WHAT’S IT ABOUT? The concept of acquiring customers using the Three Pillars of Customer Acquisition of engagement, education, and empowerment.

KEY TAKEAWAY: Customer acquisition requires creativity, a laser-like focus on your messaging and delivering on your brand’s value proposition.

INSIGHT: Delivering on your brand’s promise will get repeat business, which is the name of the game.

Customer Acquisition

In the fast-paced and dynamic global economy, companies must find innovative ways to engage with their customers while addressing their needs, changing tastes and habits. The past two decades have seen companies sprout out of nowhere to become industry behemoths while those that once sat at the top of the food chain reduced to shadows of their former selves or have gone out of business. The most successful companies are the ones that are great at what we refer to as the Three Pillars of Customer Acquisition: engagement, education, and empowerment. Startups that have figured out these three pillars have been richly rewarded, attracting VCs, and often disrupting entire industries in the process. In this article, we take a look at the principles behind the idea of using three pillars to customer acquisition and how a startup can incorporate it into their business model by using some real-world examples.

Engagement: Meeting Your Customers Where They Are

How you engage with your customers makes the difference between whether they will take a chance on your next big idea or not. By engagement, we don’t only mean social media. It’s easy to point to social media as an important source of customer engagement and indeed it is. Facebook, Instagram, Twitter, and Pinterest have certainly provided marketers with tools to connect to consumers.

However, even the most well-funded companies with entire teams dedicated to social media interaction are finding it difficult to connect with their target audiences. According to IPG Mediabrands’ Media Lab, brands are expected to double their spending on digital video by 2020 to about $17 billion. Yet, 65 percent of people skip online video advertising. Consumers spend less than three seconds on video ads and click past them as soon as they can. While social media is certainly part of the marketing toolbox, entrepreneurs need to become creative in how they reach out to consumers.

Whereas the first Four Ps of the Marketing Mix focus on product, price, placement, and promotion, we would argue that consumers are already bombarded with a plethora of competing products. The Internet has been a goldmine for savvy consumers willing to search for the best deals among competing brands. In addition, Amazon has made online shopping virtually pain-free with 2-day shipping, forcing other online sellers to do the same.

Therefore, as an entrepreneur, you need to have a laser-like focus to identify who your customers are and then figure out where they are.

Below are two examples of creative approaches to customer engagement used by Airbnb and Etsy.

Airbnb Going Above and Beyond

In the early going, Airbnb struggled with attracting listers of their spaces in New York. Founders Brian Chesky and Joe Gebbia flew out to pinpoint the problem. As it turns out, users weren’t doing a great job of taking flattering pictures of their spaces. Given the low-quality photos and lack of uniformity, the founders decided to rent a $5,000 camera and went door to door taking professional photos of as many New York listings as they could find. By the end of the month, the number of New York bookings increased to three times. The same issues plaguing the New York market were happening in London, Miami, Paris, and Vancouver. Airbnb decided to launch a photography program whereby hosts could schedule a professional photographer to take pictures of their spaces. The photography program turned out to be a huge success, contributing to Airbnb’s rapid expansion into major cities.

Etsy Learning from Its Sellers

When Etsy (NASDAQ: ETSY) was building its marketplace, the founders sent a travel team across the U.S. and Canada to the various art and craft shows almost every weekend. Etsy plugged into the growing craft renaissance that became the wellspring for groups like ‘Stich n Bitch’. The team singled out high profile crafters, convincing them to sell on their platform. Today, Etsy has close to two million sellers on its platform and 40 million active buyers.

Tools of Engagement

If you’re a bootstrapping entrepreneur, then you may not have the budget to do what Airbnb or Etsy did. However, you can use newsletters, articles, and blogs as touchpoints with your audience. Email marketing is a relatively inexpensive way to begin engaging with your customers. You can create customized newsletters to go out to your audience using MailChimp (www.mailchimp.com). The platform is free until you reach a certain threshold of email contacts. Likewise, Constant Contact (www.constantcontact.com) offers a 60-day free trial and their subscription plan starts at $20 per month. Klaviyo (www.klaviyo.com) is yet another email marketing option, which is free for up to 250 contacts and 500 email sends. Product reviews is another tool of engagement, which we like a lot, and can be a powerful way of getting your customers engaged. Yotpo (www.yotpo.com), does a great job of integrating with Facebook, Shopify, and other e-commerce platforms.

