Growth marketing in 2021 seems like that one term, which every brand wants to be associated with quite avidly.
“Airbnb now seems like an unstoppable juggernaut, but early on it was so fragile that about 30 days of going out and engaging in person with users made the difference between success and failure”, Paul Graham (Co-Founder, Y Combinator)
Remember those, “how I went from this to this?” reels? Well, that will sit perfectly well for Airbnb and the year 2020 has been for them.
So, what wonders worked? What overturned the fate?
Airbnb had impeccably found the formula to hack growth! But, more on it later.
The buzzword “growth hacking/marketing” can be found in the dictionary of every tech entrepreneur. And, why shouldn’t it be?
The prospect of generating 10X returns with limited investment is tempting to everyone alike, while few understand the fundamentals that lie beneath.
Growth hacking represents how coding and tech skills are increasingly becoming a fundamental part of being a marketer. Growth hackers are a hybrid between coder and marketer, with their emphasis on quantitative measurement, scenario modelling via spreadsheets, and database queries.
Startups are Davids locking horns with the tech Goliaths.
Against the overpowering odds, they are underdogs looking to fight for a share of the market.
In a bid to compete, startups often seek marketers who could bring them on the map. What they often miss is the fact that it is not marketing that they need, but growth. Growth is what drives them.
Essentially, growth is just an evolution of traditional marketing to build more accountability towards the results. In the early days of a startup, traditional marketing techniques are often not needed.
“The reason I created the term was that I wanted to distance myself and others from the 80-90% of marketers that made me cringe with their acronyms and lack of accountability to results. These are the people that gave marketing such a bad name in Silicon Valley.” -Sean Ellis, on why did he coin the term “Growth Hacking”
Today, we deep dive into the dynamics of growth and learn the science of hacking it, strictly from a marketing’s perspective.
Marketing 2.0: Growth Marketing in 2021 | An Evolution For Startups
Say, you walk into a bar. You look around the place and your eyes rest upon a girl sitting at a far corner sipping a cosmopolitan.
Hoping to ask her for a dance, you make eye contact, pass on a smile, offer a compliment and come up with an original pick up line. With so much of an effort, if you’re lucky, she’ll likely say “Yes“.
As the night matures, you observe another guy chatting up every girl at the bar and moving on to the next. By the dawn, you realize that he ended up dancing with 3 of them.
Fundamentally, this is the difference between traditional marketing and growth marketing.
Traditional marketers have long relied on their creative intuition and human expertise to make things happen. While the standard skills of a marketer like building strategic plans, manage the marketing team, manage vendors etc. do seem important, they’re not paramount for tech-driven startups in their early stage.
Upon achieving the Product-Market fit, it is pivotal for a startup to find scalable, repeatable and sustainable ways to grow the business.
This is where traditional marketers have evolved into growth marketers, serving the contemporary needs of disruptive startups.
Dynamics of Growth | Growth Marketing in 2021
Breaking down “growth”, a startup could be seen as navigating through three fundamental stages as it scales:
Through these three stages, growth marketers play a fundamental role in scaling the startup. The objectives, metrics, distribution channels, focus and product iterations change with time.
To find traction is to set the wheel in motion. The first step towards growth is to find the product-market fit. The single measure of success through the traction stage should be the retention curve.
Ideally, we’d want our retention curve to flatten over time. A flat retention curve means that we’ve found the product-market fit for a few customers. If it drops dead to the ground, it is indicative of some burgeoning problems.
Evolution is like the awkward teenage years with growing pains and increasing changes. It sets up the business well to grow and explode in the expansion stage.
The primary focus here is to realize the growth levers that exist for the business. Growth levers are essentially the variables that will lead to an increase in the business’ north star metric (for eg – Daily Active Users). These levers ascertain that you grow at a consistent pace and in the right direction.
Businesses should now switch their focus from retention to growth rate on a weekly/monthly basis. Growth Rate is the go-to metric for entrepreneurs and investors to evaluate your trajectory.
This is also where CPA and LTV should be given due emphasis. Ideally, LTV should at least equal to CPA. And, the payback period should be lesser than 3 months to avoid cash flow issues.
For a growth marketer, this is also the time to gradually turn up the volume. However, close attention should be paid to the retention curve. A sharp decline should come as a red flag.
This is where the business would go all out and execute upon the growth levers.
At this point, the product would have gone through all the necessary major iterations to suit the target customers. This is where we should make room for minor adjustments across a substantial user base to monitor the results. These small experiments could yield promising results for growth marketers.
Most businesses accredit more than 80% growth to a primary channel.
For Example – Instagram → virality (through sharing), Hubspot → Inbound Marketing etc.
This is also where businesses identify their primary channel and upon its saturation, look for more ways to expand. As the channels become saturated and competitive, the payback period typically increases.
