The biggest mistake that business leaders make in trying to drive growth is focusing on just customer acquisition through marketing. This is a problem because their customer retention and engagement are usually suboptimal, which means that the resources that they leverage to increase acquisition are squandered when those hard-won customers abandon the product right away. This is called the “leaky bucket problem,” which perfectly captures the futility of this approach. For this reason, the third building block will be learning how we can drive growth by optimizing each stage of the customer lifecycle– the third pillar of growth science.
Exclusively focusing on optimizing acquisition through marketing is unfortunate because it has led businesses to miss out on the full potential of growth optimization. The main thing to understand is that the effects of growth optimization are multiplicative and improvements compound. This means that you can often accomplish greater total growth by making many little improvements rather than just one big one. In particular, it’s better to optimize the entire customer lifecycle including acquisition, engagement, and retention. Let’s explore how this works.
Let’s imagine that you are a very good marketer and are able to improve your customer acquisition by thirty percent by experimenting with various marketing messages and different channels such as online advertising and inbound marketing. That’s great progress, but you can do better.
You realize that many of your hard-won customers are abandoning your product right away, so you talk with the customer support folks and realize that many new customers have trouble with the initial setup. You work to improve the customer support for new customers and you are able to increase how many customers your business retains, which translates to another thirty percent growth. Since those two optimizations are compounding, you will increase your overall customer growth by a total of eighty-two percent. You don’t have to stop there. You can try optimizing customer engagement with better product design, retention with more targeted marketing, and so on.
If you look at the diagram below, you can think of the full universe of possibilities as having nine dimensions:
- Improving customer acquisition through better:
- product design and implementation such as sharing features, and
- operations such as sales support.
- Improving customer engagement through:
- marketing such as more accurate targeting,
- product design and implementation, and
- operations such as training.
- Improving customer retention through better:
- marketing such as promotions,
- product design and implementation such as fewer usability problems, and
- operations such as pro-active customer support.
If you had made even modest gains along all nine dimensions, those gains would accrue to tremendous total growth. For example, even if you improved growth by ten percent in each of the nine areas, that would result in 136% total growth, which is a lot higher than improving just acquisition by thirty percent.
Growth science is iterative, data-driven experimentation to optimize the entire customer lifecycle through marketing, product design, and operations.
Fortunately, some companies are starting to realize that growth optimization spans far beyond just marketing and product design as well as beyond just acquisition or retention. Those companies are systematically applying iterative experimentation to marketing, product development, and operations to improve customer acquisition, engagement and retention. All three of these pillars together is what makes up modern growth science.
Be sure to check back tomorrow for the next section: 1.4 What Kinds of Growth Can You Engineer? New sections of Growthzilla are published every weekday.