How to execute a successful Product Strategy – Part 3
Part 3: Product Growth
Figure out your growth strategy or prepare for failure
Although this is the third part of FIVE’s product strategy series, the previous parts — product discovery and design and development — aren’t sustainable at market without growth strategy. And while growth strategy will have a high impact on any product, it’s not impossible to master.
Growth strategy is simply a collection of measurements throughout your product experience that enables you to grow your product’s user base while lowering your CAC (Customer Acquisition Cost) and improving your LTV (Lifetime Value). CAC < LTV transforms into CAC/a/b/c/d < LTV*e*f+g all while taking into account needed growth volume.
Product/market fit doesn’t guarantee success
Product/market fit describes how well your product would perform in a perfect world — a world where there aren’t any competitors, and your audience is dying to get their hands on your product. It reminds me of those physics simulations in middle school, where everything is perfect, and you disregard the true nature of things, like air drag or friction between materials.
Growth is an integral part of product. Product without growth is simply a solution that no one uses or knows about. Growth gives products traction.
For a product to stand a chance, you should include growth in every step of product creation — from the business model (where you need to consider CAC and LTV) to design and development. If you don’t, your business model is bullshit. Yes, you can go around and try to raise money for your product with a BS business model, but experienced players will call it out immediately when they see it. You need to estimate how much one user will cost, how long the user will remain engaged, and the amount of revenue you can expect from that user. And that’s just the basics.
Growth strategy is a must-have for any serious product. Read on and learn about our holistic take on growth strategy and the details you need to consider when making your own.
So, what happens when the wheels touch the ground?
Hope for the best. And measure everything:
This is the only way to make assumptions and make high-impact decisions. Your growth strategy will be an estimation at first, and when you launch your product, you’ll need to be able to make a gap analysis on where you’re failing the most and then try to answer why.
You should always establish KPIs. These help you see where your assumptions were off and you can see how to impact them. These funnels and KPI measurements will be your primary monitors for the health of your product. For example, if you notice there’s a 10% onboarding completion drop off after a product update, you’ll be able to assume why it’s happening.
For a health monitor to be useful, we need to trust and understand it. We need to be sure of the accuracy of the data it’s showing. This kind of monitoring should be implemented in the development phase. More importantly, we need to create a good taxonomy for it so the events we track are meaningful and easy to understand. Ease of use and a readable taxonomy are the most important attributes for this kind of health monitor. Imagine having a patient with a reading of 60, but you don’t know if it’s the patient’s heart rate or oxygen saturation level.
This monitoring system — complete with multiple data sources — enables us to impact users at various points in the funnel. And only with it will we know if we’re succeeding.
Can a product exist without users?
No. A product without users isn’t a product. It’s a showcase, a display of skill, but it’s not a product.
For your showcase to become a fully-fledged product, you’ll face one of the biggest, if not the biggest product challenges: (CAC). And I am sure many of you have already used CAC in your calculations, which is a good thing. But once again, some businesses don’t take CAC seriously, while others will make simple calculations and come up with a CAC that’s not even close to a real-world CAC.
CAC needs to take into account all of the following costs to be representative of your actual cost of acquiring new users:
- Cost of introducing your brand to the potential client
- Cost of getting your potential client to understand what your product offers
- Cost of getting that potential client to become a qualified lead
- In most cases getting the lead to try the product
- Cost of getting your lead to become a full fledged client (This is also the cost of people working on those efforts, like sales or customer solutions people.)
It may seem that the costs keep piling up and that it might be impossible to keep CAC below LTV. That’s where your growth strategy comes in. As you can see, most of the costs mentioned above are actually the costs of getting your potential clients past certain mental hurdles. And while impacting human behavior is hard, we can do some pretty cool things to get potential users where we want. One example would be to create a landing page about your product where users could enter competitions or offer whitepapers on topics in desired markets.
Let’s take that last example and see why it might be an efficient way to reduce CAC:
- Potential client searches for a certain topic on Google
- Your whitepaper is fifth on the first search page
- Potential client clicks the link and lands on your page
- Email is required to download a whitepaper, which potential client provides
- Whitepaper objectively reflects on your solution, the topic, and how can it help the client
With the above efforts, you will have achieved the first three targets in the CAC cost list: potential clients will be introduced to your brand; they will understand what your product offers; they’ll leave you with email or other desired information, thus becoming a qualified lead.
But let’s not overlook the costs associated with whitepaper efforts:
- Someone needs to write it
- Someone needs to design it, so it looks nice
- Someone needs to optimize SEO for Google to notice it
- And most importantly, you need time for the whitepaper to climb in search results (this might never happen)
There isn’t a silver bullet for growth strategy. Each growth strategy needs to be adapted for each product, audience, and existing market presence, etc.
However, there are ways to reduce CAC with additional efforts from your existing user base. Until now, we’ve looked at CAC as to how it relates to one customer. So, what if it costs you $15 to bring a new customer on board, but every second customer gets someone for free, via word of mouth?
In that case, the actual CAC isn’t $15; it’s $10.
You want your customers to be satisfied with your product, not just for the sake of the product and your existing customers. Now you can see why one of the most widely accepted and universal methods of measuring product/service success is a Net Promoter Score (NPS). NPS is strictly a quantification of this effect.
