Across The pond- Marketing Transformed.
Episode 11 – The Rise of the Engagement Hacker
Retention is the new black
This is a bit of a hot topic, a specialist subject of mine, something that I feel really passionate about. On this week’s show we’re going to be talking about the rise of the retention specialist. Why there, rightly so, is an increase in focus on retention, not just growth, why one pound (sterling) on engagement is worth five pounds in an acquisition, and some simple steps to an engagement strategy and where that shift came from. Interestingly, it’s often quoted that to retain a customer is five times cheaper than to acquire one, and that a pound spent on your lifetime customers’ increases your value and overall profitability of the customer. But in the majority of cases acquisition, top of the funnel marketing, performance marketing, driving traffic etc tends to hog the limelight.
Why is that? Why do we find ourselves in a situation where the CEO, the Finance Director or the shareholders focuses on acquisition at the expense of retention? Now, of course I’m not arguing that it’s an either-or situation, but I am arguing that there’s a balance and it’s tipped too far towards acquisition but, encouragingly, I think they’re coming back now. Which I am really pleased about. And, Sam, what do you think the most talked about job title is over the last few years?
Great question, Chris. When you think about titles, growth hacking, growth hacker, head of growth, chief growth officer, growth specialist etc. I think it’s a term attributed to Sean Ellis around the time of 2010, and it’s only continued to become more prevalent; he coined the term growth hacking to describe the sustainable growth approach used by hyper growth companies like Facebook, Air BnB and Amazon. His definition is: a growth hacker is a person whose true north is growth and scaling it. It’s about optimising and being scrappy about how you drive that growth and focus on how.
For example, if I got you to order from my restaurant, how do I get you to order back in again and again, which means to try different days of the week or offers, if you buy lunch without a drink I’m going to find ways to get you to add a drink, and after that to add a cookie (or a biscuit in the UK). I’m going to test what you do if I offer you cheaper delivery or what you do if I offer you free delivery, I’m going to learn that you tend to order from a certain restaurant for breakfast on Saturday, and I’m going to prompt you thirty minutes before your usual order time to order. Thank you GrubHub, that may just be a personal story there.
Ha-ha, yeah, maybe. I think the thing is that there’s a common thread running through there. That’s growth hacking and, as a principle, I think it makes absolute sense, a person or team who can cut through the boundaries and focus on growth. But my problem with it Sam, is that we’ve seen abundance or acquisition marketeers rename from acquisition marketing to growth hacking.
Engagement and retention is given second billing and I think there is nothing worse than a half-executed philosophy, because that is not what achieves sustainable growth. What achieves sustainable growth is by making sure that we focus on the whole lifetime value. Acquiring new customers is five times more expensive than retaining an existing customer, I’ve said that upfront. A couple of interesting other stats from a few studies as well, success rate of selling to a customer you already have is sixty to seventy percent while the success rate of selling to a new customer is five to twenty percent. So, that for me speaks volumes; if you want to grow, sort out your retention and engagement problem.
Chris’ Soap Box
I think you’re just getting on top of your soapbox Chris, perhaps going a bit higher. So, tell us why you’re so bullish about this philosophy.
Well, simply put, it’s about human behaviour and that’s why I want to focus on mindset as well. I think that’s the theme we come back to time and time again because without the right mindset we will fail. Let’s look at that in more detail. Cake or broccoli, it’s a simple choice for a lot of people. Cake wins every time and we’re programmed for that short-term gratification, that pleasure principle. We're attracted by the headlines, the lose seven pounds in seven days rather than the healthy eating plan. So, we’re attracted to the short term, the emotional part of our brain reacts positively to instant gratification, so when we’re given that choice of cake now or broccoli later, this part of the brain pushes you to choose the cake. And we undervalue those future rewards. It’s a scientific model which is called the pleasure principle and it is believed that humans act on that pleasure principle, and it’s basically a driving force that pushes human beings to gratify their urges as quickly as they can.
We live in an instant gratification society now, which encourages that short term thinking. We even expect business growth to work in the same way, a phenomenon long considered to be gradual, to happen overnight. Like the overnight explosion of a YouTube video. We want to hack business growth for viral expansion, so when we look at something like growth hacking which was based around the growth of hyper growth companies like Air BnB and Facebook again, we see that situation. But if you look at highly successful people and you compare them with average performers you quickly identify that there’s a big difference. The most successful people are almost always long term orientated. While most average performers, especially under performers are short term orientated.
