The marketing logic of private domain traffic

Private domain traffic is a good thing for some people, but a waste for others. You still need to think a little before doing anything. I have seen some CEOs try it blindly. They can judge what the result will be like just by listening to the ideas, and each time the results are highly consistent with the predictions. It's a pity that the chess pieces who were used as experimental subjects were completely unaware and their feelings were hurt.

The next article should be about the content marketing logic of Tik Tok. This topic is also the most difficult, which has caused it to be shelved for a long time.

1. What is private domain traffic?

The term private domain traffic was coined in the summer of 2018. Before this word, the concept of traffic pool was created.

But in fact, it all comes down to CRM, or customer relationship management. The general meaning is to manage the users that the enterprise can reach to enhance business value and to carry out refined management of the enterprise's users.

The concept of private domain traffic divides traffic into private domain and public domain. Private domain traffic refers to the traffic brought by the company's private users, such as WeChat friends, WeChat groups, public account fans, mini program users, and Douyin fans. Public domain traffic is non-enterprise-owned traffic, such as traffic from platform searches, traffic from paid advertising, and traffic from brand content dissemination.

Because the most effective private domain traffic mainly comes from the WeChat ecosystem, including WeChat friends, WeChat groups, official accounts, mini programs, and video accounts. Therefore, some people understand private domain traffic as private domain traffic in the WeChat ecosystem. This understanding is narrow and easily confuses the boundaries.

For example, does Tik Tok count as private domain traffic? When we ask these kinds of questions, controversy arises.

2. Redefine the scope of private domain traffic

Therefore, we need to introduce clearer classification criteria.

Traffic is divided into: one-time free traffic, one-time paid traffic, and reusable traffic.

Free traffic is traffic that is obtained without paying. By publishing content on UGC platforms such as Zhihu, Xiaohongshu, and Douyin, you can get some traffic without paying. If the content is good enough, you can even get a lot of traffic. If you can guide readers to consume and other behaviors through this content, this free traffic will bring commercial value. For example, if a brand creates an institutional account on Zhihu and publishes content of its own brand, it is taking advantage of free traffic. Although free traffic is free, it tests your content production capabilities, and only good content can attract a lot of traffic.

One-time paid traffic means paying once to obtain a batch of traffic and bring some sales conversions. You will be charged for each delivery. For example, paying to run an advertisement on TV, purchasing Taobao's user search traffic to direct it to a certain product, or purchasing Douyin's Douyin app to get exposure to a certain Douyin short video content, all of these require a one-time payment to obtain a batch of traffic. Next time you want to use data, you will have to continue paying. As long as you have money, you can get one-time paid traffic. The difficulty is to make the conversion rate of the delivery high enough.

Reusable traffic is traffic that can be used repeatedly without having to pay for repeated use. It may be converted from one-time free traffic or one-time paid traffic. Reusable traffic usually comes from a group of users that can be reached repeatedly.

Reusable traffic can be understood as private domain traffic.

Some people understand private domain traffic in a narrow sense as WeChat group + WeChat personal account/corporate WeChat. That is, add user friends through corporate WeChat or personal account, and gather users through WeChat groups. In this way, you can send 1V1 messages to users and show circle of friends ads to users, and you can display ads in WeChat groups.

This narrow understanding ignores the connections between various channels. In this article, we understand the private domain traffic of the entire WeChat ecosystem and study the content marketing strategy for private domain traffic.

3. The path from traffic to sales conversion

1. Three major issues of private domain traffic pool

The sales conversion path of private domain traffic has three major links, corresponding to three major problems.

Store users - reach users - convert users

This is actually about attracting new users, retaining users, and commercializing in the APP era.

The three main issues are:

1. How to store the number of users in the private traffic pool? (User scale)
2. How to better reach users in the private traffic pool? (Reading conversion rate)
3. How to enable users of private traffic pool to bring higher commercial conversions? (Order conversion rate)

2. Estimating the value of private traffic pools

To estimate the value of a traffic pool, you can use the following formula:

Sales contribution = user scale × reading conversion rate × order conversion rate × number of visits × order amount

For example, a certain brand’s WeChat subscription account has a user base of 10 million followers, a reading conversion rate of 1%, and an order conversion rate of 1%. It can be reached 50 times a year, and the average amount of a single order is 50 yuan. Then, the sales contribution of this WeChat subscription account to this brand is 2.5 million yuan.