Here are other ways to CAC that should be incorporated into growth strategy:
- User-generated content – Sharing on social media
- Referral models – Invite a friend and get xx
- Evangelism – Creating super promoters
Overall CAC can be challenging at first. But you need to consider how acquired users can do some of the heavy lifting and help you by bringing more customers to your great product. More often than not, these kinds of initiatives can make or break your whole business plan.
Engaging & converting users
We now know how hard it is to get new customers on board.
We need to take care of them and keep them engaged not just in the final steps before conversion but after they convert, too. You want them to be a long-time customer.
The easiest way to approach engaging and converting users is to create a customer state map.
You can create a customer state map by thinking of all the potential users states:
Think of positive states:
- Finished onboarding
- Viewed content
- Explored categories
- Created playlist
- Entered free trial
And negative ones:
- Didn’t finish onboarding
- Hasn’t used the app in a while
- Cancelled free trial
- Stopped creating content
- Cancelled subscription
Create flows from smaller to larger positive states. After that, define the negative states where users may end up. When you create a customer state map, you’ll see the positive and negative transition points.
Doing this opens up opportunities for communication with customers through various channels. Because we want to encourage positive transitions and prevent negative ones, we can create and send appropriate messages at the right time and impact a particular segment of users. For example, when a user cancels a free trial, we send them an option for a more extended free trial.
It might make sense to send this offer only to those users who canceled a free trial but didn’t try any content. We call this “segmenting.” Personalized communication is another great method to bring about positive transitions.
Instead of sending generic “Please come back” messages to everyone who canceled a free trial, we can segment users to those who consumed fewer than two content items and try to extend the free trial while recommending content based on their browsing behavior. It can sound more like: “Hey John, extend your trial and don’t miss the award-winning sci-fi show: The Expanse.”
With these minor tweaks, you can expect about 5-10% of churned users to come back and re-enter the trial. Out of those who return, let’s say that 10% stay and become subscribers. These are needle-moving numbers that can impact the CAC vs. LTV scale.
Here’s how we approach the engagement services that we offer:
- Onboarding – We get to know client products, KPIs, and previous efforts.
- Audit – We do a deep data dive for product and previous growth activities.
- Overall strategy – Create an overarching strategy aiming at both low-hanging fruit for immediate impact and long-term activities.
- Engagement plan – Tactical plan for implementing strategy on a sprint basis.
- Campaign execution – Implementing, testing, and validating campaigns (this includes design and copywriting).
- Reporting – We present campaign and test results on both executive and detailed levels and are used as input for planning the next sprint.
This approach has been proven successful and allows us to keep the main KPIs in perspective, and we’re agile enough on sprints that we can always test something new and see if it moves the needle.
Implementing parts of our growth strategy will get you a long way. And sometimes, you’ll recognize elements that you can improve further by incorporating them into the product. Consider this: we see that users are reacting well to our third email in an onboarding series. We even notice longer retention and better conversion. Insights like these allow us to make some high-impact changes to the product.
For this third email in our onboarding series, say it uses the “Favorite” feature to engage users to create personalized content. This functionality would be a good idea to add to the product itself. From previous experience with client products, we usually discover several elements that should be implemented product-side with new clients.
Yet, there are parts of the product that influence the CAC vs. LTV scale in a big way like:
- Business models
- Conversion funnel(s)
- Product UX
For these items, even though we gather data and get hints at areas for improvement, testing results only matter with real-world data. The thing to do here is lots of A/B tests and then analyze your results.
Let’s take an example of changes to the business model. Say you had a campaign that offered 30% off to your inactive customers if they react to the campaign within 24 hours. Concurrently, you had a control group that didn’t receive any special offers. The results of the test? Users who were offered 30% off converted four 4x more than users from the control group.
Now those results are great. You can stop testing and send 30% off to all your users. But what about users who became inactive before you offered 30% off? Could you have gotten even more conversions? Should you have offered the discount even earlier?
It’s not a yes or no question. Getting your answers needs testing because it might improve the number of users who subscribe, but that number might not offset the revenue lost with the discount. We need to A/B test and compare the average revenue per user (ARPU), which should be higher even if the revenue per user is 30% less. And let’s say that after the test, data shows that only 15% more users subscribed, even with the new offer. It doesn’t make sense to offer 30% off to new users because you’ll ultimately lower your revenue.
Does that mean that you should scrap the idea? Or use it only within campaigns?
No, it means you don’t need to implement the discount globally. However, this kind of offer works for users who don’t make purchases through the main purchase flow. We can easily test this by having an in-app offer to those users and then compare it to a control group. This way, we’re confident that we’re capturing additional users who otherwise wouldn’t subscribe, and we still wouldn’t be losing revenue from users who pay the full price.
In the end, for changes like this, you still need to test in production, either in an A/B setup or by experimenting with the control group. And also, always remember that testing like this is never a waste because learnings from it can spark new ideas that might produce positive results.
Measure & multiply!
So, is there a silver bullet for product growth? At this point, you should know that it doesn’t exist.
Tackle product growth in various product stages with multiple tactics for optimal results. And the only way you can be successful is to measure every small change in acquisition, the product, the business model, and even the emails you send to your users.
Product growth is not a byproduct of one or two activities. It’s the sum of all activities that push the user through the funnel. And while activities and their impacts are usually measured in smaller percentages, when you test all of them and only keep the good ones, the results will reflect all of your strategies exponentially.