Now I’m not saying Sam they you shouldn’t be alert to the short term opportunities, be able to take advantage of the tactical nature of what might well happen, but overall I think you’re in a situation where if you can plan this out, if you can look at the longer term benefits, then you see that. And what the challenge is, is that our CEO’s, our finance directors, even our CMO’s, our shareholders they’re human too… well at least most of them. And you find yourself in a situation where your brought back to that short-term fix, saying look I understand all of the stuff that we need to put in place, but let’s focus on acquisition. So, yeah it does feel a little soap boxy for me today Sam, but I think that the good news is: I think that that balance there towards long term thinking, focusing on customer retention is happening, and we have to focus on retention and engagement and we’re seeing that pendulum swing back a bit. Any of that ring true Sam, or do you sort of see it a different way?
Well I can’t really say no now, because you’ve got some sort of soap box which is just rising and rising and rising, I can see you with your arms stretched, looking over an audience, preaching this from a stage saying to people you must do this.
To be honest we did cover this a bit in episode nine, when we talked about achieving optimum growth and called out the role of the rundle which is the recurring revenue bundle, the premise of the rundle is not my term. It’s Scott Galloway’s who’s an entrepreneur who uses it a lot and he talks about how it helps with predicting capital expenditure and revenue streams and really leveraging what it means to be human, i.e. our own ability to know that the gym membership is costing us more than we actually get out of it, so we say we’re going to go five or six times when really we only go once or twice, not speaking from personal stories here. Or, for example, that the music subscription is costing us more, the amount of times we’re only listening to certain songs or certain tracks, it’s costing us more than buying the album and owning it outright the first time. The Apple Arcade is another great example where they’re giving people subscriptions to hundreds of games, betting on the fact that it will generate huge adoption as an alternative to buying individual games, which makes sense.
And then more recently, Nike or ‘Nikey’, depending on your pronunciation, they have this Nike adventure club kids’ subscription, which I think they launched around October 2019. The idea here is to get kids when they’re young, when they’re feet are growing and when kids need four pairs a year. So, their minimum for this subscription is four pairs a year, and they’re trying out different tiers, with for example an offering at fifty dollars a pair of sneakers (or trainers) in the UK, so we’ll see how that goes but they’re absolutely buying in, so yes Chris, what you’re saying is true and we’re seeing it more and more. I mean jump in Chris, can you give us more context, and could you talk about the hands-on work that you’ve been doing in this space.
Yeah, I think for me we’re starting to see this ground swirl because there’s an abundance of subscriptions in the market place at the moment; we really are seeing that momentum grow and whether it’s from Hello Fresh to Netflix or your tel-col provider, we’re seeing subscriptions everywhere, and quite often we’re seeing them in places you wouldn’t expect them as well. I recently presented at a conference in October in Boston, called The Subscription Show, fantastic conference and a huge array of subscription companies represented, and it felt like a bit of an awakening really; a bit of a momentum out there with a number of retention and marketers taking on a much more senior role in their organisations and gaining much more attraction. There was real energy in that room and optimism but also a huge amount of experience, which was predominantly focused around that lifetime value, how you drive that experience from end to end and make sure that your attention is as much on retention as acquisition.
There’s a research piece by a company called Zuora, they did a subscription in economy index and over the past seven years, they believe that across America, North America, Europe and Asia pacific that they’ve seen their subscription sales grow by more than three hundred percent. McKinsey have reported that they’ve seen subscription e-con market grow by about one hundred percent over the past five years, and that’s one hundred percent per year and actually move up from being a mere fifty-seven million dollars in 2000 and eleven up to about two point six billion in sales in 2016. So, absolutely staggering growth there, it’s interesting I was working out how many subscriptions that I actually had, it’s probably about eight or nine, I don’t know how many it would be for you Sam but one piece of research I saw said on average it’s about seven, where do you think you come out?
Yeah probably more if I start adding them up and as you say it’s the gym, it’s the music subscription, it’s the other music subscription that I use with my wife and there’s some stuff I have with Amazon- subscribe and save and I’m addicted to that so I have about five, six, seven, eight things shipped every quarter from them. So yeah around that same amount and so probably a lot of money that’s being spent through that means, which you’re probably less conscious, or less price sensitive of, or just less stressed about because it kind of solves other things, by just setting up and not forgetting about it but just letting it carry on because you’ve got enough going on to make decisions on.
Completely, and it’s all part of the transformation that we’re seeing, I think. Some of the stuff that was coming out of the show, there was an array of great speakers but some of the things that really struck me were the absolute focus on customer satisfaction from end to end, that was something that I was talking about. Making sure you dismantle every single piece of your customer funnel, testing it and putting it back together again. A lot of analysis about where you should be focusing your effort and if you’re going to focus it anywhere, focus it on those first ninety days of the onboarding journey. Cement those brands values and attributes into your audience at that early stage and then make sure that your rinse and repeat and keep reflecting on that, but the first ninety days being an incredibly important bit.
