Growth Hacking: know why you should consider it in your business.

In recent years, it has been possible to observe how established companies have been threatened by smaller and more agile companies. Mainly, the smallest are emerging StartUps that enter an industry or market with a new or different offer, whose main characteristic is that it better meets the needs of the customer.

In many cases, they have not reinvented the wheel, but have offered a service that already exists, but with the great difference of doing it better. At the risk of mentioning a cliché, a very good example of this is in what Netflix has done.

Let’s give this example, because unlike what many might think (and here we dissociate ourselves from the cliché), Netflix was not born as a company that offers digital films, but its product was very similar to Blockbuster’s, with an asset in the physical films they rented. The big difference was in the business model as such and in Netflix’s constant quest to adapt to better meet the needs of its customers (and potential customers).

How Netflix became a 100% digital company is a subject for another article and contemplates the principles and methodologies we address in our Digital Transformation Consulting services.

As the title of this article says, what will be discussed here is the concept called Growth Hacking, and the example of Netflix has to do with being a StartUp through Growth Hacking techniques, has achieved a growth over 2.800% since 2005 (then had 4.2 M users, while today has 125 M).

Growth Hacking is a concept that has been around in the industry for several years, mainly refers to the strategies that apply the StartUps technology to achieve significant growth in its user base (such as Netflix example).

The principles of Growth Hacking are based on the constant optimization of the customer experience in different stages of the funnel of conversion with the objective that passes from one stage to another, we will see what these stages are.

Prior to these, there are two concepts that must be considered, so that the actions we execute within the conversion funnel effectively have some effect.

The first might sound like something obvious, it’ s fundamental and refers to the Product Market Fit, (we won’t go too deep into this concept here, since we better invite you to read a specific article that deals with the subject), additionally, it is a concept that is closely linked to the StartUps, since the established companies, rigorously already found their market (they could also go deeper into this concept, it wouldn’t do them any harm in the search to better satisfy their customers).

The second very relevant concept prior to the optimization of the funnel, refers to the Segmentation or, better said, “do not treat all your customers the same way”. This is fundamental when it comes to establishing the actions and optimizations that are required to be executed, as not all respond equally to different stimuli. In fact, this concept can also be deepened in another article with very practical examples.

Once you have found the Product Market Fit, and have identified the segments you want to address, it is time to grow the business, the stages that are considered within the funnel conversion for the Growth Hacking are (also called Pirate Metrics, by the acronym AARRR):

  • Acquisition: As its name indicates, it refers to the users you attract to know your product / service. This step is fundamental, since it dictates how well you will do in the next steps. Your funnel is only as good as the leads you attract. The goal in this step is to get the user/client to show some intention or commitment.
  • Activation: Having a person show interest through a form, for example, is only the first step. Many (not to say most), only stay in this effort. So in this step the objective requires that we activate these intentions, that is, that we turn leads into customers.

  • Retention: Having acquired and then activated a customer is an important effort, so retaining these becomes fundamental. The retention rate or frequency, will be very different depending on the product / service you operate, but the important thing is to get a customer who has bought / used what you offer, to do it again.
  • Referrals: Getting referrals is really difficult, since it requires several factors in action at once; momentum, a remarkable product/service, and something we call network effect (achieved when the use of the product generates value to another). While it is true that it is difficult to achieve the impressive effect that Dropbox achieved in this step, it is still important to look for instances to achieve these factors for your product / service.
  • Revenue: All previous efforts point to a final goal, to earn revenue. It is necessary, when we have a paying customer, to ensure that the revenue flow is maintained, as well as to increase the average expenditure made by each customer in their relationship cycle with the company.

This is not the end of the journey. Just because we have a customer who pays for our product/service does not mean that we will stop striving for it. Having achieved a customer is only the beginning of a relationship that must be nurtured over time. Here is a great opportunity, how many times have you bought a product or hired a service, have you felt that you are still important to the company? The truth is that very few times and it would suffice with the irruption of a company (usually a StartUp) that really takes into consideration the customer and its value in time, to take over the market. We have already seen many examples of this. The Growth Hacking, for the established companies becomes then fundamental, since there is no reason whatsoever to leave these tools alone in the hands of your future competition.

Let’s take the example of Netflix and focus on one of its first actions of Growth Hacking, to understand the philosophy or essence of the concept, beyond the steps and metrics that you must follow and measure.

Given the fact that we are talking about a StartUp (no longer so much, but then yes), his first challenge was to achieve the Product Market Fit, ie, make sure they had a service that effectively to someone interested and that more over, would pay for it.

The main dilemma they had was that they offered movies in DVD format, and in 1997 it was not the most popular standard, since it was only introduced to the market in 1995. Therefore, they found themselves in a limited market of users who could actually contract their services.

However, they were convinced that by offering the best possible experience to their customers, they could achieve growth: better experience in this case meant better quality in the movies (DVD) and eliminating the costly late fees that according to their founders were completely abusive and counterproductive to the customer experience.

Then, with the philosophy of the Growth Hacker, it was necessary to look for the way in which they could achieve the Acquisition phase with potential future clients, reason why they began to approach the manufacturers of the reproducers of DVD to convince them to attach to their products, a coupon for a free trial of Netflix. It would be the perfect match between potential customer and service offered.

It took them more than a year to convince the manufacturers to agree with this action and, basically, the determining factors in this decision were related to the mutual effect that this initiative would achieve.

  • The manufacturers of DVD players found themselves in a dilemma similar to that of Netflix, considering that it was a new standard and that customers were reluctant to buy a player and then not find content (movies) in stores.
  • By incorporating a Netflix coupon with the players, manufacturers could thus offer a promise of access to a catalogue of thousands of titles in the DVD format, in addition to the free gift.

By 1999, Netflix had reached an agreement with major DVD manufacturers to include their coupons. Thanks to this action, Netflix was able to hang on to the growth of the new format standard (DVD) to influence its own growth.

Between December 2000 and February 2002, Netflix’s subscriber base had grown from 250 thousand to 500 thousand. While sales of DVD players had grown from 6.4 million to 12.7 million units, thus showing a direct correlation between the increase in sales and the increase in subscriptions.

Simply put, this would imply that the conversion rate between coupon and subscriber was 2%.

The purpose of giving this example is to illustrate the philosophy of breaking the moulds and the established, that not necessarily the actions of Growth Hacking are digital, but it is the way of thinking and acting that will make the difference… of course, technology and digital will undoubtedly help to implement and achieve results on a scale.

Contact us and we can tell you how our proprietary TBO model works, to administer and manage a Growth Hacking model in companies that are no longer StartUps and want to dominate their market.

Juan Carlos Labbé, Manager of I2B