The current way in which companies acquire and retain customers is broken. Most turn to advertising on Google or Facebook. Even if these companies start out in a niche market, the value of those keywords will eventually diminish. Marketing team will have to make a decision: Either continue making Google / Facebook richer or to rethink their acquisition/retention strategy.
All these channels are decaying over time, and what’s saving us is the new marketing channels are constantly getting unveiled, too. These new channels offer high performance, because of a lack of competition, big opportunities for novel marketing techniques, and these days, the cutting edge is about optimizing your mobile notifications, not your banner placements.
There are a few drivers for the Law of Shitty Clickthroughs, and here’s a summary of the top ones:
Customers respond to novelty, which inevitably fades
First-to-market never lasts
More scale means less qualified customers
By Nature anything that doesn’t work will be weeded out of existence. And on that point, anything that does work will be replicated and spread so thin that it will eventually become ineffective and not work.
Newer companies are leveraging their own internal technologies to multiply the value of any investments put into traditional advertising. By utilizing their own company’s API, they can provide an offering to new or returning customers without having to invest money outside of the company.
The other day I opened my Lyft app to see if there were any cars around to take me to the airport. Lyft had not been previously available in my area but I had heard that they had finally expanded. About half an hour after I opened the app to see how many cars were around me I received this email with an offer of a discounted rate that only lasted for a limited amount of time.
What was happening here? Lyft spent some money in out-of-home advertising. By leveraging their user experience and smart programming they knew that I was interested in getting a ride from a newly launched location, and they made an offer to me that match my needs. This way they would be able to convert at a higher percentage than if they were to just have relied on traditional out-of-home advertising.
Even Peter Thiel supported this thesis in his book Zero to One. In it he wrote,
At PayPal, our initial user base was 24 people, all of whom worked at PayPal. Acquiring customers through banner advertising proved too expensive. However, by directly paying people to sign up and then paying them more to refer friends, we achieved extraordinary growth. This strategy cost us $20 per customer, but it also led to 7% daily growth, which meant that our user base nearly doubled every 10 days. After four or five months, we had hundreds of thousands of users and a viable opportunity to build a great company by servicing money transfers for small fees that ended up greatly exceeding our customer acquisition cost.
What’s so powerful here is the fact that the acquisition costs are coming in the form of company credits and not direct payouts to outside Networks.
Newer companies might not have that much cash and that’s the point to build systems in which they can utilize their own internal credits to do the same work as cash would do outside of its own network.
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