we’re finding that brands are kind of leveraging SMS plus payments to find new ways to boost their LTV or just to reduce turn in ways that they couldn’t do before.

Izach: Interesting really interesting. So, so how do you get paid? How is, how is parrot monetized?

Osa: Yeah. You know, a lot of folks in the SMS space, you know, think of the Attentives of the world. They, they really get paid by getting you to send more text messages, right? Because that’s how they cover their costs., a lot of those businesses are not profitable, unfortunately, cuz the AT&Ts in the Verizons of the world have a fixed cost of 1 cent for text message.

So that’s the reason Attentive is trying to get you to buy a thousand dollars’ worth of SMS credits because they know that’s the only for them to make, the only way they can make money parrot is radically different because although we’ll still charge you the 1 cent so we can pay Verizon on their money, we don’t charge you anything on top of that.

Instead, we charge you 1% of every order that we touch. So if parrot sends someone a text and the person actually responds yes, and puts their credit card in, we’ll charge you 1% of that order. And so for us that aligns us with the merchant’s lifetime value, the more money we help you make from that customer over the next 12 to 18 months, the more money pair makes. And that really keeps us honest in terms of how we grow the business.

Izach: That that’s very interesting as well because the model for most digital marketing platforms right now is a percentage of the total ad spend. it’s not really tied to revenue or the poultry rate is just tied to a percentage of how much money is spent by the, by the merchant. You’re aligning your incentives really at the hip with your, with your customer.

Osa: Yeah. And you know, for us, again, you know, at parrot we think of ourselves, not primarily as SMS marketing business, like, although we do help merchants’ kind of solve that problem as a core of what we do, but ultimately we’re, we’re a payments business cuz every time your customer responds to a text message and we have to collect a credit card for them.

You as a company are trusting parrot with that credit card, you’re trusting us that we’re not gonna do anything silly with it. And, and so for us, it’s really important that we stay true to ourselves and we avoid trying to make merchants do things like for instance, send more text messages, even though parrot knows those text messages won’t convert, right.

We, we don’t want you to do that cuz although it makes us a little bit more money and we can use sour ad spend numbers., we know that you’re not actually making money because that ad spend isn’t good for you in terms of actually collecting revenue.

Izach: So, and, and how do you manage security on the platform? If somebody, if I’m putting my, my, credit card in by text message. Is that secure.

Osa: Yeah. So, one thing I didn’t talk about early on was, well, how do we actually collect the credit card? And so, you know, my background is I led payments at MailChimp, our CTO who’s, you know, really, really core to how we think about this is a former, security engineer who actually ran a security company before he joined parrot.

And one of the things we realized very early on was. Verizon and AT&T do not encrypt their data across the wire. So if you text someone your credit card and there’s a hacker, somewhere on the internet, you know, snooping on AT&T’s traffic, they can actually see that credit card. So the way parrot does that today is we actually never get you to text us your credit card directly instead.

The first time you wanna put your card in, we’ll send you to a, a short form with three fields and we, you put your card in there and then we just send you a receipt over text saying, hey, we, we got your credit card. Thanks for going to the website to put it in. But after that, you never need to go back to a website.

And what that allows us to do is we tokenize the card so that, that way we never transmit the actual number., we never store it in database. All we have is a reference to it that’s kept in our vault. And that reference to your credit card is actually referenced by your phone number. So I can say this is Izach’s number.

This is a reference to his credit card that we can charge later. And when we don’t, we do need to go charge that we can encrypt that traffic all the way through so that we’re not ever bleeding that information across the wire, we’ll show you the last four digits in time just to confirm, like, is this the card you want or do you wanna use a different card, but we’ll never actually show you the full number or any of the other sensitive information that goes with that card. 

So PCI compliance matters to us, you know, quite a bit. And we, we, we spent a lot of time there, but, you know, in addition to that, we think about GDPR, PCPA and the other compliance measures we have, have to think about vis Avi, SMS and, and, and sort of typical marketing stuff.

Izach: Very cool, man. Man, I’m, I’m really interested in this. So, how are you leveraging social media platforms, with this technology? What are the, what are the opportunities.

