How Better Customer Experience Drives Down Customer Acquisition Costs

If you ask any CEO their thoughts on the proper amount of spend on marketing and sales, in an unguarded moment, they’d likely say as close to zero as possible. In their ideal world, products sell themselves, word of mouth is the only means you need, and customer acquisition costs are negligible.  No such world exists, but there are certain leverage points to focus on that can help optimize marketing and sales expenditures, resulting in lower customer acquisition costs. The key is creating customer advocates that will sing your praises in case studies and gladly make referrals – starting word of mouth buzz that results in new leads and sales. Research by Satmetrix, creator of the Net Promoter Score (NPS), shows that companies in the top 10% of Promoter percentages enjoy referral rates almost twice as high as those at the bottom.

Before you pull the trigger on an elaborate referral campaign, you need to find the cause of customer happiness (or discontent). To do this, you need to home in on two areas: product fit and customer experience. In other words, you need to understand how much do they love your product and love working with you? Knowing these two things at a detailed level will help create much better leverage in your marketing and sale efforts. The higher the advocacy level, the lower sale and marketing lift required.

Where it’s Worked

Whether it’s a local restaurant that’s always booked or a “unicorn” technology with millions of users, you can find examples of where word of mouth (or virality in the online world) has produced real results. 

Chances are you are not going to find the always-booked, super hip restaurant advertising in the local paper — the “in crowd” of foodies simply know where to go. In fact, not only do these restaurants not advertise, some don’t even bother to put signage on the building. But the foodie community has no problem finding them and spreading the word to their extended networks of colleagues, friends, and family.  Now, much to the delight of those businesses receiving the positive buzz, social media has changed the definition of “friend”, creating extended communities of connected people that can make or break a new restaurant with their social posts.

In the technology space, the holy grail is for marketers is virality, buzz about your product that spreads like wildfire (or like some killer pathogen). Basecamp, an online project management solution for business and individuals, began as in internal project to build tools they would use themselves and morphed into a product with millions of users.  From their website (emphasis added): 

"Today, 10-years after Basecamp first hit the market, nearly 15,000,000 people have worked on a project with Basecamp! And every week, thousands of companies sign up to use Basecamp. We’re so grateful that Basecamp has become a worldwide phenomenon almost entirely through word-of-mouth. Our customers evangelize Basecamp simply because they love Basecamp."

There are a couple of important lessons from the Basecamp story. The first is that they entered a space (project management software) that was well established and very crowded.  Microsoft Project had been available for years, and there were countless other enterprise tools for managing projects.  But what the folks at Basecamp did differently is they focused on a niche user base, technical and creative types, and built only the essential functionality to meet their needs. They didn’t try to take on MS Project and lard up the product with unnecessary features. They built just what their audience needed, and with the founders' background in web design, focused intently on user experience. Second, they focused on developing a community by publishing a popular blog that they used as a platform to communicate their thoughts on a new way of working. The blogs became widely popular and later turned into best-selling books. They had a very distinct point of view that influenced the way they ran their company that was authentic and credible, which helped create a halo effect around the product, spurring goodwill and lots of referrals.  Their philosophy was “if they like what we have to say, they’ll probably also like what we have to sell.”

More recently, companies like WhatsApp have taken virality to the extreme, generating hundreds of millions of users worldwide. At the time they were acquired by Facebook in 2014, they had a user base of over 450 million, less than 20 employees, and zero marketing budget. Whatsapp rode the mobile phone wave around the world, providing a chat option that undercut costly messaging services from wireless providers by using mobile broadband to send messages rather than traditional texts.  Like Basecamp, they offered just the essential functionality needed — “simple, secure, and fast” — and used the inherent viral nature of the product to rapidly grow a user base, offering the service free for the first year. Also, their commitment not to display ads inside the product helped burnish their credibility with the community, creating a loyal cadre of fans.

Keep it Simple and Easy

The above examples may represent outlier cases of virality in the tech world, but there are valuable lessons here for businesses in any industry and stage of growth. Two words come to mind when thinking about the customer experience they created: simple and easy. To attack established markets and deep-pocket incumbents, they created simple, easy to use products that met the needs of specific users.  Users could easily acquire, set up, and use the products in a matter of minutes with little or no training or support.  There was no complicated pricing or negotiations that get in the way of decision making; they created a frictionless path to user adoption.

Your product or service is likely more complicated than a single purpose app, but the principles still apply: you need to remove complexity and deliver a simple and easy customer experience. This starts with the first customer interaction with your website or a sales rep, through to delivery and support.

You need start with baseline metrics for your customer experience is NPS and Customer Effort Score (CES) across customer journey to pinpoint critical gaps. It’s important to look at product and service to determine whether bloated features or complicated pricing are problems in addition to uninspired customer service and slow issue resolution.

Maintain Your Balance

A good way to think about the relationship of product, customer experience, marketing, and sales is maintaining balance, with product and customer experience directly influencing or counterbalancing sales and marketing spend.  As the handy nearby illustration shows, the degree of product and customer experience “fit” will impact how much additional lift will be required (money, people, campaigns) to generate leads. 

product_markeing_fulcrum.png

Stronger product and customer experience fit creates more loyal customers that become willing advocates that create low-cost referrals. The word fit is important to note, as it’s not about just creating more features, it’s finding the right match of features and overall experience for a distinct audience. In fact, finding the right fit may involve cutting out or simplifying. Less may be more in this case. But it’s impossible to know until you turn your attention to your customers, understand what makes them tick, and design products and experiences that will make them sing your praises.  

Photo by The Creative Exchange on Unsplash