How do I scale my company? Article #4 in a series exploring the big questions that entrepreneurs ask as they’re starting up and growing their businesses.
From “growth hacking” to “personalized marketing,” the marketing media buzzword engine is humming with ideas old and new for growing your business.
Whichever approach you settle on, it probably easily falls into at least one of these four basic business growth levers. Essentially, you can:
- Get more customers (accelerate customer base growth)
- Keep more customers (reduce churn)
- Increase the price of your offering
- Increase the volume of sales
That’s pretty much it, however each of these growth levers has a number of strategies associated with it. Typically, companies start at the top of this list and as they mature, work their way down as they try new strategies.
Let’s explore some of the strategies that may fall into each of these levers.
Growing Your Customer Base
Some of the more popular strategies for getting more customers include:
- Growth hacking. The term is even more popular than the technique, and misuse of the term has led to some controversy and pushback. But essentially, growth hacking acknowledges a popular concept that some marketers love to take advantage of, but that make some other marketers (and sales people) a little nervous. That’s the idea that a good product sells itself. Growth hacking takes advantage of “the latent potential of software products to spread themselves” (according to Neil Patel) by empowering built-in replication and promotion mechanisms into the product itself.
- Pioneering. Pioneering is the process of creating new markets, or redesigning existing ones. It can be as simple as expanding geographies, or as complicated as the most sophisticated demand generation strategies. Successful pioneers look beyond the boundaries of their organization, and their immediate competition. They start by defining the entire competition set, which includes organizations with the same offering, those with similar offerings, those that could offer the same or similar products or services in the future, and those that could remove the need for a product or service. They consider another important competitor: inaction. According to HBR, they “systematically pursue value innovation by looking across the conventionally defined boundaries of competition—across substitute industries, across strategic groups, across buyer groups, across complementary product and service offerings, across the functional-emotional orientation of an industry, and even across time.”
- Hitchhiking. While many of the strategies we’ll talk about today allow you to lay claim to the “best” differentiator, and pioneering will certainly allow you to lay claim to “only” or “first,” hitchhikers don’t need to be any of these. They’re satisfied with “better,” “faster” or “cheaper.” Hitchhikers let a competitor do all the pioneering and much of the innovation, and come in to a more established market and undercut on price or increment in quality or speed, “stealing” market share from the pioneer. A related pricing strategy is the competition-based or going rate pricing model, which uses current market conditions as the basis for price decisions — what is the competition charging for a similar offering?
- Penetration pricing. This pricing model is analogous to the “foot in the door” sales strategy. You grow penetration by offering a free (“freemium”) or low-cost product or service with limited functionality. You allow people to try the product, to see some of the benefits, and begin to trust your capabilities. As their use increases, they eventually hit a limit, and must either cope or spend more money to get more capability (the “upsell”). A related strategy is loss leader pricing, where a product or service is sold at a loss, but the revenue is made up through ancillary sales — the classic example is printer manufacturers, who sell printers dirt cheap, but make huge margins on the ink.
- Inbound marketing. Another big buzzphrase, inbound or content marketing takes advantage of the latent potential of search engines to drive traffic to websites. These website are not only SEO optimized (designed to maximize “organic” or “earned” search engine traffic), but “conversion rate optimized” (CRO) so that new visitors to the site are given an experience that is most likely to lead them to purchasing your product or service. The entire concept was created and marketing by Boston-based HubSpot.
- CRM and marketing automation systems. Customer relationship marketing (CRM) has been a mainstay in sales and marketing support software for years, but it is most powerful when its tightly integrated with your inbound marketing activities in the form of a marketing automation system. Modern CRM systems are fully integrated with, or actually build their own, web content management systems (CMSs), and these integrated marketing automation systems keep track of specific visitor behavior, assigning “lead scores” to each visitor that grow as the visitor interacts with your content marketing activities. Once lead scores reach specific values, they trigger additional automatic and sometimes manual actions by the sales and marketing team — prompting popup offers, behavioral “retargeting” ads, emails and even phone calls. Popular marketing automation systems include Salesforce, HubSpot, Marketo, SharpSpring and others.