The corporate WeChat account of the same brand also has 10 million users. The reading conversion rate through Moments is 2%, and the order conversion rate brought by reading is 0.1%. It can be reached 360 times a year, and the average amount of a single order is 30 yuan. Then, the sales contribution brought by WeChat for Business is 2.16 million.

The WeChat group of the same brand has 10 million users. The reading conversion rate of group advertising is 2%, and the order conversion rate brought by reading is 2%. It can be reached 360 times a year, and the average amount of a single order is 30 yuan. Then, the sales contribution brought by WeChat groups is 43.2 million.

The data on the public account battlefield is already quite certain. Enterprise WeChat and WeChat groups still have room to play, while video accounts are still an almost new battlefield. The commercialization space has not yet been released, and mini programs almost do not have their own traffic pools and need other channels to divert traffic.

3. Estimate the return on investment (ROI) of private traffic pools

It is not enough to calculate the value of a traffic pool, you also need to calculate the ROI (return on investment)

Investment in private domains must take into account labor costs, new customer acquisition costs, and possibly hardware and software investments.

Traditional micro-businesses often survive by increasing their profit margins to generate private traffic. When traditional big brands want to enter the private domain, they may have to reduce their profit margins and offer crazy discounts in order to increase order conversion rates.

Assuming that the gross profit margin of a product is 50%, the input-output ratio must be at least 2, that is, every 1 yuan invested generates 2 yuan in sales. Assuming the labor cost is 500,000 yuan a year, the cost of attracting new fans is 500,000 yuan for 100,000 fans. This community of 100,000 followers needs to generate sales of 2 million to barely break even. Assuming that this product can achieve an annual conversion rate of 5%, this community of 100,000 fans can sell 5,000 products. The price of the product needs to reach 400 yuan to barely break even.

There is a skin care product priced at 50 yuan and with a gross profit margin of 50%. It needs to generate private domain traffic, but there are no store channels and no WeChat accounts or other channels to divert traffic. What are the prospects? If the annual conversion rate is predicted to reach 5%, the prospects are bleak.

4. How big is the potential for private traffic in WeChat groups?

Assume that on average one user plus 20 brand communities reach saturation. One billion users can add 20 billion people. If the average brand’s community has 1 million members, then 20,000 brands can be accommodated.

When it comes to WeChat official accounts, assuming that an average user adds 100 official accounts, based on this assumption, the development space for official accounts is 5 times larger than that for social networks.

In fact, it is hard to say whether we can achieve an average of one user plus 20 brand communities.

Based on the public information I have seen so far and the private domain traffic operation data I have at my disposal, I will provide some reference data. The average annual conversion rate of a community may be around 5%. For brands with stores, the cost of attracting new customers can be controlled as low as 1 yuan per fan. The cost of attracting new customers for brands without offline channels and other touchpoints should refer to the cost of attracting new customers of official accounts.

If you want to run the data yourself, it is also very simple. Just do a few social network tests and you can measure the approximate levels of reading conversion rate and order conversion rate.

Of course, this discussion is based on traffic thinking.

5. Not every brand is suitable for expanding private domain traffic

What is the significance of the above analysis? It can be used to evaluate whether your brand is suitable for using private domain traffic as a strategy. And what ways of doing it might be effective.

In terms of storage flow pool,

It is easy for brands with offline stores. They can guide private domain traffic on a large scale through store customers. For example, Miniso, which has 5,000 stores, has private domain traffic of tens of millions of users.

Various restaurants can also gain millions or even tens of millions of fans by following official accounts and taking orders offline.

Online stores need to rely on package guidance QR codes to direct users to private domain traffic, but the conversion rate is usually less than 5% or even less than 1%. Even if it is directed to the private domain, considering that the order conversion driven by the private domain may be less than 5%, this means that the sales brought by the private domain may be less than 0.25% of the online sales.

On the issue of reading conversion rate and order conversion rate.

It is easy for social networks to have low opening rates, because it is difficult for general brands to continuously provide valuable content. As a result, social networks become places where advertisements are constantly posted, and users hardly respond. In order to maintain conversion rate, it is often necessary to make big concessions. The result is that private traffic pools often seriously infringe on the brand's pricing system and make a loss in exchange for publicity.