Osa: Yeah. So social is something that, you know, I’m, I’m getting increasingly excited about because what we’re seeing are, you know, a lot of young people trying to think about how to start brands, how to engage with brands, how to influence and be influenced by brands. And so one of the things we thought about early on was, you know, when you look at e-commerce largely 80% of e-commerce traffic is now a mobile, right?

So everyone’s on their phone looking at a TikTok page and then going to the, the brand’s website that they saw on that influencers page that they were like, oh, I like those pants. Let me go check ’em out. So the question is, well, if I’m on TikTok, how do I actually buy the thing? Right. I don’t wanna have to go to the website and do all that.

I just, I saw the pants that the influencer was wearing. I wanna click on it and buy it. And today the solution for most merchants is to build some complex tooling. Maybe try to integrate with TikTok in a very expensive way or, or with Instagram. And so the solution that parrot offers those merchants, the way we recommend they think about it is just generate a short link that has all the product information built into it., Parrot can do that for you in the platform. And you can just put that on, on your TikTok or put that in your link tree or give that to the influencer so that when a consumer who’s on their phone sees that link, they can tap on it. And that link will automatically redirect them to a text message where they can send a text saying, I want those pants.

They’ll automatically get a response from a bot saying the pants are $5, put in your credit card, and just like before we’ll get a receipt. And so we’re, we’re really thinking about SMS as a way for brands to quickly move people from a social media platform into a conversational owned channel where you can have a conversation and close that sale either with a bot or with a human within, you know, two clicks.

Izach: Man, that’s fantastic., I’m on TikTok all the time and I, I think it’s clunky right now to, to, to actually purchase something. I see, see something that I’ve hap it’s happened this morning. Looked at a, like, you know, some like radio-controlled airplane thing. And I tried to click on it and it was like, I never got to the point where I actually could buy it.

I wanted to buy it, but I couldn’t buy it or I, or I didn’t, I didn’t try hard enough maybe, but I just gave up, but what a huge opportunity for a brand, if you can, if you can make that easily convert in, in a couple of quick clicks, cause I’m like an impulse purchaser. Right. And, and I, I see something and especially if it’s under, you know, some, some price threshold, if it’s under 50 bucks or something, if I see it and it’s cool, I’m on a click it, and I want it to just show up at my house in a couple days.

But I don’t want screw around with getting redirected and getting to a, you know, going into a whole nother platform. So, so are you saying that you can solve that problem now? Or is that something that’s coming out in the future.

Osa: Yeah, we, we can solve that problem. Now, as I mentioned, we did a, a situation, a campaign with a celebrity who was releasing a product. And, and this was last year. They were the ones who forced us to think through it. Cuz what they told us was, if someone’s on Instagram, they should be to click a link, get a text and then just buy.

They should have to go to our website and click around, add it to the cart. Like we know what the product is. It’s only one product. Just add it to the cart and get them to check out. And so for us, like bringing that one click checkout experience to Instagram and TikTok required us to think about how other countries do it and the way they do it elsewhere is, well, if you’re on your phone, we’ll just send you a text because you’re on Instagram on your phone.

So you should be to get a text and be like, yeah, I wanna buy it., I think the best example of that here in the us we have today, that’s not to the similar is, the way sort of capital one at your credit card company will get you confirm a purchase, right. You’ll be buying something and they’ll be like, oh, is it you?

And you’ll be like, yeah, it’s me, that’s the ease of which we think transitioning people from TikTok or Instagram to their text message should be right, is it should be frictionless, two taps. Boom. You bought the RC controlled airplane and you can get work.

Izach: Right, yeah. Okay, awesome. I’m, I’m excited about this. So, how about a, a success story? Can you, can you share a couple success stories with, for, for clients that are, that are using this and you know where it’s going really well.

Osa: Yeah. Yeah. I think I’ll kind of double click on that experience we did for that celebrity, you know, what, what exciting about that product was they already knew the, the celebrity, the influencer in this case had a lot of demand. Right. But what they didn’t really know was, well, would that demand translate to texting, right?