- Funnel flipping. The sales funnel is the classic lead generation model, which visualizes the sales and marketing process as a funnel with marketing-qualified leads at the top and closed deals at the bottom, narrowing as individual leads drop out of the process for various reasons. By using your CRM and POS (“point of sales”) systems to track customer data, sales and marketing leaders can start to build profiles and understand what the commonalities are among the leads that make it all the way through the process — what demographic, sociographic, psychographic and technographic similarities do they share? Are there touchpoints that work, and touchpoints that don’t? What are the marketing channels and campaigns are most successful at driving prospects the furthest down the funnel, and how do we replicate them? “Flipping the funnel” was an idea pioneered by Joseph Jaffe in which companies take the customer profile data of the most common or most profitable customer and focus future marketing on that segment.
- Omnichannel marketing. Marketing has evolved from relatively simple channel-specific (a “channel” can be anything from a point-of-sale to a billboard, banner, website, etc.) activities to more sophisticated integrated multichannel marketing programs that ensure that messaging is consistent across all channels. But while the best multichannel marketing strategies ensure consistent messaging, they cannot ensure consistent customer experiences. Often, even in integrated multichannel programs where each channel has access to the same customer profile data, different customer “touchpoints” are managed by different parts of the organization, with different goals, skill sets, etc. Omnichannel marketing puts the customer at the center, and lets the customer take the lead in terms of how they interact with your organization. It ensures full bidirectional communication with the customer, rather than the passive, one-way experience they get with multichannel approaches.
Keeping your customers engaged and happy
Once you have your new customers, you need to avoid customer “churn” and keep them, and the best way to do that is to keep them engaged and happy. Research shows that organizations need to spend significantly more to obtain customers than they need to spend retaining them, and existing customers tend to spend significantly more than new ones. Customer retention, it turns out, is can also help profitability! Some of the more popular churn reduction strategies include:
- Customer experience management. Gartner defines customer experience management as “the practice of designing and reacting to customer interactions to meet or exceed customer expectations and, thus, increase customer satisfaction, loyalty and advocacy.” It closely integrates product development efforts with customer data, fine tuning user interface (UI) and user experience (UX) design based on customer data from CRM, marketing automation, content management and web analytics systems. SAS has a good overview here. Two useful tools for customer experience management are customer profiling and customer journey mapping.
- Customer onboarding, training and support. Customer retention strategies tend to fail early on — often as early as the sale, most typically through a phenomenon known as “buyer’s remorse,” which in turn can lead to a lack of adoption. Some customers, in other words, never get around to using the product or service they’ve purchased! By combating buyer’s remorse early-on, companies can significantly improve adoption and retention rates. This requires investment in training and onboarding activities that can increase the likelihood that your customers use your offering and feel like they’ve gotten the most out of their investment.
- Customer feedback loops. Feedback loops like surveys, advisory boards and focus groups shouldn’t just inform marketing activities. They should inform all aspects of the business, but especially product development and support. “A customer advisory board (CAB) is a select group of representatives from your most important customers. You meet with them periodically—once per month or quarter—to discuss your product and their experience using it. It’s an open forum for them to voice their concerns as well as their satisfaction” (Agile CRM).
- Customer loyalty programs. Customer satisfaction, as measured by classic metrics like the Net Promoter Score (NPS), has traditionally been the gold standard for ensuring customer retention. While NPS and other satisfaction metrics are important, and can be predictive of customer retention, they do nothing to empower customers to actively engage with and promote your product or service. That’s where customer loyalty programs come in. If your best “salesperson” is a good product, your second best salesperson is a happy, engaged customer. So make it easy for happy, engaged customers to actively promote your product. Growth hacking is part of the equation — by designing promotion into the product itself. But promotion can be designed into customer support and other business functions. This can be enhanced by loyalty reward programs, affiliate sales incentives and other related strategies. Smart loyalty programs are informed by customer lifetime value calculations.
