Dollars & Sense

Acquisition

In Andrew Chen’s book The Cold Start Problem, he breaks the network effect into three parts: engagement, acquisition, and economize. At Shop Local, we rely on the network effect and its three parts. I feel that we’re succeeding in terms of engagement but need improvement in acquisition. 

Engagement
We use the 64,000 products in our Syncing service to engage 1,200 our retail clients. We email them new intros, price updates, archived items for these synced products. Once they sign up, we give a retailer an online catalog & store populated with these products. (We’re proud to share that this service saves our members $3.5m in website upkeep.) Do we keep them engaged? Our retention rate for retailers is 99.3% each month.  

Acquisition
The acquisition step entails acquiring new users for our network.  In a network-based company, we want members (clients) growing our network without our manual intervention. We want clients acquiring our customers for us. This is much more efficient than traditional sales efforts: a prospect is much more likely to join our network if Versace, our partner, invites it to join Shop Local vs. us sending a solicitation email.  

We currently use a few techniques to track and acquire new customers:

• Our software encourages our retailers to invite their brands. If a retailer sells 100 brands, the retailer may invite 10 brands.
  For brands, we send them a monthly report showing all the stores that say they sell the brand but aren’t synced.
• We track how many retailers are synced with applicable syncing brands; it’s about 68%. Aka: 32% of potential syncs are not happening. Our job: increase this rate. 
• This year 1,109 sync requests have been sent between a retailer (or rep or other entity) and a brand. This is between existing members in ‘the building.’  
• We ask brands to send mass emails to retail clients and offer to pay brands to do this. When brands do this, they increase our network-based acquisition. Chen may be proud: of our 111 brand partners, two businesses (Skyros Designs and Casafina Living) have embraced emailing their retailers inviting them to sync over our platform. 
• Retailers invited 11 brands last month to join them on the platform.

My job is to get new members in the door. If we were WeWork, that would be our literal goal.  But how?

Shopping for Shoppers
How can our platform help us acquire new members to grow our network? To answer this question, I propose that we look at the largest user base in our ‘ecosystem’: the shopper. The shopper is a general public customer that either buys a gift for themselves or a registrant. Last year, our software helped tens of thousands of customers make an online purchase. Idea: What if we could engage these customers? They could use our Online Store software for their retail businesses. If we get 10% of these customers to sign up for Shop Local’s Online Store service, that’s thousands of new members. 

Don't Just Use Our Software to Give a Gift - Use It to Sell Gifts, Too
One may suggest I back up and ask, "Are general public shopper (who are often gift givers) a good candidate for us to solicit?" I’d guess that 10% of these prospects work for a retail-oriented company, so I think the answer is “yes.” The customers that are most suited to signing up for our software are the ones that own a retail business and have used it. Even more so if they gave our software a great review. Imagine if we could know which customer left a good review and also works at a retail shop? 

Industry Standards
What do other businesses do? Do they promote themselves to their customers' customers or users? What industry precedents are there?

WeAcquire
A few years ago, I visited my friend Chris at his WeWork office in Denver. To get into the building, I had to give my name, get my picture taken, and, oddly, give my email. The next day, I started receiving solicitations to join WeWork. WeWork marketed itself to its tenants' clients. My friend's friends were WeWork's prospects. WeWork used this strategy to acquire new customers effectively. 

More recently, a client, which used our Syncing service, paid us via Bill.com. On the Bill.com payment receipt, I noticed that Bill.com promoted signing up for its service. Bill.com is trying to make me, its customer’s customer, its customer. That’s smart. I already know a business friend (the client paying me) who uses the service—thereby indirectly referring it. If it’s good enough for the client to use, it’s probably good enough for me. 

Bill.com is often used to send an invoice between two businesses. One could say this cross promotion makes more sense than what I’m proposing for Shop Local contacting general public shoppers. That may be the case, but if Bill.com was used by a retailer to pay a general public shopper, would it still show that coupon? I bet it would. It, like us, has to compete and operate efficiently. 

Lowers Costs = Lower Prices
If we can save money on customer acquisition, this helps keep our prices lower. If we have to pay more to acquire costs, that cost gets passed on to our clients. Our efficient growth is in their interest.

If a retailer was given a choice between their customers receiving an email solicitation from us and the retailer paying more for our service, which would they prefer? People often prefer participating in free marketing programs vs. paying. Just see Facebook: people allow Facebook to market to them and sell their data in exchange for the free use of Facebook. Netflix launched an ad-supported version of its service that is cheaper, and Amazon just announced it is doing the same for its Prime video service. People are willing to part with data to save money. I think that our clients may feel the same. If not, a retailer can opt out of allowing us to market our services to shoppers. 

Homework: 
Please look for B2B services that market to their clients’ customers. 
Please look at businesses that market to you. How did they find you? Maybe from a business that you use?

P.S. ~ There is a third part to Chen’s network effect: economize. We need to economize the network—aka make money off it.  We chatted about this topic in the ‘We’ve Got Sole’ news post. We discussed moving customers up the consumption ladder to help generate more revenue. 

Tags:
network effect customer acquisition andrew chen cold start problem

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