The quote for me from the subscription show was don’t hide the cancel button. I think back in the dark arts days of subscription marketing where you’d sign someone up on a recurring basis and you’d effectively buy marketing via inertia and you’d wait for someone to recognise. I think those days are coming to an end, I still think there’s a few shark practices out there but increasingly it’s about making someone want that relationship and want it to carry on going and making it clear that at any point you can cancel it. It was quite refreshing to be surrounded by three hundred professionals pretty much preaching from that point, but where do you start?
Where do I begin?
I think where you really start is you must storyboard and walk through that customer journey. If you’ve got an existing customer journey, sit down with your team, not your marketing team but your sales, product, commercial team, get them in a room and walk through that customer journey step by step by step and work out whether it conveys your brand promise at every stage. It’s absolutely fascinating, it’s something that you would think we’d do as a matter of course, but to actually put yourself in the shoes of the customers with the relevant parties in a room and work it through, it’s amazing what comes up and I’m always surprised that such a simple technique is not really done nearly enough. So, that was it I’ll come back to another few things that came out but those were the things that struck me from the show.
I think I first got to applying those principles and philosophy in my marketing via a guy called Joseph Jaffe and he wrote a book called Flip The Funnel and that came out, at a similar time to his growth hacking concept and his angle was about the power of retaining and rewarding existing customers and using them to recruit new ones. The time I was working with a Kenmore brand, Sears so I devised what I call an R3 strategy or R-cubed, it was more about retaining, referring and recruiting consumers. It was thinking through how the business worked and creating a relationship management ecosystem. Targeting existing consumers, owners of our products as well as new purchases. As an ongoing marketing leader so that the average purchase cycle is seven years for appliances and it was a way to try to provide a sustainable platform that would give us some brand advocacy and referral that would leverage some of the communication we had working.
It was also a way to try and tap into and create a platform for customer service, and also we were focusing on our major appliances like laundry appliances, fridges and dishwashers and cooking appliances. But also to support the higher online conversion rates of things like small appliances and replacement parts. So, what we did was about retaining consumers when they came back in or were purchasing a small appliance, whether it be a toaster oven, coffee maker or a kettle. Using that relationship to get them to actually stay with us so they’ll talk more, they could refer their experience with the product.
What was getting them to talk about it? to blog about it? to share and eulogise about the brand? Because if you have a great experience, you love the feature, you love the way it works, its reliable, it gives you benefits you are not getting from others, other brands other products, you really want to share it. Especially when it comes to food and cooking people like to talk about that stuff, organically and naturally. You get a new washing machine that washes faster and dries better than what you used to have. The amount of time it saves you means you can get on with other things in your life verses spending it all on that. You want to actually tell your friends and your peers and your colleagues and your neighbours that this is something they can do as well.
So we had the retain part and refer part, and the recruit part is about leveraging those brand lovers to recruit those purchasers. You know satisfied customers that love the brand, as influencers they provide the best testimonials and the best advocacy, because they speak with veracity and authenticity. That stuff has been lost by modern day influencers that are getting paid, and those are the best referrals you can get. So retain, refer, recruit was the initiative, was the idea, but I have to admit it was tough to get buy in, because it was about moving resources from prospecting to existing consumers and that was just so antithetical at the time. Looking back now I see the headwinds I faced were probably because, 2010/2011 - this was all new and it was perhaps a little bit ahead of its time. Because there weren’t the abundant examples we just talked about on this show that actually existed out there and it was a bit of an unusual approach. I was able to get support via customer satisfaction programmes such as trouble shooting and mitigating problems through social.
So using social to solve consumer issues was actually faster and easier than the consumer having to go through the call centre or help centre or try and contact the store. I have to give a shout out to my partner in crime at the time, a guy called Rich Goldsmith, I took ten thousand dollars from my PR budget for social customer service and retention and rescuing bad situations that consumers were having, which was solving the problem in hours which was taking weeks to not be solved by the official channel/owner (say customer service or the stores or the service departments). So that’s something that I was able to do to help with the retention part which would hopefully led to some of the referrals, but Chris that’s a story from my experience but before we wrap up can you just give us some examples and strategies that you love in this space?
Yeah, well look just listening to you there I think you’ve talked about a lot of them, a lot of it is about making sure that you’ve got that empathy, you’ve got that early warning system, early listening system and you’re talking to your customers in any manner that you possibly can. I mean, interestingly instead of focusing on a specific brand, what I really like is how a number of brands or products now are making great new sub notifications to maximise that engagement in a way that is not intrusive to the customer.