Increasing the price
Price is one of the “Four Ps” that marketers control or influence (the others being product, place and promotion). While the price of an offering is under complete control of the marketer, the “law of supply and demand” dictates that in perfectly rational markets, increasing the price will decrease demand for a product — in other words, fewer products and services are purchased as prices increase. Of course, markets are not perfectly rational, which gives rise to the range of strategies available to marketers to “hack” the demand curve. Some of the more popular strategies include (note that this is not a comprehensive list of pricing strategies, but only a list of price increase strategies):
- Bald price increases. Depending on the slope of your offering’s demand curve, you may be able to increase total sales just by increasing the price. The slope of your demand curve reflects the level of price sensitivity of your buyer (also called the price elasticity of demand) in a given market. Price sensitivity varies based on demographic, sociographic, psychographic and technographic factors (including age, budget, skills, job responsibilities, etc.). It also varies based on the product’s current position in the adoption curve (“innovators” and “early adopters” at the beginning of the bell-shaped adoption curve are significantly less price sensitive than those buyers in the “majority” of your total potential customer base, who are in turn significantly less price sensitive than the “laggards” at the end of the bell curve). Bald price increases work best with flatter (less elastic) demand curves, where there is less price sensitivity. They can be done all at once, or incrementally over time.
- Value-based pricing. Value-based pricing works by increasing or reinforcing the perceived value of your offering. Value based pricing is more effective when competitive pressures are low, when there is clear differentiation, and when products are in the first half of the adoption curve (i.e., below 50% market penetration). As markets mature and offerings move into the second half of the adoption curve, both competitive pressures and price sensitivity increase, making value-based pricing more difficult. This can be combatted with tactics like product versioning, the development of new features, use case research and benefits messaging. The longer you wait to adopt value-based pricing, the more work you’ll have to do marketing the offering to new customers with lower price sensitivity, so start communicating value as soon as possible.
- Price tiering. Price tiering takes advantage of a well-known psychological concept called anchoring, and makes upselling much easier. The classic (albeit pre-COVID) example is the movie theater soda. A “large” (let’s say 64oz) soda at the movies may cost $7. By itself, this might seem like a lot of money (don’t worry, you’re not crazy, it is). But if it’s preceded by a $5.50 “small” (16oz) soda and a $6.25 “medium” (32oz) one, then our brain looks at the small or medium price (the “anchor” price) and does some simple heuristics for the next size up, saying “twice as much soda for 75 cents? what a bargain!” A related strategy is prestige / premium / luxury pricing, in which you create a high-end “premium” version of the product that includes special services, features or product add-ons only available to an exclusive few willing and able to pay the high price. Prestige pricing is highly dependent on high value perception. Price tiering is relatively easy to implement even after the anchor price has been established, but typically works best with higher margin offerings.
- Dynamic or surge pricing. Made (in)famous by Uber, surge pricing must be justifiable or you can get in big trouble, both with consumers and with regulators, in the case of price gouging. Surge pricing is nevertheless a valid approach for recovering elastic variable costs and growing margins — when done incrementally and carefully.
- Relationship marketing. Value-based pricing is only one option. Relationship-based pricing is another. Relationship marketing builds trust, and trust impacts perceived value, which allows you to increase your price and grow revenue without as much of an impact on demand. HubSpot has a good overview of relationship marketing. An example of relationship marketing at work: we know that people are more likely to share negative experiences than positive experiences in product reviews and on social media. But people are less likely to publicly badmouth negative experiences with brands they trust — they’re more likely to attempt to resolve the issue by contacting the vendor directly.
Increasing sales volume
Finally, you can drive an increase in either the average transaction or the frequency of transactions. There are a number of strategies to accomplish this:
- Cross-selling. While upselling typically involves pushing an upgrade at the point of sale (see “tiered pricing” and “penetration pricing” above), cross-selling involves recommending ancillary products or services that “go well” or are “frequently purchased with” the item they’re planning to buy. In brick-and-mortars, this is accomplished through sales training. In ecommerce, this is accomplished through recommendation engines. It’s not quite the same as bundling (see below) or loss leader pricing (see above) in that there is no discounting. If the cross-sold items are marketed as premium add-ons, products or services, this comes close to the prestige / premium / luxury pricing strategy discussed above. A related strategy is the protection plan, which is an extended warranty offered by the retailer offered at an additional price.
- Bundling. Bundling is similar to cross-selling, but multiple items (products and/or services) are packaged together and sold at a discount. The anchor price here is the full price. “But wait, there’s more…” is the classic infomercial pitch that uses this strategy.
- Subscription models. Have you tried to buy a software license for Microsoft or Adobe products lately? It’s very difficult, if not impossible. Instead you’re offered subscription pricing. Why? Because it ensures a more consistent, regular revenue stream, and customers are more likely to spend money with you more frequently.
These are just a few ways for driving sales growth. Are you using one of these tactics? Did we miss something? Let us know in the comments below.