Advanced CLG Tactics from our CEO
Matt Roche is CEO at Extole.
Matt has been instrumental in advancing Customer-Led Growth (CLG) as a powerful strategy for business growth. At the summit, he will explore the impact of CLG, explaining how healthy customer bases drive reliable acquisition channels. He will discuss combating churn with CLG, the importance of customer quality, and whether businesses need a dedicated platform.
See the key chapters from Matt's talk and dive in where you'd like.
Performance marketing with brand impact
What Does "Customer-Led Growth" Really Mean?
Transcript
Customer-led growth is putting your customers at the center of all of your marketing activity. So for 25 years of e-commerce, we have been working incredibly hard at figuring out ways of using search and social to bring in new customers, and we’re extremely good at targeting, finding audiences, using AI to bring people in from the outside world, and we virtually ignored the power of our existing customer base in recent years, especially post covid, what we’re seeing is a serious erosion in customer quality.
So we’re just not seeing what we might call loyalty but really it is just, are the customers really attached to us, or are they kind of one and done? And so when a company says, I really want to figure out how to get higher retention, or I want to have higher LTV long term value, customer lifetime value, what they’re really saying is, I want better customers. I want customers that are going to stay.
Now, the way we look at it is, if you want good customers, you have to start with the source. So how a customer enters defines how they leave. Think about it this way, if you build and build your house in a swamp, do you expect to have no mosquitoes? What you want is you want to actually build your business around things that are quality, because then you wake up every morning with a customer base that is quality and what that is to us is customer led growth.
The principle of customer le- growth is as much as possible, you want your customers to come in via a reference or relationship with another customer. The highest percentage of your customer base, the higher the percentage of your customer base that comes from a referral, the higher quality and the higher customer lifetime value you can have.
And this has been demonstrated over and over again. In fact, Bain researchers, the ones behind NPS, created something called NPS 3.0 where they proved that enterprise value was three to five times higher when customers had above normal percentage of their customers that came in from other customers.
So while this sounds like referral and it does start with referral, it actually is a broad approach towards building the high quality customer base by bringing in customers from your customer base and then engaging them over time, by asking them for more than just buy more or stay longer but ask them then to participate in your brand, to build a larger community that is better.
How Refer-a-Friend Evolved into CLG
Transcript
So customer-led growth is an evolution of what has been called refer-a-friend, and refer-a-friend has been around for ages, tracking most of the brands that we grew up with in our childhood. Most likely we came to because our parents, our friends, our brothers and sisters used it, told us about it.
CLG evolved from a conversation we had with a customer about six years ago and this customer had a nicely performing program that was bringing in a meaningful number of customers. So it was worth continuing but it wasn’t anything that was lighting it on fire. What they did, without us knowing actually, is they did a regression on the customer quality. So what they did is they said, let’s look at the customers being brought in through refer-a-friend and let’s look at the customers that are being brought in by search and other forms, and let’s see what their longevity is. And they did a very, very serious data exercise and they found out that it was almost double the value. So when a customer came in through referral, it was almost twice as valuable in terms of longevity, spend and profitability.
So they came back to us and said, Okay, we want as much as we can. We want as many of these types of customers as you can. And we said, wow. Okay, well, we’ve asked people to refer and we’ve asked them to refer again. I think we need to think about this differently. So instead of saying, how do we run more referral, we started asking, how do we engage more of their customer base? And once we started asking that question, it introduced things like, are there other ways that we could engage the customer base that would also have long term value? So we started seeing things like nomination programs, like programs to get people to download an app, programs to get people to use a second product. All of these are ways of saying, “Once a customer is brought in, are there other ways beyond referral, where we can engage them that create long term value?”
So referral is the original long ter-term value creator, we can actually then use this base of people to grow and grow over time by targeting them specifically at different points in their customer lifecycle, where they are at a particular value and can get to a second type.
Another example I’d give of this would be work we did with one of the fresh meal vendors now, which is an extremely competitive marketplace, and one of the things that when our customers found out was that if someone had purchased seven meals, they stayed twice as long. So the distinction between a one to six-meal customer and a seven-meal customer was not just double the profit but substantially higher than double the profitability. So what would your goal be if you were that marketer? Well, I want as many seven mealers as I can. So the marketing goal wasn’t to bring in more customers. The marketing goal was to take the sixers and turn them into seveners. Right? That is a CLG activity because we’re going to say there’s an audience of people, the people who’ve done fewer than seven feels, and we are trying to turn them into the audience of seven mealers. How do we do that? If we built them a program, we assigned incentives to it and we were able to grow the number of these longer term, more dedicated customers.