The growth rate continues to be the single most important determinant of trajectory. Businesses should increase the volume as much as they can through the growth phase. Ideally, we should also see Customer Lifetime Value become greater than the Cost Per Acquisition.
Nailing through all three stages creates a force to be reckoned with. Moving ahead, we will go deep into the funnel of growth marketing and experience every step of the process from a strategic perspective.
Growth Strategy: The Pirate Funnel
The funnel of growth marketing, essentially the AARRR framework is an amazing pneumonic to work across all the steps involved in the purchase journey. Along the way, we’ll consider case studies to relate better to our growth framework.
In his book ‘The Lean Startup’, Eric Ries speaks about the three engines of growth. Today we borrow (read: commandeer) his concept to unravel the question of acquisition for tech startups.
Eric argues that the trick is to know which one works best for your product.
- Viral: Viral growth is not just a plain-old word of mouth. The referral mechanism is a necessary consequence of using a product.We take Dropbox as an example. Their growth has been a product of the referral system they had built.
They gave people free storage to recommend their product further to friends and family. It did two wonders for them:
- Incentivized existing users to use their service more frequently.
- Introduced the brand to more people, essentially giving them a free sample.
Another case could be Paypal. They let users send money to people who didn’t use Paypal. The emails sent read, “Max has sent you $20!” Considering that the people sending them money over Paypal were known to the receivers, they would naturally install the app and claim the money.
- Sticky: The sticky engine is essentially a customer retention strategy, but also plays a majestic role in acquiring new users. The objective is to have every customer stick around as much as possible.A good example would be Uber. Uber’s marketplace grows in value as the number of users(or riders) increase. As the number of riders on the app increases, the number of rides (and the earnings) for the drivers increase as well. This kicks off a virtuous cycle where more earnings attract more drivers and more drivers improve the customer experience with faster and better service. Better customer experience automatically generates inbound interest and gets Uber more users.
Rapid growth is sustainable if and only if it is reinforcing.
Another common example would include Facebook mailing you about major activities even if you do not have their application – someone has tagged you in a post, sent you a friend request etc. This generates interest and retains users. Netflix achieves the same effect by offering discounts to users who have unsubscribed from the service.
As Neil Patel puts it, the magic formula for a sticky product is:
High retention + low churn + network effects.
- Paid: Viral and Sticky engines are common in software. Hardware companies can neither go viral that easily nor grow through simply creating a sticky product.So, how do these companies grow? They use commercials.
We could look at Groupon over here. While their stock prices and performance had been questionable, their growth strategy remains among the finest.
In the coupons space, their objective was to scale faster and wider before any competitor could hit pedal to the metal. Selling hard products and services, they leveraged the power of paid online marketing.
Result? They scaled 228% in a year.
One look at their financials and you would see how they spent $179Mn to acquire 33 million new subscribers in one quarter. Pretty impressive, huh?
Source: Groupon financial statements
Observe the staggering “Online Marketing” expense adjustment.
Their model of scaling through advertisements make complete sense as long as they could manage to raise and maintain a higher Customer Lifetime Value (CLTV) with respect to their Customer Acquisition Cost (CAC).Activation
This is where conversions happen. Registrations, subscriptions, free demos etc. are all forms of activations. But, what’s a meaningful activation?
Free conversions on a freemium blog do not pay the bills. Only the paid ones do. A meaningful activation is one that leads your prospect to the final phase: Revenue.
Have you ever been directed to a page where you had to key in your credit card details to use the free version? What did you do? 9/10 times, you left. So, should the business just remove the requirement to have you try the product for free? But, what’s the point of acquisition if the users are just going to leave?
Think of your product like a funnel. Every stage of the funnel will filter out a few customers and only a fraction will reach the next stage.
- Pre-SignupThis includes a customer’s journey through everything they experience before signing-up for your product/service. A customer could land on your site through a range of routes, but the typical ones include – organic search, paid advertising, social media, email, direct link etc.So, how do you solve for that journey? The trick is to optimize your user flows based on the traffic source.
We could look at Typeform here. Their effort to shape the user flow is commendable. If a user stumbles onto their website while they were looking for more interactive Google Forms alternatives, Typeform does pretty a good job of leading them up to conversions.
They do not put forward an urgent sign-up requirement and instead, lets the users demo the product. On the very first look, you observe an interactive video on the right that gives you a peek into the forms. As the aesthetics hook you, two clear CTAs on the right lead you ahead, building gradual engagement and resulting in a sign-up.
2. First User Experience
This is the onboarding phase, and understandably, the most critical of all stages. This is where people learn the utility of your product.