Once you’ve gotten a customer to share her email address with you, it’s time to keep her engaged. That’s where a good CRM (customer relationship management) software comes in. The benefits of using a CRM include organizing your contacts, sales reporting, and customer segmentation. One of the top CRM platforms is Salesforce (www.salesforce.com), which is widely used by many large organizations. Salesforce offers a basic edition called Lightening Essentials for $25 per month per user. If that is still above your budget, there other CRM platforms such as Hubspot (www.hubspot.com), which is completely free and integrates with Salesforce, Shopify and Microsoft Dynamics.

Educate: Communicating Your Value Proposition

How your company engages with its customers is critical in how far along they’re willing to go down the rabbit hole with your brand. However, communicating the reason why a customer wants your product or your service over your competition requires that you educate them on what makes your company different. Trying to solve a problem requires that your company thoroughly understand your customer’s pain points and craft a message that resonates. Your marketing materials need to be concise and provide enough information about how you can solve their problems.

Tesla Redefining the Electric Car

Back in 2006, Tesla (NASDAQ: TSLA) figured that it was onto something when it wanted to introduce the Tesla Roadster, an electric-powered sports car. Up until that point, electric vehicles were hard on the eyes and were not associated with being high-performance, luxurious or sexy. The company had to educate consumers on the benefits of a high-performance electric car. Below is Tesla’s executive summary.

tesla business plan executive summary

Tesla Business Plan Executive Summary

There are a few things to note. Besides the clear bullet points, the company identified the pain points of driving an electric car at that time, which was the less than attractive look of electric-powered vehicles, particularly compared to high-performance sports cars like Porsche and Aston Martin. The company also mentions that the technology to build a sexy electric car existed now, not in the future, but now. Finally, in its call to action, Tesla tells consumers that they can drive a Tesla Roadster today.  After releasing the Tesla Roadster in the summer of 2006, Time Magazine named it as one of the best inventions of 2006, further educating consumers about the company and its electric sports car. In October 2007, Tesla Motors is named a recipient of the Global Green USA Product/Industrial Design Award.

Public Relations Anyone?

It’s nice to get a publication to pick up a story on your company as in the case of Tesla. Established companies know the value of good publicity and pay top dollar to PR firms for the chance of being featured in publications and media-friendly events. According to Josephine Zohny of Zohny Public Relations, even if hiring a PR firm for a full campaign isn’t in your company’s budget, it is certainly worth it to engage a freelancer who has personal relationships with the media. For example, find out what it would cost for the publicist to blast a release you’ve already written to their contacts in your field. This is a better use of your time than just blindly emailing and cold-calling, hoping someone will be receptive and time = money.

If you do decide to engage a PR firm, remember that the more engaged you are, the more value you will receive. If the publicist reaches out for a quote and gives you a deadline, respect those deadlines, otherwise you’ve wasted their time and your money. If you’re too busy to deal with the publicist one-on-one, designate another employee (or even intern) whose responsibility it is to make sure that any media or product requests are handled in a timely manner. Also, please keep your PR firm abreast of happenings within the company, new products, ideas, promotions, etc. You might not think it’s noteworthy, but the publicist’s job is to know what journalists are working on  – something you would overlook might very well be what piques the interest of the press.

However, if hiring an outside person is still too much, there are ways to get PR on the cheap. For starters, you can position yourself as an expert and one way to do that is to join HARO (www.helpareporter.com). The site offers you the opportunity to answer a journalist’s questions in your related field. The basic package, which is free, gets you media opportunities delivered to your inbox three times a day. You’ll need to check your inbox (5:35 a.m., 12:35 p.m. and 5:35 p.m. ET), Monday through Friday. A paid subscription allows you choose keywords to filter through media opportunities. Social media has proven a great way to educate your target audience and in particular, Twitter, which allows you to enter the chatter of hot topics relevant to your industry.

Empowerment: Delivering on Your Value Proposition

The third pillar of customer acquisition is empowerment. Coming up with the next big thing not only means engaging and educating your target customer, but empowering him thereby generating repeat business. By empowerment, we mean delivering on the promise of your brand’s value proposition. For example, if you’re a premium fashion brand, will your customer feel like a million bucks while wearing your pieces? If it’s a new tech gadget, does it save busy consumers precious time to focus on other things that they enjoy?  

The battle is won when customers keep coming back or refer people to your business, which validates your company’s value proposition. This is what every business strives for whether your revenue stream comes from subscriptions, a good or a service. Chewy, which was acquired by PetSmart, was able to compete with the likes of Amazon because it delivered on its value proposition of high touchpoint customer service to pet owners. 

Case Study: TiVo versus Netflix

In 1999, TiVo introduced its digital video recorder which promised to revolutionize how consumers watched live television. Using a TiVo device, consumers could pause live TV and record their favorite shows for future viewing. A big draw for viewers was the ability to scroll past commercials. The device could suggest similar shows based on a viewer’s preferences, create a wishlist on such criteria as a genre, favorite actor and time preferences. Early adopters swooped in, snapping up TiVo units.