What CLG is about saying, look at all the points along your customer lifecycle, starting with the customer as a prospect but all the way towards the most rich, most robust customer relationships and ask, How do I take people who reach this level and turn them into the next level?
How Can CLG Combat Churn?
Transcript
Sometimes we talk about retention, but for a lot of companies, they think about it, I just don’t want churn. Why do my customers leave me? Right? We spend a lot of money to bring them in. We think we have a great product. We get great reviews and yet customers leave. Is there anything I can do about it?
What we have found out is there are two things that you really want to think about. The first I’ve mentioned before, how someone enters is how they will leave. If you bring them in through advocacy, referral and that social connection, they will churn less. So when you think about it, how do I take a customer who’s already here and make them not churn? You’re already a little late to the game. You want to start earlier. Okay?
The second part is, how do I keep a customer around? Customer led growth breaks down the customer relationship into three parts. There’s kind of a transactional relationship, there is an engagement relationship, and there’s an advocacy relationship. If you’ve done loyalty or participated in a loyalty program at all, you understand what transactional work is. Buy another plane ticket, get more points. Buy a lot of plane tickets, get another level that is transactional loyalty, that is very positive in some cases but runs the risk of turning your customers into a kind of walking wallets. Is what I would call it like. You can only see them in their only dimension is how thick their wallet is and how often they’re willing to purchase. And that’s not really what people are like.
So we like these other dimensions as ways of creating deeper, richer relationships that last longer and showing less the engagement journey a customer is on is what are things that someone might do that helps you build your brand and there’s plenty of activities that create higher value, some as I’ve mentioned before, like downloading an app. When someone goes from not having an app to having an app, they are inevitably closer to you and you will see that in your LTV for that customer cohort but there are other things. Have they done a rating? Have they done a review? Have they visited a branch? Have they gone in the store? There are many activities that are engagement oriented, activities that if we can get a customer to do it, they will result in a higher long term value.
So our goal is to not just say, How do I get you to spend more? I also want to get you to do more. The king of engagement activities is this advocacy journey and this is what percentage of my customer base can I get to rep my brand? And the advocacy journey is just as sophisticated as the loyalty journey. The first thing we need to do is to get customers to advocate, to get them to refer their friend. And again, even if they’re not successful, the simple act of talking about it will make them more engaged with your brand. And we’ve seen this over and over again, someone who advocates, whether it’s successful or not, is someone who will stay longer. So what we want to do is maximize the percentage of my customer base that participates.
We call it a journey, because it’s not just that they advocate. They can advocate. They can become a successful advocate, meaning that the someone actually joined or purchased as a result of their referral, they can become a super advocate, which means that there are multiple cases where they advocate, multiple cases where they bring people in and then they can actually enter into a space we call ambassadors.
An ambassador is somebody who has either has some sort of natural relationship, like if you’re selling at leisure, a yoga instructor, you know, if you are selling loans, someone who runs a real estate brokerage, they will have a natural relationship with your customer base but we want to engage them at that level as an ambassador. And an ambassador is simply defined as an influencer who is also your customer. So they understand the brand, they understand the brand proposition and they have the ability to reach people and motivate them.
An influencer would be the last stage where you say this person actually has a business relationship with me, right? They may or may not be customers. It’s the gray zone of CLG but it is an important kind of milestone on that journey and what we want to do is treat it the same way we would treat a loyalty program.
We want to move people from the bronze, to the silver, to the gold at the same level. We want to move them from the advocate, successful advocate, super advocate, Ambassador and up, because the amount of value that each individual can generate is higher at the higher levels but we don’t want to forget that. We want to get as many of our customers involved in this journey as we can. With my clients.
What I would say is, of the customers that join, how can we get the highest percentage of them to become at least advocates, if not successful advocates? The first thing we want to do is say, ask everyone, ask them as soon as they join or purchase, ask whether there should be a different type of reward for the people who are new to file customers, because the goal is they’re in the door and we want to get them into this safe zone where they’re going to have higher long term value. Well, if that correlates to referring then let’s get all of our new. Customers become advocates, maybe 5% of them. Can we get it to be 25 can we get to 50? There are cases where 80% of customers have become advocates in online retailers. This is how you create a high quality long term customer base.
The True Power of a Healthy Customer Base
Transcript
In the post covid era, it should not be an open question whether a healthy customer base is more valuable. Every company is experiencing churn. Every company is asking, how do I get my customers to be more loyal? Part of this is simply a function of the way that we have been acquiring customers has been so sort of distant and kind of anonymous, is they see an ad somewhere, they see an ad on Facebook, they see an ad on Google and they click through now maybe they’ve purchased that’s great but that’s not going to naturally make them healthy. And we see it. We see it in lower retention numbers. There are some industries that have catastrophic retention numbers, somewhere they’re concerned but there is no client that I’ve met that doesn’t have an opportunity to improve the health of their customer base. And all this means is you don’t have to pay to reacquire that customer. And when you see CPAs in the banking world that are going to $300 to $3,000 we have CPAs inside the retail world that can be 40% of the first purchase. And there are cases where I’ve seen where the CPA is 100% of the first purchase. If you don’t get your customer base healthy, you cannot be healthy.