Claire Suellentrop does a pretty good job breaking down the strategies into three buckets:
- Group Demos
- One-on-One Calls
The choice between these strategies depends on the pricing, business model and above all else, the complexity of what you’re offering.
User-friendly SAAS tools like Canva that work on drag-and-drop user functionality can opt for easy self-service tutorials built into the website itself. Users can learn the fundamentals by themselves. Self-Service tutorials also come into the picture when the margins for a business are low and they would want to avoid the overheads of one-on-one calls.
A good way to find the middle ground for paying customers that do not prefer self-service is to offer group demos. Their one-to-many approach makes them a feasible choice. These tutorials can be given by webinars, videos etc. A good example would be WebFlow, among other No Code apps that have their tutorial series over Youtube that the customers can access at any time.
For the more complex SAAS and PAAS tools like Hubspot CRM etc., customers can schedule a one-on-one call with a customer service representative that can guide them through the process.
The only surest way of knowing what product approach works is to adopt the ‘growth’ mindset and run several tests building up to surety. Building hypothesis, testing them and iterating upon the solutions is the soul of the process.
Onboarding is more than just having people sign up. Often, the most important emotion a brand could induce in their users is the contentment of money well spent. Failing to do this induces buyer’s remorse and leads to higher churn.
Companies do this by maintaining good engagement and keeping in touch with users. It’s about extending a hand to your users and pulling them back to your product.
7 out of 10 users check their email inbox more than once a day. Naturally, drip campaigning via email is the medium of choice for most businesses. Marketing automation tools like Intercom and Customer.io can help you custom-tailor your messages.
But, what would you engage users on? What would you make them do? Businesses should identify and/or build key activation events that drive user engagement.
An example would be LinkedIn showing you what percentage of your profile is completed. If you have filled out the experience and education fields, but have not filled out the skills section, Linkedin would probably remind you to do that with a polite statistic saying something like – “People who put their skills are 2x likelier to generate employers’ interest.”
The mantra is – 1) Remind people to engage; 2) Let them know why.
Indeed, retention is the poster boy for growth.
“Customer retention is the new conversion” – Des Traynor (Co-Founder & CSO, Intercom)
As McKinsey so aptly puts it in the following figure, after every successful purchase comes a trigger. The trigger is the point in the customer journey where he faces a decision between the comfort and convenience of opting to purchase from the last brand and the trouble of searching for a new brand among a consideration set of all competing brands, essentially looking for a better product or experience.
We wanna make sure that the customer opts for the former, creating a loyalty loop inwards towards our company.
Why do we need these repeat customers? (For statistical proof, head on here)
- They are more likely to shop again.
- They are easier to sell to.
- Spend more on each purchase.
One of the most horrible mistakes a brand could make is to allocate a massive budget for acquiring new customers but not retaining the ones they have.
How can companies retain their customers?
There are many approaches to this, and innovative solutions keep coming to light faster than ever before. Here, we’ll cover a few major strategies.
- Sticky Engine, again.Brands look to incorporate the sticky engine into their product to compound growth. We’ve seen a sticky engine in action through the Uber example. But, we can dive deeper. Let’s look at Snapchat.
Snapchat does an excellent job of making users open their app every single day. It perfectly leverages our short attention spans by keeping the snaps short and crisp. The culture of sharing snaps every day induces a FOMO so strong that users are practically driven to watch snaps and revert with their own, creating a snap streak. This is where the model ramifies itself into a haul of snaps shared for days between the users.
They supplement the mechanism by adding filters, effects and other in-app functionalities. Perfection.
- Social Media’s operant conditioning.What’s incredible about this is the fact that we’ve all fallen to this. The desire it generates is extraordinary and at its very core is a fundamental concept of psychology – Operant Conditioning.
Easily put, this is how we train pets at home and rats in labs. Wondering how social media uses it on you?
Platforms like Instagram, Reddit condition behaviour to keep coming back for more good, funny, enjoyable content. We call it a “schedule of reinforcement” – how behaviour is reinforced.
Content on social can be incredibly useless, but it can also surface jewels from time to time.
This nature of content discovery invokes a “variable-ratio schedule”, where behaviour and responses are reinforced unpredictably at random times. Users keep scrolling (a minimum effort activity) in the hope of reward – good content.
It may be intriguing to know that the same principle is behind one of the most addicting activities ever known – Gambling.
- Raising up the switching costs.You probably hate your bank, right? But you haven’t left.
You were probably annoyed with Whatsapp’s privacy concerns, right? But did you make a switch?
It’s the same effect with gym passes, cell phone carriers and more. It is incredible how effective it can be to ask people to call certain numbers or mail some information when they seek a refund. Some people simply won’t do it.
A lesser evil way of having the same impact would be to look at Hubspot’s strategy.