“Let me TiVo it” became a popular phrase for those looking to record their favorite shows. Despite joining the English lexicon, TiVo failed to make inroads with TV audiences at large. A huge mistake was only using traditional television advertising rather than using more engaging ways for interacting with customers. There was no CRM, no in-store workshops, no training or on-site installation. Simply relying on traditional TV ads was actually defeating the point of TiVo, which was that it gave audiences the power to skip over commercials in the first place!

TiVo came up short when it came to educating the consumer as well. The company failed to educate consumers about why the TiVo experience was so much better. The company faced headwinds from technophobia and confusion over its marketing message. Consumers just weren’t convinced enough to invest in a pricey digital video recorder (at the time) with yet another remote control to figure out, which brings us to the third pillar of empowerment.

The average viewer was so accustomed to TV ads over decades of indoctrination that commercials became part of the viewing experience. What TiVo thought was a pain point turned out to be not much of a problem for many consumers after all. Rather than empowering consumers with the ability to control their TV programming, average viewers saw the units as disempowering, having to learn another system instead of plopping down in front of the TV and vegging out.    

At its peak, TiVo achieved a valuation of $6.5 billion in 2010, having gone public a little over a decade earlier at $16.00 per share. The company eventually was acquired by Rovi Corp for $1.1 billion in April 2016. Over that span, TiVo managed to only penetrate about 10 million households and its stock price prior to the acquisition barely rose above $10 per share.      

In 2010, Netflix (NASDAQ: NFLX) had twice as many subscribers despite having only launched a year earlier than TiVo in April 1998. Today, streaming is how many consumers view movies, but back then, Netflix made a huge gamble that consumers were willing to rent movies through the mail rather stopping by their local Blockbuster, which at the time was the king of the movie rental business. However, renting from Blockbuster was a task, requiring customers to drive to their local store and lest not forget the late fees for failing to return a DVD on time. At one point late fees comprised 16% of Blockbuster’s revenue. The convenience of having DVD movies mailed to you rather than trudging to a Blockbuster coupled with no late fees seemed like a no brainer. However, to use Netflix’s service, customers had to modify the way they rented movies, which was a challenge for the company early on.

So how did Netflix employ the first pillar of customer acquisition through engagement? In an effort to approach early adopters, Netflix went directly to the OEMs (Original Equipment Manufacturers) of DVD players in Asia and paid them to include its Red Ticket offer inside the package. This allowed Netflix to track sign-ups. While Red Ticket proved successful, Netflix still faced an uphill battle. However, armed with information about early adopters, Netflix could send targeted marketing pieces, thereby concentrating on the task of educating its target audience, namely anyone who owned a DVD player, which was still very expensive at the time.

In September 1999, Netflix adopted a subscription-based model and by the following year had about 300,000 subscribers. After going through some rough patches, the company began to benefit from the drop in the price of DVD players. In 2012, Netflix began streaming House of Cards, its first original content. The decision to create its own content came out of necessity. Movie studios and networks held leverage over Netflix, increasing their licensing fees to access their content, particularly for popular titles.

In creating its own content, Netflix changed consumers’ viewing habits in what is now referred to as binge watching. Netflix subscribers may watch entire seasons of original award-winning content such as House of Cards, Narcos and other popular titles in one sitting or choose how often they want to watch. In contrast, viewers of popular network shows have to wait until the next airing⎼ usually the following week. The success of Netflix’s shift to content generation is one reason that it is was able to increase its subscription fee, which it recently announced was going up by $1-$2 across its various subscription plans. The company continues to enjoy strong subscriber growth despite increasing the price of its subscription plans.*

Infographic: Netflix Continues to Grow Internationally | Statista

* As of year-end 2018, Netflix had 148 million subscribers worldwide. Infographic: Netflix Continues to Grow Internationally | Statista

It not hard to imagine how Netflix with its streaming service and eventually content-generating platform empowers consumers. Besides binge-watching, Netflix allows consumers to take their shows with them whether on their smartphones, tablets or desktops. In contrast, TiVo still relied on its DVR unit, which confined consumers to just their television sets. In addition, TiVo had to compete with cable carriers who produced their own DVR units that were already built into people’s cable boxes.

Thank you for reading this article and I hope you found it useful. I’ll be introducing more case studies on the Three Pillars of Customer Acquisition in the upcoming weeks. In the meantime, you can drop me a line at randolf@cognitre.com to share your thoughts. If you have an example of a company that won your business by employing one or all three pillars, I’d love to hear about it. 

©2020 Cognitre

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