So, after reading a lot of case studies on private domain traffic, you will find that they are all about how to increase followers and how to achieve a certain GMV, but there is no case that talks about conversion rate and retention issues.

I will conduct an in-depth study on these three major issues in another article later. This article will not expand on this.

4. Three Ways to Understand Private Domain Traffic

Using different mindsets to generate private domain traffic will bring different results and will be suitable for different brands.

1. Traffic thinking

Some brands regard private domain traffic as a sales channel and use traffic thinking to understand private domain traffic. For many products, this kind of traffic thinking determines the low conversion rate of the products, high discounts, and low repurchase rates. As a result, although there are tens of millions of users in the private domain traffic, the sales generated are small and the profit is even smaller. The private domain traffic has become a useless thing that is tasteless to eat and a pity to throw away.

2. Product Thinking

Some brands regard private domain traffic as a testing ground for product iteration and a place to continuously improve their products. Although the number of private domain traffic users may be only 10,000, many users will spread the word about product improvements and even spread their voices to the public domain. The continuous improvement of products will bring high repurchase rates and even generate a group of distributors. The result is that although the number of private domain traffic users is limited, it contributes significantly to sales and has high profits.

3. User Thinking

Some brands regard private domain traffic as a service channel for super users. Gather users who recognize the brand and continuously provide better services to these users. Users are also willing to remain loyal to the brand. Not only is the user lifetime value (LTV) high, but the user referral rate is also high, bringing in many new users. These users are also willing to speak up for the product in the public domain, and many users even have considerable influence. The result was that we spent our energy serving a small group of users, but earned a very good reputation and boosted sales in various channels.

5. How to decide whether a brand should do private domain traffic

I will demonstrate my thinking process through a simulated case

Suppose a consumer brand wants to generate private domain traffic. It has less than 20 product SKUs, with an average unit price of 50 yuan and no offline stores. It has previously distributed its products through offline channels. Due to the decline in offline channel revenue, it wants to find online channels. This brand belongs to a product category that is in demand by only 1% of the population. The gross profit margin of the product is 50%. The purchase cycle of this product is 6 months, which means it is repurchased twice a year.

The first analysis point is whether profits can be generated through private domain traffic.

To estimate the ROI, if we can have 500,000 WeChat group users, the customer acquisition cost will be 500,000, the team manpower cost will be 500,000, and the supporting hardware investment will be 500,000. It is expected that 10% of group users will place orders, with an average order of 50 yuan and an average purchase of 2 times. Private domain channels maintain a gross profit margin of 50%. With sales of 5 million, gross profit of 2.5 million, and costs of 1.5 million, there seems to be room for profitability. However, if the conversion rate is less than 5%, the project will lose money, and if the average number of purchases is less than 1.2 times, it will also lose money.

The second analysis point is whether it is possible to accumulate 500,000 WeChat group users.

Since there are no offline stores, the ways to accumulate group users are very limited. By converting online buyers to WeChat groups, the conversion rate may be low, and 500,000 users may require more than 10 million orders to accumulate.

If you want to use distributors, fission and other methods. Then consider the value that the distributor can obtain. Assuming a 20% commission, for a distributor to earn 1,000 yuan a year, a sales volume of 5,000 yuan is required. If a distributor covers an average of 500 people, this group of 500 people needs to generate 100 orders. Since only 1% of the population has a demand for this product, it means that the conversion rate of the general group will be very low, but it is difficult to gather a precise group of people.

The conclusion is that it is difficult for this brand to develop a large number of distributors. Because the brand cannot give distributors enough benefits.

The third analysis point is whether the sales brought by private domain traffic has seized other market share of the brand or created new growth.

Many brands direct users to private domain traffic through stores and then offer more discounts to promote repeat purchases. However, will this result in repeat users who would have shopped in stores choosing to order online because the prices on WeChat groups are lower? Excluding this part of sales, how much growth is actually brought about by WeChat groups?

Some models are to direct traffic to corporate WeChat or WeChat groups through the public domain and then convert them directly. This approach is the real growth because it does not conflict with the brand's original customer base.

After analyzing these three angles, if they all stand the test, then you can try to do private domain traffic.

Author: Jiang Liu

Public account: Jiangliu