CLG = Performance Marketing with Brand Impact
Transcript
CLG is performance marketing with brand impact. Performance marketing, from my perspective, is where I can say, listen, if I put a certain amount of money to work, I can expect a certain amount of results. If I can analyze the funnel and through forms of testing and optimization, I can improve the outcome. CLG is absolutely funnel based. It is absolutely performance marketing, because I can look at how I spend and see the correlation to outcome. Now, what’s interesting about customer led growth is in many cases, you actually have a double funnel. So anyone involved in performance marketing, online marketing will understand a funnel. I send an email, a certain number of people click, they see a landing page, a certain number of people will either purchase, create an account or otherwise. That’s our standard funnel. And I’ll do AB testing, and I’ll do media and spend testing to optimize the outcome of that funnel. What you see in the referral part of CLG is that there are two funnels. One funnel is to get people to advocate. So there you are, the top of the funnel is your customer base. How do I reach tonight? Through the mobile app, through the web app, through the call center, agents for a cruise line in the bank and branch, right? So that’s my audience, a reachable audience. I reach them by doing direct. I reach them by being available on inbound with links on my site and mobile. How many of them can I get to refer? So is there an incentive? Is there an experience, the ratio between my customer base and the number of advocates? That’s my first funnel. Once they were referred, I got my second funnel. Or my second file is my friend funnel that says that if I’ve received or seen a referral, what is my likelihood to purchase, sign up, create an account, etc. And that’s just straight up. It’s exactly what you’re used to. If you’ve done email, if you’ve done CPA, you understand that second funnel and so you will be comfortable doing it. It’s the same kind of metrics. The reason I say this is that this is a way of doing branding through performance marketing, is even when an advocate is not successful at bringing in a new customer, they have still sent your message from a person with authority and authenticity out into the world. So if I post something on my feed, if I send an email to my friends, I am representing your brand and associating myself in an authentic way with it. So even if there isn’t a net result, I have, in my own small way, amplified your brand. You get 100,000 people doing that, that is just as effective as running a branding campaign. The benefit of CLG relative performance marketing is all the money that you are spending in Sunnyvale and Mountain View is disappearing in Sunnyvale and Mountain View, the money you are spending on referral is going to your customers. So the question you want to ask is, who do you want to reward?
The Role of Customer Quality
Transcript
One of the most critical factors in really healthy, really strong customer led growth is customer quality. And so one of the things that initially our clients will focus like, are we bringing in enough customers? Are we bringing in enough revenue? And once we’ve achieved the threshold, that is like, Okay, I feel comfortable with this program, the next step we always want to be looking at is what is the quality of the customer. Now you as a client are going to have to define quality in the way that makes sense to you. For a retailer, it would be a basket size, it would be recency, frequency, monetary value. For a bank, it might be how many products they use. It might be that they’re hooking up a direct deposit account to a check in your savings account. So understanding that quality and then comparing that quality between the CLG type channels to other channels, that is really the key move. Once you’ve established who we bring in a higher quality customer, then you have the ammo to do the level of marketing and promotion of these programs required to go from a small, single digit contribution of revenue into being a very significant contributor of the revenue in the customer base.
Do You Need a Platform for CLG?
Transcript
One of the questions that gets raised is, what’s the value of using a platform for doing customer led growth? I would say certainly one of the main values is the ability to optimize the ability to say, oh, what’s the right reward, what’s the right messaging and the ability to make changes and see the results relatively quickly is extremely difficult, because you’re talking about things like program rules. You’re talking about actually giving out money, in many cases, if not coupons. And so that is very tricky to assemble on your own. So we find most often with people who kind of roll their own programs, if the programs don’t change much and programs that don’t change are not optimized. The second reason why you want to do it is the real key in these is to make certain that the rewards are going to people that deserve so one of the I say, in a tongue in cheek way, one of our main goals, is to not pay people who’ve done things and that’s a key part of the platform, is to make certain that people who are trying to game the system don’t have access to the rewards that should be given to people who are acquire quality engaged numbers of your client based community.
The fact is, people buy from people. And current customers encouraging new customers is the most reliable acquisition channel in history. CLG is about powering that channel in every way possible.
Matt Roche