The majority of Hubspot’s revenue comes from its marketing automation services. Marketing automation is complex. So much so that it takes all the customers to go through a one-on-one paid onboarding process. And, it takes a lot of effort from both parties to customize the platform as per the customer’s needs.
The one-time professional onboarding charges are $3000.
On the one hand, the price is so high that it scares away the uncommitted leads and on the other hand, moving the entire set up to another platform is just very infeasible.
Apart from this, they also reinforce the incentive to not switch by building an ecosystem of services around their core product like video-based certifications, individual consulting, classroom services and their annual inbound conference.
This is how you build a moat around your business.
There are many other retention strategies in existence, and newer strategies come to light quite often. Hopefully, we’ll speak about these in further detail in the coming editions.
We are finally at that one element that has scaled the most prolific startups known to us.
As Deepak Singh (Group PM at Flipkart) states, there are two kinds of referrals: Incentivised and Non-Incentivised.
Incentivised: A positive payoff is received by either the referee or the referrer or both. Could be financial payoffs or benefits like premium access etc.
Non-Incentivised: No positive payoff is offered by the company. Referrals are usually motivated by goodwill, prestige etc.
Mostly, we talk about the incentivised referrals. They can be designed around four possible incentives:
- Discounted Products: Uber offering discounted rides. Airbnb giving travel credit. Amazon/Flipkart offering gift cards.
- Premium Access for a limited period: Evernote offering premium access for a limited period of time. Coursera’s COVID-19 scheme of offering free courses based on the number of requests from colleges.
- Increased usage limit: Dropbox example discussed above.
- Money: Phonepe’s refer and earn scheme over referee’s first UPI transaction.
How do you decide the value of referral incentives?
The simple idea is that the total referral incentive cost (referrer + referee) < CAC of other channels.
Referral schemes help create exponential growth curves and are an integral part of growth marketing. That is why we always look to improve our referral schemes. But, you can’t improve what you can’t measure. So, here we go:
Most companies realize the importance of referrals. And, they spend a large amount of time, effort and resources on creating complex systems to measure customer happiness. But, they often forget the single sufficient metric they have got for predicting referrals – Net Promoter Score (NPS).
- Promoters (9-10): Would recommend your product to others.
- Passives (7-8): Are fine with your product but would switch to an alternative if presented.
- Detractors (0-6): Unhappy users who’ll churn and talk negatively about the product.
This number should be tracked over time to see which direction you’re heading. (Here are some industry benchmarks to get you started)
If you have embedded network effects into your product, you should also track the ‘Viral coefficient (k)’. According to David Skok, it can help you identify the “number of new customers that each existing customer is able to successfully convert.”
K = No. of invites sent by each new customer * % of invites that convert
It is a moving target. This means that you will have to track this number by cohorts over time.
David Skok has also built a little spreadsheet model to help you along the way.
The final stage of the funnel, where all your growth efforts finally pay off. (Note: In some representations, revenue precedes referrals)
This is where we wonder, “How can I turn my potential customers into paying customers?”
Warming up the prospect through the entire funnel and building up for this decision, now is the time for a hard sell.
Here’s a prime example of that ‘hard-sell’ from WP Engine. This email is a work of marketing art for the single reason that it automatically answers 99% of the potential questions a customer could have. Not to mention how it is so crisp, forthright and simple.
At the Revenue stage, you’d also want to be wary of a few sneaky bottlenecks. In e-commerce models, you could easily spot them as ‘cart abandonments’.
How do you resolve issues at the final stage? Every issue in growth is resolved through these 4 steps:
Hypothesize → Run the tests → Measure → Iterate
Say, if you realize through customer surveys that the cart abandonment issues may have been happening because of poor user experience while site navigation, experiment with the user interface. Invest in building a better and cleaner structure. Measure how the results have changed.
Once you get rid of all bottlenecks through the entire funnel, what you have is a swift growth machine that may as well be capable of generating a hockey-stick growth.
Kudos to making it this far. You’ve successfully stepped into the world of growth marketing.
Hopefully, in the coming editions, we will go deeper and wider on all subjects related. Till then, have fun experimenting at your startups.
Further suggested readings:
- Growth Hacking case studies from fast-growing Indian startups
- Top 10 most popular growth hacks of all time
- The Growth hacking playbook by Hubspot
- Growth loops and where to find them
To help you through your journey, we have listed a resource that will help you along the way:
- Experiment Cheat Sheet by WRKSHP Tools: Which lean startup experiment should you be running next? What experiment works in a particular situation? This cheat sheet will answer all of these questions.The experiments are organized by Business Model Canvas building block, Pirate Metrics stage, and Startup Stage
So that’s growth marketing for you in 2021. Like it or love it, you certainly can downplay it.