Would, would those people who like this brand, right? Like this celebrity actually text in and purchased. Right? Cause that, that was the ultimate question. This, this, situation was trying to solve. And what we found was that one that was true. Like a lot of people texted in and said, yeah, I want it reply yes to buy. And everyone kept saying yes, yes, yes. And then when we actually ed numbers at the end, we found that 40, that 40 X ROI stat. And that really stood out to us because we didn’t even think we’d get such a good result. We had a thesis that would be true, but in that case, we, we had to prove it out by sending a text message to a lot of people.

The second case study that I’ll call out is actually a, a brand that’s quite larger. They’re on BigCommerce. They, they do, three mill a year in revenue. And what they came to us with was, was the example I just talked about earlier, where they said, hey, we’ve got a bunch of people who are already our customers.

What we need to actually do is get them to update their credit card. And today, of course you gotta call. Or you have to email them. And both of those are really hard ways to get in touch with folks. Can you just send ’em a text where they can, again, click on a link, put their credit card in one time, and then whenever you change that card in the future, a parrot can remember and just send ’em a text so they can do that very quickly.

And so for them, what we’re seeing again very early is that that’s massively increasing their lifetime value because now they’re able to take money that they were just lost by voluntary turn. About 40% of, of, of revenue is lost through that kind of involuntary turn situation. And now they’re able to recover that revenue.

And so for us, you know, that for them is gonna be a 40 X, a 40, a 40% sort of lift in, in conversions that they otherwise would just kind of lose because they couldn’t get to the consumer on time and then get that consumer to give them payment directly over text.

Izach: Very cool. So, what are you most excited about with, with this business and kind of, as you look ahead to the next, you know, six to 12 months, what’s, what’s on the radar for you and what’s exciting.

Osa: Yeah. I mean, I think for us, the, the most exciting thing is continue to roll out more experiments and more pilots and more campaigns with merchants. One merchant we’re excited about, is Angel’s Cup out of California. And one thing that they’re gonna do with us starting next month is they’re gonna start releasing a new special blend of coffee every month to their subscriber base. And that’s all gonna happen via our text. So they’ve got this super exclusive club similar to Gary V’s wine club, where you can send a text in and, and, and they’ll start sending you coffees once a month that are sourced from Africa and sourced from, south America.

And so we’re excited about projects like that, because in that case, we’re able to work with a merchant in a new industry. We haven’t worked with before, learn about their business and figure out how do we boost lifetime value and average order value for you just using text messages and payments. 

And I think the second thing we’re very excited about is, is continue to see what happens with social. I think TikTok to your point was still very much focused on, kind of kids and funny videos, but now we’re starting to think very deeply about how do we get brands and merchants to actually sell directly on TikTok. And although that’s very clunky there, we think that one solution to that could be transitioning people who are on their phones, as we know directly over to text messages.

So that now, instead of just looking at your talks as a brand, they could be texting with your brand within two clicks and buying from you very quickly. And so we’re excited about social and we think social’s gonna be a big part of how SMS takes off over the next 10 years.

Izach: Yeah, that makes, that makes a lot of sense. So H how can our listeners connect with you?

Osa: Yeah, I think the best way to get in touch with me is send me an email directly. If you wanna chat more, or learn more about SMS, I am [email protected]. Alternatively, you can just go to our website, getparrot.com. We’ve got a ton of resources there around SMS, the regulations around payments and how to, how to get really smart about this stuff as a merchant before really diving deep.

Izach: Alright. That was Osa Gaius founder and CEO of Parrot, which you can find at getparrot.com. Thanks everyone for listening to this episode of the Deal Closers Podcast, brought to you by websiteclosers.com. If you like this show, be sure to rate us, write a review, press the follow button and share it with your network.

And of course, if you’re looking for help selling your e-commerce business, be sure to visit websiteclosers.com. This episode was edited and produced by Earfluence. I’m Izach Porter, follow me on LinkedIn, and we’ll see you next time on the Deal Closers Podcast.