Back in the day you would be limited to email, so you’d be doing it via your newsletter and your follow up communications, but the ones that are winning are the ones that seamlessly integrate text message, desktop and in app notification, personalised web pages, along with email, occasionally a bit of direct marketing as well and traditional direct mail. I think that they are the ones where again bringing this back to the show title of around the rise of the engagement and retention specialist are using the expertise, using the digital and direct marketing philosophy but combining it with new technology.
Point being is that you have to get back to basics, engagement means engagement, it’s dialogue, a two way conversation where you adapt to the pace, the communication channels, the temperament of the person that you want to have a conversation with, but increasingly the engagement strategies that are working are ones that are built on that strong philosophy but have a good marketing technology backbone. So, it’s the ones that have already built that into their product offering, which I think do that very well. What about you? So, I love the fact that earlier on when you were calling out your subscriptions you were getting a bit passionate about Amazon there, would that be one or would there be another one that you think is more relevant?
Well actually, we talked a lot about for-profit commercial brands an organisation that we love, but for me one of the examples out there is I love Kiva.org which is a micro finance non-profit founded around 2005. They actually that uses micro loans to communities with limited funds, and their tag line is make a loan change a life. Essentially, they’ve made it easy to invest in people, versus perhaps a negative and more infrequent thought of donations and giving to charity. I signed up about ten years ago now, and they make it very personal, so you can see the people, you can see their story and their success story, you can choose by repayment rates, which encourages to lend back in fact it makes you want to lend more, and essentially acts as a permanent loan.
Its more purposeful than other charitable gifts, the idea of economic benefit makes it feel less do-goody and more about equity and meaningful contribution. And I think it builds empathy as you see yourself in the people, and you see their entrepreneurial spirit and it just feels better and different. You can select by gender- if you want to support female businesses, if you want to support the arts, you want to support the environment, you want to choose by country, you want to choose perhaps by younger entrepreneurs, so there’s so many great ways you can get involved and basically, I am retained. It’s not a one and done, I’m retained for years and years and years, so this money is just being recycled and reinvested, and essentially, I’ve invested this money and I’m having some say in it, but there is a way you’re engaging me even from that side. So, I think they’re a great example of how they’ve really managed to tap into this, and they’ve been doing it for years.
And again, they’re not hiding the cancel button. Making you want to be part of that continuously.
Yeah, I like that, that’s a good example. Interestingly the other area of thinking around retention is the idea of creating superfans in your organisation as well, or your brand. Letting your audience be your marketing department. Again, this can only be done if you focus on engagement, so I think that the balance is coming back and that’s absolutely right. That was another strong theme that came out at the subscription show it was something that formed part of the presentation that I gave where I was talking around Absolute Radio and how we launched that based on trying to think of our audience being our marketing department. Obviously, the work of The Guardian, where you’re trying to break down those boundaries between an employee and audience and saying that we want you to be part of this membership, to sustain The Guardian for future. And interestingly, a smart guy David Meerman Scott who’s written so many books, but it was the first time I’d heard him speak, and he spoke brilliantly at the show and he talked about Fanocracy, I think that was a term that he called it, the importance of creating fans, and I think that’s a subject that we will come back to on another podcast, it certainly came up and peeked my interest. But Sam, time is getting on.
Sure, yeah let’s do that in another episode.
I think todays show,
it’s about working with human behaviour, that cake or broccoli line, you know how do I make it a win win and make it about working with human behaviour but just don’t hide the cancel button. So that’s the first one.
The second thing is it’s a business model, you have to find a way for your business. So, you have to dismantle and reconstruct your funnel and your journey, but you have to find a way to make this model work for your business.
And thirdly, for legacy brands and organisations, don’t expect the status quo to agree, to buy in. you’re going to have to sell, you’re going to have to influence, you’re going to have to fight for the status quo to buy into this approach.
So, those are the three things I would say are the take always from today’s show.
Yeah, I mean again, you come back to mindset which has been a theme throughout the first eleven episodes I think, where it’s important to try and tackle that mindset and to make sure that you’re doing that through the organisation. Interestingly, we’re going to make it quite tangible for next show, we’re going to focus on measurement. How do you measure success, what do all of them acronyms mean and are they worth anything? And we want to make sure we get specific on how to know you’re succeeding and meeting expectation and try to give you a new perspective on the modern marketing score card, which is something that Sam and I have talked about on a number of different occasions, so I think that’s going to be a good show.